In August 2022, the MakerDAO DeFi protocol agreed to lend Societe Generale Forge (SG Forge) up to $30 million. Yesterday, SG Forge withdrew the first $7 million DAI stablecoins as part of the loan.

The evolution of the DAI stablecoin

MakerDAO is known for DAI, the (over)collateralized dollar stablecoin backed by various cryptocurrencies. In the past, it was mostly backed by Ether, but now pure cryptocurrencies such as wrapped Bitcoin and Ether account for around 15% of the DAI issued. Instead, most DAI is issued against other stablecoins, particularly USDC, but also Paxos Dollar (PUSD) and Gemini Dollar (GUSD).

But an increasing proportion of DAI is minted against real-world assets, which is where SG Forge comes into play. US-based Huntingdon Valley Bank took out a $100 million loan in August and September 2022. Approximately $665 million of DAI is backed by real-world assets. , the majority of which is in a $500 million bespoke liquid bond portfolio using a special purpose vehicle.

Société Générale’s stablecoin loan and token collateral

In the case of SG Forge, the real-world asset backing is (up to) €40 million of a security token (OFH token) issued by Société Générale SFH in May 2020, which is a real estate debt-backed collateralized bond . Societe General was the investor.

The purpose of the loan is to refinance the covered bond. Therefore, the borrowed DAI will be converted into dollars and Societe Generale Forge will lend the money to Societe Generale. But the conversion to dollars has not yet happened as the 7 million DAI is still in the wallet.

A natural question is how does a DeFi protocol transact with real world assets? For starters, there is a discussion and vote by the DeFi community.

In this case, the French group DIIS is the agent and security agent for MakerDAO. So, MakerDAO has a legal agreement with DIIS Group in which DIIS Group (on behalf of MakerDAO) entered into a loan agreement with SG Forge and takes control of the collateral, OFH tokens.

Meanwhile, SG Forge has been one of the most forward-thinking institutional operators in the blockchain space. It issued a €100 million tokenized bond on Ethereum in 2019, followed by the €40 million OFH token that was refinanced here, which was settled using a Banque de France (pilot) central bank digital currency. When the European Investment Bank issued its €100 million Ethereum-based bond, it used the infrastructure of SG Forge.