Société Générale – Forge has just carried out its first loan operation in stablecoins on decentralized finance. The French bank’s innovation arm used its vault on MakerDAO to withdraw $7 million in DAI. We will explain everything to you.
Societe Generale makes DeFi
This is a great first for decentralized finance (DeFi). General society – Forgethe armed arm of the French bank in the cryptocurrency sector, used its vault on MakerDAO to borrow $7 million in DAI stablecoin.
The information was confirmed this morning by Sébastien Derivaux, in charge of “Asset-Liability Management” at MakerDAO:
Another milestone in #Challenge@Societe Generale Forge 🇫🇷 casually taking a $7M loan 💰 from @MakerDAO 🚀while pledging a AAA covered bond as collateral. Actually a cross-currency repo as the collateral is in € and the loan in $ ($DAI). https://t.co/2WPzdI1P6X pic.twitter.com/mPVp9z75vn
— Sebastien Derivaux (@SebVentures) January 12, 2023
It is true that an entity from the traditional banking world that appropriates the innovations of decentralized finance (DeFi) – two worlds supposed to operate independently – it may seem paradoxical. However, this is exactly what is happening: Societe Generale – Forge completed its first DeFi transaction via MakerDAO.
To put it into context, on July 16, the MakerDAO community voted in favor of a historic collaboration with Société Générale – Forge. This involved creating an RWA (Real World Assets) vault allowing SG – Forge borrow up to $30 million in DAI stablecoin.
In return, the guarantee is provided by OHFs, tokenized on the Ethereum (ETH) blockchain. These are covered bonds worth $40 millionbacked by real estate loans in France and benefiting from an AAA rating, ie the maximum rating.
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A special loan…
In the world of decentralized finance, a classic loan is relatively simple to apprehend. In order to borrow $1,000, you typically need to deposit $2,000 of cryptocurrency as collateral. If this collateral drops in value and goes below $1000, then the protocol liquidates your position.
Precisely, the Societe Generale – Forge loan is quite different. The OHF tokens as collateral are backed by real estate, which is not a liquid market. Thus, the liquidation procedure (in the event that the loan is under-collateralized) is not automatic but manual.
As planned since the creation of this vault, a trusted third party will be responsible for verifying daily that the bond meets the guarantee requirements. If not, then SG-Forge will have five working days to provide additional collateralunder penalty of liquidation.
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… and which is not unanimous
However, this worries some observers who fear that the DAI stablecoin is now backed by real estate. Faced with the current generalized recession, they do not see favorably a reduction in the boundary between the traditional world and decentralized financewhich increases the risks of a systemic crisis.
Concretely, MakerDAO aims to increase the capitalization of its stablecoin DAI, synonymous with adoption in a context where USDT is losing ground. According to some, the collaboration with SG – Forge is part of this ambition but represents excessive risk relative to rewards.
In reality, as explained above: the position is monitored daily and the loan made yesterday only represents 0.1% of the capitalization of the DAI. In other words, it’s nothing compared to the impact that such a historic collaboration represents on the reputation of Maker DAO and its stablecoin.
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