MakerDAO’s $4bn push into real world assets also means a real-world tax bill

MakerDAO made a big bet last year by expanding into real-world asset investing, adding a $500 million allocation to short-term US Treasuries and exchange-traded funds to its stablecoin lending business.

It’s paying off — the Dai stablecoin issuer is expected to make about $73 million in profit this year, according to estimates from MakerDAO analytics platform Makerburn.com.

The downside: a $1.5 million in tax payments to the Swiss government.

Tax is now the cost of doing business for MakerDAO in the regulated real-world asset market.

“When you go in with ‘belt and suspenders,’ you start having costs for these ‘belt and suspenders’ as well,” Allan Pedersen, CEO of DeFi asset adviser Monetalis Group, told DL News. He is referring to the regulatory realities of real-world asset investing as it differs from the largely unregulated DeFi space.

Monetalis initiated the investment on behalf of MakerDAO via Swiss crypto bank Sygnum in October 2022.

The Monetalis CEO added that it was important for MakerDAO to show that it could abide by regulatory requirements in its push into real-world assets.

“We paid 15 basis points on $500 million to get into the ETFs and 15 basis points to get out of the ETFs,” that were bought from BlackRock, Pedersen said, referring to the 0.15% tax requirement for the trade.

MakerDAO’s $500 million investment thus resulted in a $750,000 stamp tax duty.

That figure doubled when the assets were later sold, meaning MakerDAO racked up $1.5 million in total in stamp tax duty payments to Swiss authorities.

Expanding the real-world assets portfolio

MakerDAO has since expanded its real-world asset outlay beyond the initial $500 million investment.

The DAI stablecoin issuer now has a real-world asset portfolio worth about $3.9 billion, according to the most recent report issued by Steakhouse.

While the bulk of these investments, like the one Monetalis carries out on behalf of MakerDAO, happen off-chain, Pedersen says they will soon move on-chain.

When asked how soon, Pedersen replied, “Less than six months.”

“I can say that with some confidence because I know all the efforts that are going on,” he said, referring to a flurry of ongoing technical and legal exercises being conducted among stakeholders to make real-world asset tokenisation possible.

When this happens, Pedersen said he sees the possibility of MakerDAO expanding its real-world asset investment beyond highly liquid, low-risk instruments like US Treasuries.

“To get a little bit higher yield, we would imagine that MakerDAO would start going into private credits and collateralised loan obligations,” Pedersen said. “The time for them to get into an appropriate tokenised form is 12 months away.”

MakerDAO’s exposure to real-world assets coincided with the crypto lending market shrinking massively in 2022.

This decline was due to the blow-up of several big crypto lenders amid a major deleveraging cycle in the crypto market that included two massive crashes — those of the FTX exchange and the Terra ecosystem.

MakerDAO’s revenue fell by 42% last year compared to 2021, with the protocol generating $65 million in 2022 against $112 million in 2021.

However, the protocol was already earning a greater portion of its gross profit from real-world assets by the end of last year.

The latest Steakhouse report also puts the protocol’s real-world asset vaults at contributing 61% of the interest rate fees charged for borrowing Dai.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.