Paxos has offered a new deal to DeFi giant MakerDAO. The stablecoin issuer would pay MakerDAO a fixed fee for holding up to $1.5 billion in Pax USD (USDP) stablecoin reserves.
The offer was posted on Maker’s governance platform on Thursday.
Paxos has asked MakerDAO to raise the debt ceiling from $450 million to $1.5 billion in the Peg Stability Module reserve system, which backs the valuation of Maker’s DAI stablecoin.
In return, Paxos is ready to pay a daily “marketing fee” worth of 45% of the Effective Federal Funds Rate, which was 4.3% when published.
According to the proposal, Paxos would only be responsible for paying the fee if the maximum amount of MakerDAO reaches or exceeds $1.5 billion on any day.
The proposal also states that the maximum limit for the reserve will rise to $2 billion USDP in the year 2024.
Based on the proposal, if used fully, this offer would bring in an additional $29 million in revenue for Maker each year. The MakerDAO community will first discuss the offer before being voted on.
The USDP stablecoin is pegged to the value of the U.S. dollar and is supported by cash and cash substitute U.S. government debt instruments, as confirmed by independent verifications.
NYDFS, a prominent financial watchdog in the state, oversees both Paxos and USDP. In essence, Paxos would pass on a portion of the bond amount earned to MakerDAO.
Lessen dependence on USDC
This idea is a part of MakerDAO’s dual effort to lessen its dependence on Circle’s USDC stablecoin and increase the protocol’s earnings by investing in bonds and using other investment portfolios to produce a stable return on a $7 billion stockpile of currencies in its reserve.
Maker CEO Rune Christensen drafted the so-called “Endgame Plan,” approved in an October vote.
Token holders will now receive a portion of the newly discovered yield income after the MakerDAO community approved an increase in DAI’s reward rate to a yearly 1% in November.
The Paxos proposal is an interesting development in decentralized finance as it looks to create new revenue streams for protocols like MakerDAO while diversifying its reserve assets.
