This is a watershed moment to consider DeFi’s potential for connecting with real-world finance. That’s what Maker said in his tweet that appeared today. With this, there is the possibility of a trade loan between a US regulated financial institution and a cryptocurrency. The Huntingdon Valley Bank and Maker are the first participants in this loan.
Maker connects to the traditional economy
MakerDAO, the developer entity of DAI, connects to the traditional economy. This connection is through the largest vault of real-world assets, but also with his first relationship with a US-based bank.
This integration involves a participation facility of DAI 100 million. This is to support the growth of HVBank’s business.
“Rather than trying to evade regulation, the Maker community has partnered with a regulated institution. This is to turn some of his crypto into an interest-earning asset that meets US underwriting standards. The proceeds generated by these assets can then be converted into DAI. This is possible since they are backed by US real estate. Their US broker will act as an intermediary on these conversions. This thus creates a win-win between a bank and a US stablecoin that is adopted around the world.” Those are the words of Hugh W. Connelly, Executive Vice President and Chief Loan Officer.
This transaction allows HVBank to expand its lending activities in the Greater Philadelphia area.
How it works?
- There will be no borrower-lender relationship between HVBank and RWA Master Participation Trust (established for the benefit of Maker). Indeed, the trust will have direct access to DAI’s cash. And, in exchange, the trust will ensure the sale of interests in the underlying whole loans issued by HVBank.
- Then, HVBank will issue for this transaction, loans and will submit eligible loans to the participation of the Trust.
- The calculation agent, Ankura Trust, will then verify the eligibility for funding of the proposed “loan participations”. To do this, it is based on the criteria established by Maker.
- The trust will thereafter obtain a maximum participation of 50% in the underlying loans. But it will be on condition that it respects the eligibility criteria. Which is possible by executing a participation certificate in exchange for cash. The trustee, WSFS, will hold these certificates thereafter.
- Each month, HVBank will remit to the Trust the pro rata portion of all amounts it receives in respect of loan participations. Upon receipt of such amounts, the Trustee will make payments in accordance with the Trust Agreement.
Maker connects DeFi with real-world finance. A beneficial program for Maker, creator of the DAI, and the Huntingdon Valley Bank. The latter benefits from a stable and coherent partner to sell loan participations. And Maker is gaining more notoriety among its community.
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