DeFi enters the traditional financial hinterland: bank loans will soon become MakerDAO collateral

Real-world bank loans will soon be able to be collateral for MakerDAO.

On March 26, 2022, Huntingdon Valley Bank (HVB) launched MIP6 at the MakerDAO Governance Forum, applying for a Huntingdon Valley Bank syndicated loan as MakerDAO collateral.

If MIP6 is approved by MakerDAO governance and HVB loans are accepted as MakerDAO collateral, it will be the first time a U.S. bank has integrated collateral into the DeFi ecosystem.

This also means that DeFi has begun to enter the hinterland of the traditional financial world. 


Headquartered in suburban Philadelphia, HVB is a U.S. chartered commercial bank owned by Nasdaq-listed HV Bancorp. Securities Regulatory Commission.

In MIP6, HVB proposes to use a legal structure in which HVBank enters into a master agreement with a Delaware statutory trust (“MakerDAO Bank Participating Trust” or “Multi-Bank Participating Trust” or “MBPTrust”) established for the benefit of MakerDAO Purchase agreement to purchase multiple portfolios.

The trust agreement will establish a “multi-bank participating trust” for the benefit of MakerDAO as a separate entity away from bankruptcy, with a regulated Delaware corporate trustee verifying that all major actions of the trust are conducted in accordance with MKR votes.

The proposed first Portfolio Purchase Agreement applies to equal equity participation loans originated by HVB or from other financial institutions or syndicates. HVB requires a credit rating of 6 or above (low is preferred) for each participating loan.

HVB will retain ownership of at least 50% of the principal of the HVB participating loan. But over time, HVB will request MakerDAO to reduce the ownership percentage of participating loans, but retain at least 5% at all times.

While the transaction is structured to be able to support multiple banks, it is currently only for HVB.

Summary of first deal terms

Counterparty:  (RWA-XX) Huntingdon Valley Bank, a Pennsylvania chartered bank founded in 1871 and controlled by Nasdaq HV Bancorp. Inc. (ticker: HVBC).

Real World Assets:  Loans originated by Huntingdon Valley Bank, HVBank with a credit assessment rating of “6” or better (lower is better), 50% held by HVBank, 50% held by MBPTrust, a trust originated for the benefit of MakerDAO)

Lender legal entity established for the benefit of MakerDAO: Delaware statutory trust established for the benefit of MakerDAO (“MakerDAO Bank Participating Trust” or “Multi-Bank Participating Trust” or “MBPTrust”)

Initial debt ceiling:  $100 million

12-month target:  $1 billion

Yield benchmarks:  30-day average SOFR (currently 0.083%) and “similar maturity” US Treasuries (e.g. 5-year US Treasuries currently at 2.310%)

Minimum yield (base spread) for MBPTrust at origination and participation (net of all S, G and R fees):

→ For floating rate loans: 75 bps average SOFR over 30 days (meaning the lowest floating rate, current yield is 0.833%);

→ Fixed-rate loans: 30 basis points higher than similar maturity bonds (currently 2.610% for 5-year fixed-rate loans)

MBPTrust’s expected net rate of return at origination and participation is conservative (after all S, G and R fees) : 3.00%

Retroactively adjust the vault stability fee to match the net proceeds from the MBPTrust vault (“true stability fee”): monthly

[Alternative] Stability fee will be set to 0%, cost of capital will be listed in purchase agreement, net interest will be sent to surplus buffer: quarterly

transaction framework

HVB will sell part of the loan to the trust and receive DAI in return. HVB can then convert DAI to USD and make more loans. The move will allow banks to earn more interest on higher loan volumes. 

The following is an illustration of the framework of this transaction:



Additionally, Gregory Di Prisco, the former head of business development at the Maker Foundation and MIP6 promoter who founded a company called RWA to help bridge the gap between institutional borrowers and DeFi, said that small banks typically put some of their loans on Sell ​​to competitors to meet regulatory or diversification requirements, and by selling loans to trusts, they don’t have to do business with competitors like they do in traditional finance. Maker will never compete with banks because it is software.

MIP6 still has a long way to go. Before going live, it needs to conduct a greenlight poll on MakerDAO and then conduct an executive vote before HVB can actually start selling its loans to trusts.

The RWA firm is currently in talks with other banks to provide loan collateral to Maker following a similar framework.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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