MakerDAO has been in the news for something or the other. Lately, it made headlines for forking the Solana blockchain. It drew a sharp response from the Ethereum community and Vitalik Buterin himself. Now, the platform might find itself foraying into tokenized T-Bills. Now, those who know about T-bills can easily find this news relatable. But for the uninitiated, it is important to know what this piece will talk about.
Here’s Everything to Know About T-Bills
T-bills or US Treasury Bills are essentially short-term debt securities. As one can surmise, the US government itself issues them. Since they are backed by authorities, they are one of the safest instruments for investment. They come with diversified maturity periods as well. So far, there are five such periods which are 4, 8, 13, 26, and 52 weeks.
With a little knowledge of investments, one knows that a higher maturity period will yield better interest rates. However, these bills won’t pay regular dividends to their holders. Instead, they will have an option to sell them at a discounted price. If investors choose to keep the bills till maturity, they receive the full face value of it.
There are a few factors that add to the interest of T-bills:
- Purchase Price
- Annualized Discount Yield
- Yield to Maturity
At the same time, one also needs to understand what really drives the T-Bill prices:
- Monetary Policy
- Interest Rate Changes
- Maturity Period
- Market Risk Tolerance
Interest rates have a direct relation to the T-bills. The rise or fall of the former will decide the price of the latter. Maturity will also play a pivotal part as their tenure impacts the yield. Market risk and inflation are key factors behind the price of any instrument. So even though it’s a safer option, it’s not impervious to the prevailing market conditions.
Insights into the Proposal
Steakhouse, the financial advisory firm of DAO, has partnered with Phoenix Labs, the R&D company for this bid. Together, they have urged the MakerDAO community to cough up $100 Million for the US Treasury Bills. The proposal is under discussion and no one is speculating MakerDAO’s decision right now.
Notably, MakerDAO has made investments in government-backed instruments earlier. It invested over a billion dollars in the US Treasuries via off-chain structures. So, putting money in another such instrument won’t be a new thing. Moreover, the contributor duo has pitched this move as a strategy to strengthen the coffers of MakerDAO.
Furthermore, the authors of the proposal have cited a number of advantages of this investment. They argued that the T-Bills would bring more transparency and simplify the investments. In addition to that, these products will make the redeemability faster for stablecoins.
Nevertheless, the proposers have notified that on-chain tokenized T-Bills pose risks of higher counterparties too. They added that they don’t intend to replace the existing investment but want to seek better opportunities. Also, the duo is seeking a response from the whole community. For the investors, it certainly put forth some more prospects of making profits.