One of the leading French banks reached out to decentralized finance pioneer MakerDAO to propose the deposit of bond tokens as collateral for a loan from Stablecoin DAI.
The historic proposal, called “Security Token Refinance,” was submitted by the international bank to Maker’s governance forums on October 1st. This will be the first major collaboration between the two, a traditional bank and a DeFi protocol, and could open the door for closer integration between the two industries.
Societe Generale (SG) describes it as “the first test at the interface between open source and managed initiatives”.
The bank has proposed to offer an “OFH” security token (Financial Liabilities) containing bonds insured under French law and secured by loans.
The funds will be used to secure a $ 20 million loan using Maker’s stablecoin DAI.
In May 2020, Ethereum-based security tokens released 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 a 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, “This is one of many recent examples in manufacturer governance of post-production proving to be more scalable.”
Société Générale, the third largest bank in France, has just applied for maker collateral for $ 20 million.
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 transactions like this on Ethereum and its place as the global mediation layer:
“Societe Generale with their efforts to make their on-chain assets usable in Maker, and you are wondering if Ethereum is becoming a global settlement layer.”
SG states that the loan will be a “test use case” with the aim of “designing and promoting an experiment within the French legal framework” and “improving profitable services and promoting liquidity for digital bonds”.
SG Forge, a regulated subsidiary of a crypto asset processing bank, manages the offering based on the open source framework CAST (Compliance Architecture for Security Tokens).
The regulatory framework for this transaction is complex as it requires the integration of an institutional financial institution into a decentralized governance-based network. A diagram provided by the bank shows the six individual units involved in the process. These include the registrar Societe Generale Forge, the SG-Bank itself, MakerDAO, the legal representative for the DeFi protocol, the security agent DIIS Group and the third-party exchange agent.
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MakerDAO community member with the pseudonym ‘PaperImperium’ commented on the proposal in the forum:
“Maker and SocGen-Forge are at the forefront 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.
This is not the first time Societe Generale has used an Ethereum-based security token. In April 2019, the bank’s SG Forge unit issued a EUR 100 million bond as an OFH security token on Ethereum.