With a collateral pool of digital assets worth about $10.5 billion, MakerDAO, the Decentralized Autonomous Organization (DAO) that administers the DAI cryptocurrency, has become an important force in the Decentralized Finance (DeFi) and wider crypto ecosystem.
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So when the lending platform voted in favor of diversifying the DAI collateral pool away from purely crypto assets and into U.S. government and corporate bonds, it represented a critical turning point for two conjoined economic systems.
Whereas previously, the flow of money has overwhelmingly been from fiat into crypto assets, the move to include traditional bonds in the DAI collateral pool demonstrates the increasingly bidirectional movement between today’s interconnected crypto and legacy investment tools.
And to build and maintain the bridge between the new-school crypto assets and the older security and currency markets, a special type of bank is needed that has a foot in both worlds.
In the first phase of its diversification strategy to convert half a billion of crypto assets into ones backed by fiat currency, MakerDAO selected the Swiss bank Sygnum as its lead partner.
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Sygnum’s crypto-fiat gateway will first convert $250 million worth of the DAI’s crypto collateral into USD. This will then be diversified into traditional assets via a portfolio of BlackRock’s fixed-income funds.
The involvement of the world’s largest asset manager, whose Swiss division helped advise on the portfolio analysis, also signals the continuing movement of stablecoins like DAI into the financial mainstream. Previously, Blackrock has helped Circle with a similar collateral diversification strategy for its dollar-pegged cryptocurrency — USD Coin.
Learn more: With Blackrock Partnership, Stablecoin Issuer Circle Moves a Step Closer to Mainstream
Explaining the reasoning behind the portfolio diversification partnership, Rajiv Sainani, MakerDAO Europe Growth Lead, said it highlights how “innovation and real-world benefits of traditional assets” are advancing the DeFi-enabled finance revolution.
“Sygnum’s DeFi credentials, regulated banking experience and two-way crypto-traditional finance bridge were considered critical in securing the Maker community’s overwhelming support,” Sainani added.
Catering To New and Old Money
Certainly, the arrival of licensed banks in the crypto space signals a newfound maturity in the ecosystem. And what better country to usher in a new dawn of crypto credibility than one of the world’s oldest and most established banking systems?
Since its inception, Sygnum has made it its mission to systematically and holistically embed digital assets into regulated banking. And besides helping organizations like MakerDAO manage their crypto portfolios, it also serves as a regulated gateway to the world of crypto investment.
Armed with its Swiss banking license and an asset management license in Singapore, the financial institution (FI) adds an important layer of trust that opens the door for institutional investors looking to immerse themselves into the world of digital assets.
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But Sygnum is not the only Swiss bank looking to bring crypto to the more restrained and conservative corners of the financial sector.
In recent years, Zug-headquartered SEBA Bank — Switzerland’s first regulated crypto bank — has also emerged as an important global player in the realm of crypto banking, seeking to serve the growing number of businesses that generate crypto revenue.
At the same time, the bank offers structured investment products and institutional-grade digital asset custody to FIs looking for a trustworthy partner to support their business in the cryptosphere.
Digital Vaults for Crypto Assets
Traditionally, Swiss banks are considered among the most secure in the world with a high level of protection against fraud, making the Alpine nation a top destination for businesses and individuals looking to keep their wealth safe.
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In the digital equivalent of the country’s Alpine gold vaults, the likes of Sygnum and SEBA have deployed state-of-the-art custody solutions including both “hot storage” and “cold storage” crypto wallets.
Hot storage refers to wallets that are connected to the internet and are therefore more convenient for people who need quick access to their crypto assets. In that field, another Swiss firm, Taurus, has emerged as one of the leading providers of crypto asset infrastructure for banks and FinTechs including Sygnum. Taurus is also betting on the emergent field of tokenized securities with its digital exchange TDX.
Cold wallets, on the other hand, are separate hardware devices that require a connection to the internet to process transactions, meaning that crypto banks’ solutions more closely resemble the traditional image of high-security vaults.
To ensure maximum security, SEBA, for example, has built the “Faraday Cage,” a custom-built radio frequency-shielded vault protected by multiple biometric access controls behind which the hardware that stores cryptographic keys is secured.
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