This checklist from @mjmauboussin is a sound way to assess whether conditions are ripe for a stock to be mis-priced. https://t.co/VhOa24Zok8

Druckenmiller: "I never use valuation to time the market. I use liquidity considerations and technical analysis for timing. Valuation only tells me how far the market can go once a catalyst enters the picture to change the market direction."

Enter HVB: A proposed participation facility in which a regulated Pennsylvania bank originates and Maker purchases fixed and floating rates notes such as commercial mortgages and business loans. 

HVB will originate, service, and work-out the underlying assets. https://t.co/2gvP5lkymW

The flow is as follows: 
0. HVB originates loans
1. HVB proposes loans for funding
2. Ankura (bouncer) checks/approves against participation criteria
3. Maker's Trust ingests assets in exchange for cash
4. Trustee collects principal + interest, distributes as per cash waterfall https://t.co/kgpY5v5FVt

1. Idle Cash, when not used to fund participations, will be invested in safe, short-term US treasuries. As cash is never dead, this maximizes MakerDAO revenue. 

This also fulfills the desire to mobilize Maker treasury assets.  (For the savvy reader: yes it can be reused) https://t.co/74dAr2zzXF

2. The Delegated Committee is nominated by MKR holders, has decision making power, can instruct independent third parties to take certain actions, and serves as a Real World touch point for MakerDAO. https://t.co/kj1QZdffKB

5. RWF has "automated" the cash waterfall, a set of instructions that determines who gets paid before whom. 

This way, as loan revenues comes in, the Trustee simply pays fees/service providers as per the instructions voted on by MKR holders. No RWF/HVB involvement. https://t.co/Egz7M5aJf1

For the sake of completeness, let's lay out some risks to the deal as well: 
- Concentration risk
- Credit risk
- Servicing risk
- Scaling risk
- Development risk
- Regulatory risk 
- Recession/consumer loan risk https://t.co/4JUTw61LkU

5. Potential for Scale: The infrastructure has been laid for a wholesale, programmatic, scaleable facility. 

With Pennsylvania and real estate-secured assets at its center, HVB intends to both double down on core strategies and to carefully diversify its portfolio.

1. Brand Symbiosis: HVB attains flexibility, savviness, and a reputation for innovativeness by plugging into DeFi via MakerDAO. 

MakerDAO gains legitimacy and a measured, established hand in the real world by participating in HVB assets.

Let's start with the structural innovations: 
1. Authorized Investments for Idle Cash
2. Delegated Committee
3. Crypto-Servicing + On-Chain Reporting 
4. Calculation Agent 
5. Automation of Cash Waterfall

3. Risk/Reward: In a participation facility, as opposed to an RCF/warehouse, the net yield on assets will be passed through directly to Maker. 

Because it retains significant exposures, HVB will price risk correctly, even opportunistically to the benefit of token holders.

The proposed HVB deal comes out of the box with: 

(A) Structure: a series of bespoke governance, surveillance, commercial, legal, and structural innovations (h/t @CCDPetersen)  
(B) Strength: unique qualities that make the deal a good fit for Maker

Now onto strengths of the deal:
1. Brand Symbiosis 
2. Alignment 
3. Risk/Reward
4. Turn-Key Solution 
5. Scale

2. Skin in the Game: HVB retains a minimum of 50% pari passu exposure to all assets. 

The bank is thus incentivized to honor the best interests of Maker, lest it punish itself. This principle is important wrt asset origination but critical wrt recoveries and special servicing.

4. Turn-Key Solution: The HVB opportunity provides  a plug-and-play, diversified RWA yield solution for Maker. 

HVB is responsible for loan origination, underwriting, servicing, and work-outs.

The HVB governance poll is currently live and will be over tomorrow. 

I hope the community recognizes the opportunity for strong wholesale, risk-adjusted return as demand for crypto leverage dries up.  

Thanks to @CCDPetersen @g_dip for the excellence. Onward and upward.

Each mechanism on its own would be a first for DeFi. But the combination represent the beginning of a new era: that of the Real World Asset Protocol. 

We will continue to iterate on this, hoping to bring the same transparency and determinism that we're all accustomed to to RWAs.

@MakerDAO holders are considering a 100MM DAI Real World Asset vault—Huntingdon Valley Bank, or HVB. 

It would be the largest Maker RWA vault to date and a watershed moment for DeFi. 

As the risk lead, here's why I think the deal makes sense 🥩👇

https://t.co/lRGxpcOLyC

4. Ankura will further act to ensure that loans that HVB proposes for participation by Maker are in fact compliant as per the eligibility criteria voted on by MKR holders. 

This role includes physical "spot-checks" to ensure assets are what they claim to be.

Maker has long since decided to pursue RWAs:
- Crypto is small, RWAs are huge
- Diversification away from USDC 
- As demand for crypto leverage dries up, RWAs provide uncorrelated yield
- As rates rise, given Maker's fixed CoC, RWAs represent a generational carry trade https://t.co/AQkuKbPNAU

3. Ankura will act as "Crypto-Servicer", a term we made up. 

Monthly, it'll combine the remittance report, the Trust report, and the trading report into one, comprehensive reconciliation, uploaded on Forum/Arweave. 

This gives MKR holders unbiased portfolio/asset reporting.

The question is no longer "Should we do it?" but "How do we do it well?"

How do we onboard RWAs in a way that makes the protocol more resilient and profitable? 

Which asset managers? Which asset classes? Which maturities? Which structure? How do we avoid adverse selection? https://t.co/tfT6WJRzcY

@jayclouse @jayclouse I do

Podup is Blinkist for podcasts

Check out the latest edition and tell me if I’m wrong!

https://t.co/rQnYMuoW5W

@jayclouse @jayclouse I do Podup is Blinkist for podcasts ...

Recently Saved

This post was saved using Tressel. Get started for free today!