Over the past few weeks, crypto legend MakerDAO has been in the news a lot. Mostly, this has been because Terra’s (LUNA) founder Do Kwon has been publicly saying he’s trying to kill MakerDAOs algorithmic stablecoin, DAI. Almost in direct contrast to Terra’s announcements of buying up Bitcoin (BTC) and Avalanche (AVAX) to back their stablecoin UST, MakerDAO announced that they have made a $7.8M loan to Tesla.
This is a direct example of the two warring camps in crypto stablecoins. One side thinks crypto stablecoins should be backstopped by crypto assets to keep the ecosystem exposed to more decentralized assets, while the other camp wants to diversify into assets that are less correlated. The problem with backstopping stables with cryptocurrency is that, generally, the crypto market as a whole moves together. When Bitcoin goes down, most other cryptos go down. We saw this in recent months, with BTC, LUNA, and AVAX all seeing massive drops to 3 month lows at the same time.
MakerDAO is betting stable companies working in the real world will be a more secure backstop when crypto hits hard times. This is not the first loan that MakerDAO has made, they also have loans out to O'Reilly Auto Parts, Wawa, and Service King.
The loan to Tesla is being made to build a new repair and collision center, and they’re expecting the credit line to increase to $14.2M later this year. Tesla is already the second largest publicly-traded holder of Bitcoin in the world, and their CEO, Elon Musk, has been increasingly interested and vocal for his support of cryptocurrency.
These deals are made through a company called 6s Capital, a commercial lender which is powered by DAI vaults, who is a loan origination customer of RWA Company, which “serves as a bridge between institutional investors and decentralized finance.” The structure of the fees between each of these companies originating and facilitating the loans is not clear.