Société Générale and MakerDAO, History in making
Since the dawn of Bitcoin, the biggest challenge the cryptocurrency world has faced is going mainstream and integrating traditional financial institutions with decentralized finance. Luckily, the adoption of DeFi has picked up pace tremendously, as evident from the recent turn of events.
MakerDAO is a leading DeFi protocol with the world’s first unbiased currency, DAI. Recently, French multinational banking giant Société Générale submitted an application on MakerDAO’s governance forums to accept on-chain bond tokens issued by the French bank as collateral for DAI loan.
This step taken by Société Générale is history in making as it signifies a massive milestone in the adoption of decentralized finance (DeFi) lending platforms. It signifies cryptocurrencies, blockchain and DeFi going mainstream and even traditional financial institutions recognizing the potential.
MakerDAO Loan by Société Générale
The loan mediated between a legal entity, Société Générale and a third party, MakerDAO has a complex underlying legal architecture. Société Générale has applied for a loan of $20 Million in DAI, which is likely the largest step in institutional adoption of DeFi till now.
Forge, a regulated subsidiary of Société Générale that focuses on digital assets applied for the loan. However, this isn’t the first rodeo for Société Générale in crypto space, as back in 2019, the financial institution issued bond-backed tokens on the Ethereum Blockchain.
The token submitted by SocGen as collateral was issued back in 2020 and has a fixed rate of 0%, with a maturity date set in 2025. Both the bond tokens are recognized under French Law, and the tokens issued by SocGen also have an AAA rating from agencies such as Moody’s and Fitch.
The proposal also mentioned the purpose of the loan as a “pilot use case” and to “help to shape and promote an experiment under the French legal framework.” However, such an endeavour has unlikely been taken before and will set precedent for all future similar events.
As this loan by SocGen is a first-of-a-kind it will involve several legal barriers. As both teams from MakerDAO and SocGen are experts in smart contracts, the main barrier will be creating a legal framework that will avoid any conflict that might pop up in the future. Luckily, MakerDAO has several legal options, as mentioned by Paperlmperium, a MakerDAO contributor.
“The Maker Representative will probably be one of the legal entities we have been experimenting with. I’m not sure if we have settled on which one, but we have several options of structure and jurisdiction,”
Despite the obvious legal roadblocks, the collaboration between SocGen and MakerDAO is a significant win for the entire crypto community as centralized institutions are not only accepting but also readily participating in the financial services offered by the decentralized finance.