Société Générale (SG), one of France’s leading banks, has turned to decentralized finance pioneer MakerDAO to propose the submission of bond tokens as collateral for a loan of the DAI stablecoin.
It has been reported that the historic proposal, called “Security Tokens Refinancing,” was submitted to Maker’s governance forums by the international bank on Friday.
However, it would be the first major collaboration between a traditional bank and a DeFi protocol and could open the door for closer integration between the two sectors.
The report said that Société Générale labeled it as the “first experiment at the crossroads between regulated and open source initiatives.”
Likewise, the bank has proposed that it provide “OFH” security tokens (obligations de financement de l’habitat), which are characterized as covered bonds under French law and backed by home loans. These would be used to collateralize a $20 million loan in Maker’s DAI stablecoin that would be mediated by a number of legal entities and mature in six to nine months.
It has been analyzed that the Ethereum-based security tokens were issued in May 2020 with a nominal amount of 40 million euros ($46.3M) and a fixed rate of 0%. They mature in May 2025 and have the top credit rating of AAA by rating agencies Moody’s and Fitch.
Rune Christensen, the founder of MakerDAO, said that he had “no clue” about this proposal, adding that “this is one of the multiple recent examples in Maker Governance of how the post-foundation model of organization is proving to be more scalable.”
Moreover, industry observer “DCInvestor” commented on the potential impact of deals such as this on Ethereum and its position as a global settlement layer:
“Société Générale with their attempt to get their on-chain assets usable in Maker and you're wondering if Ethereum will become a global settlement layer it's happening, now.”
SG stated that the loan would be a “pilot use case,” with the goal of helping to “shape and promote an experiment under the French legal framework,” and “enhance a profitable service and foster liquidity for digital bonds.” SG Forge, a regulated subsidiary of the bank that deals with crypto assets, is managing the proposal, which is based on the open-source framework CAST (Compliant Architecture for Security Tokens).
As reported, the legal framework for the deal is complex as it needs to integrate an institutional financial organization with a decentralized governance-based network. A flowchart provided by the bank details six separate entities involved in the process.
Thus, these include the registrar Société Générale Forge, the bank, itself; SG; MakerDAO; a legal representative for the DeFi protocol; the security agent DIIS Group and a third-party exchange agent.
Source: Cointelegraph