In other words: The Maker DAO becomes the central bank of a real bank.
Anyone who ignores this message has only themselves to blame: Société Générale FORGE, the department for digital assets of the major French bank, would like to borrow 30 million DAI from Maker DAO and deposit the OHF tokens it has issued as collateral. To this end, she has submitted a proposal that the Maker DAO is currently voting on.
This process may sound a bit bureaucratic. But it is undoubtedly historic: it is a milestone in the merging of classic financial institutions with blockchains. Both the Maker DAO and the Société Générale are embarking on something new.
Perhaps a comparison will help understand the meaning: when the Volksbank starts installing Bitcoin ATMs or selling Bitcoins , it’s like someone carefully dipping their toe into a paddling pool. The Société Générale, on the other hand, goes out to sea and jumps in.
Since so much is new and sometimes reaches the esoteric heights of classic and decentralized finance, we will explain step by step what is going on here.
Société Générale’s blockchain experiments
Let’s start with Société Générale. This is one of the largest commercial banks in France and Europe. It has almost 150,000 employees and total assets of more than one trillion euros. The global Financial Stability Board classifies it as a systematically important financial institution for the global economy that requires special monitoring. It is one of those banks that are so big that they cannot fail.
With SG FORGE , Société Générale has founded a startup that is intended to experiment at the interface of classic banking and blockchains. His first project was the issuance of the OHF (‘obligations de financement de l’habitat’) tokens in 2019. These security tokens represent covered bonds under French law: bonds secured by the issuing bank , worth $100 million as an ERC token on the Ethereum blockchain.
The OHF tokens don’t have overly exciting features: they reflect euros, bear no interest and may only be traded over-the-counter (“OTC” trading, “Over The Counter”). In other words, they’re stablecoins that look particularly solid, with a AAA rating from multiple agencies, but are somewhat limited in their features.
What is exciting, however, is a small but crucial difference to comparable projects by German banks. For example, the von der Haydt bank, together with BitBond, has also issued euro-based tokens on a blockchain . However, on the Stellar blockchain, which may be technically practical, but is economically lifeless in fact. The OHF tokens, on the other hand, run according to a standard on Ethereum, a not always practical but economically highly vital blockchain.
There are tokens and there are tokens
And this is where it gets exciting: As long as a security token is just a token that you can save and transfer, not much will happen. Paper becomes token, database becomes blockchain. Wire transfers may be faster and possibly cheaper, but that’s it. There are numerous projects by German companies, in addition to the tokens of the von der Haydt bank, for example those of Exporo, a portal for real estate investments . All of them are characterized by being neither exciting nor groundbreaking in practice.
Because these projects use tokens in such a way that they fit into existing structures relatively seamlessly, but are in fact half dead. They are not embracing blockchains, they want them to adapt to them.
However, if the token runs as an ERC standard on the Ethereum blockchain like the OHF tokens, it starts to live. There is also the aspect that makes it interesting: the token becomes programmable and interoperable. It can be lured in, collateralized, and tied into a web of decentralized and centralized financial actors in the craziest and most diverse ways. The idea behind tokenization is unfolding.
That FORGE dares to take advantage of this opportunity is fantastic, and I’m not aware of any other major bank going anywhere near the same distance. In September 2021, FORGE appeared in the Maker DAO forum to apply for a refinancing of a security token.
The Maker DAO
The Maker DAO is one of the first actually functioning Decentralized Autonomous Organizations (DAO). It issues the DAI stablecoin, which is tied to the dollar and has maintained parity with it since it was founded in 2019, even in difficult market situations.
The creation of new DAI dollars works much like the banks create fiat money : the Maker DAO issues them as loans. Unlike fiat money, however, the DAI dollars are not partially, but over-collateralized – the recipient of the loan deposits other tokens, such as Ethereum or tokenized bitcoins, as collateral. A complex mechanism of reserves and auctions ensures that in the event of a price fall, the collateral is liquidated in time to maintain dollar token coverage.
Over time, the Maker DAO has changed noticeably. It more or less became a model DAO, and its development shows the potential, but also the challenges, of taking a DAO forward. In this way, she significantly expanded the spectrum of possible collaterals . Above all, however, she gradually dissolved the Maker Foundation, which was initially very active, into the DAO. So-called “core units” take on various tasks in the DAO , which are also linked to the real world, and coordinate themselves through on-chain mechanisms. The real world and the blockchain are merging.
When a bank borrows money from a DAO
So, on September 21st, FORGE presented itself in the forum of the DAO, where such decisions are discussed. FORGE plans the following financial operation:
The startup wants to deposit the OHF tokens as collateral in the Maker DAO vault in order to receive a loan of 30 million DAI dollars. It would like to exchange these DAI dollars for US dollars and lend them to its parent company, Société Générale, in order to create additional OHF tokens worth 40 million euros. In other words, it wants to create more units of stablecoin-style tokens, and the Maker DAO is supposed to play a role in backing them.
This token refinancing is explicitly presented as an experiment to connect traditional capital markets with DeFi. The necessary legal structures are to be explored and set up in order to better integrate security tokens into the French legal system. Basically – and this is the sensation – the Maker DAO performs a function that the central bank actually performs: it creates money by making a loan to a bank.
The second sensation is that the OHF tokens are to be accepted as collateral by the Maker DAO. This is the first time that a bond from a traditional major bank has entered the treasury of a DeFi. The Maker DAO thus becomes a bit like a large fund that collects assets of all kinds in order to stabilize a currency on their basis. This is the point currently being voted on by the Maker DAO . Voting will end tomorrow; so far the approval has been overwhelming.
The details show how complex the operation of the Maker DAO has become and how multi-layered the blockchain and the real world merge in it. For example, the DIIS Group is involved, a Parisian financial service provider, which represents the Maker DAO in this case. Because unlike, for example, a classic blockchain token, the OHF token cannot be automatically liquidated, but is dependent on real interactions.
But these are details. The big picture shows decentralized organizations on the blockchain slowly digging their way into the heart of world finance, transforming both it and themselves along the way.
