On March 16, the protocol engineer at Makerdao and co-founder of the software and design firm Bellwood Studios, Hexonaut, announced a proposal to use real world assets (RWAs) in order to scale the decentralized finance (defi) protocol Makerdao. Hexonaut insists the bull market was good, but “the time is passing” and he believes Makerdao needs “to take the next step and begin integrating with the real world at scale.”
Makerdao Community Proposal Discusses Incorporating Real-World Assets into the CDP Equation
A software engineer on the Makerdao team has an idea that he says will reinvigorate the decentralized finance (defi) protocol. Essentially, Makerdao is a Collateralized Debt Position (CDP) or protocol that manages the issuance of the DAI stablecoin. In various blockchains, data from defillama.com statistics shows that there are around 31 different CDPs and Makerdao is the largest in terms of total value locked (TVL). Today, Makerdao has $16.15 billion TVL, which has increased by 6.99% over the past seven days.
Makerdao is also the second-largest defi protocol, under Curve Finance, in terms of the value locked in defi today. Makerdao’s DAI stablecoin is the fifth-largest stablecoin in terms of market valuation, with $9.5 billion. DAI has recently been overtaken by the stablecoin UST issued on Terra’s network, as UST now has a valuation of around $15.4 billion. This past week, Makerdao protocol engineer Hexonaut revealed an idea that proposes to introduce real world assets (RWAs) into Makerdao’s CDP scheme. Hexonaut explained that a “short-term crutch” was when the project leveraged centralized stablecoins like USDC.
However, Hexonaut’s proposal points out that crypto-native returns have dried up liquidity, and he believes the project should “expand into uncorrelated quality loans to diversify the portfolio again with performing assets.” The protocol engineer also published on the same day a proposal for governance of Makerdao, along with other contributors, in an article titled “Strategy for aggressive growth”. In the proposal, Hexonaut details that he thinks it is inevitable that the project will rely on RWAs. Hexonaut offers a two-step plan that involves raising capital and taking risk on exposure “in a prudent manner”.
The developer believes it’s the right time for Makerdao to leverage RWAs as a number of competitor protocols have focused on bridging RWAs. Hexonaut’s proposal states:
We believe the time has come to give the RWA effort a boost. Alongside our own efforts to improve and scale the pool of borrowers we already partner with, a number of off-chain counterparties and on-chain protocols have emerged over the past year, spearheading efforts to connect RWAs to cryptography.
Some Makerdao Supporters Loved Hexonaut’s Proposal, While Others Called It a ‘Terrible Idea’
The comments that followed Hexonaut’s proposal show that some people thought adding RWAs had pros and cons. One user named Psychonaut said that he loved the idea of “raising the surplus buffer by selling bond-style investments.”
“I actually talked about it on Discord two days ago. However, I like your model better than a traditional linking structure,” Psychonaut added. On Twitter, however, Hexonaut’s proposal was critiqued.
“This is a terrible idea,” a Twitter user named Foobar said. “Complexity is a bug, not a feature. DAI needs to stand on its own, without real-world risk factors being introduced for no reason. You like RWA, fine. Go build a RWA protocol.” Another Twitter user sarcastically tweeted: “Holy sh**. Maker using real-world centralized assets that can be frozen immediately by [the] government and confiscated forever.”
