One of France’s leading banks approached decentralized finance pioneer MakerDAO to propose the filing of bond tokens as collateral for a DAI stablecoin loan.
The historic proposal called “Security Tokens Refinancing” was submitted by the international bank to Maker’s governance forums on October 1st. It would be the first major collaboration between a traditional bank and a DeFi protocol and could open the door for closer integration between the two sectors.
The Societe Generale (SG) described it as the “first experiment at the interface between regulated and open source initiatives”.
The bank has proposed the provision of “OFH” security tokens (Obligations de Financement de l’habitat), which are classified as covered bonds under French law and are secured by home loans.
These would be used to secure a $ 20 million loan in Makers DAI stablecoin, brokered by a number of legal entities and maturing in six to nine months.
The Ethereum-based security tokens were issued in May 2020 with a face value of 40 million euros (46.3 million US dollars) and a fixed interest rate of 0%. They are due in May 2025 and have the top credit rating of AAA from the rating agencies Moody’s and Fitch.
MakerDAO founder Rune Christensen said he “had no idea” about the proposal, adding that “this is one of several recent examples in Maker Governance of how the organizational model is proving to be more scalable once it is founded”.
Société Générale, the third largest bank in France, has just filed a $ 20 million onboarding security application for Maker.
Backed by EUR bonds proposed by their blockchain subsidiary.https: //t.co/hxGEMOIWjy
– Rune Christensen (@RuneKek) September 30, 2021
Industry observer “DCInvestor” commented On the potential impact of deals like this on Ethereum and its position as a global settlement layer:
“Societe Generale in their attempt to harness their on-chain assets in Maker, and you are wondering if Ethereum is becoming a global settlement layer that is happening now.”
SG stated that the loan was a “pilot use case” with the aim of “designing and promoting an experiment in the French legal framework” and “improving a profitable service and promoting liquidity for digital bonds”.
SG Forge, a regulated subsidiary of the bank that deals with crypto assets, manages the proposal, which is based on the open source framework CAST (Compliant Architecture for Security Tokens).
The legal framework for the transaction is complex, as an institutional finance organization has to be integrated into a decentralized governance-based network. A flow chart provided by the bank identifies six different entities involved in the process. These include the registrar Societe Generale Forge, the bank itself SG, MakerDAO, a legal representative for the DeFi protocol, the security agent DIIS Group and an external exchange agent.
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The pseudonymous MakerDAO community member ‘PaperImperium’ commented on the proposal in the forum:
“Maker and SocGen-Forge are on the brink of financial history. What a time to be alive. “
The proposal is currently being discussed and will move to a formal governance vote in the coming weeks.
It is not the first time that Societe Generale has dealt with Ethereum-based security tokens. In April 2019, the bank’s SG Forge unit issued a EUR 100 million bond as an OFH security token on Ethereum.