- Paxos has tapped MakerDAO to increase the debt ceiling of its Pax USD stablecoin to $1.5B.
- If accepted, the proposal would generate $29M in annual revenue for the DeFi lender.
- The proposal is in line with MakerDAO’s objective of diversifying its stablecoin reserves.
Popular stablecoin issuer, Paxos has tapped leading DeFi lender MakerDAO with a proposal to raise the debt ceiling of its Pax USD (USDP) stablecoin. The partnership proposes that USDP holdings be increased to $1.5 billion in the DAO’s reserve. The current debt ceiling is $450 million.
As per the proposal posted on Maker’s governance forum, Paxos would pay monthly marketing fees to the DAO for maintaining reserves above a threshold of 1.5 billion USDP. The marketing fee would be 45% of the Effective Federal Funds Rate.
At the time of writing, the federal interest rate stood at 4.3%, which would mean up to $29 million in annual revenues for MakerDAO. “The marketing fees are defined to automatically reflect interest rate changes and will not expire after a set amount of time,” the proposal read.
The proposal has a provision of increasing the threshold to $2 billion by 2024. It is currently in the discussion stage and will move ahead for a vote if community members deem it appropriate. The response so far has been optimistic.
Paxos’s proposal is in line with MakerDAO’s recent efforts to diversify its stablecoin reserves. Increasing exposure to USDP can help reduce the DAO’s exposure to the more prominent stablecoins in its reserve, namely Circle’s USDC.
In addition to the added revenue, the partnership with Paxos may also bring some regulatory credibility for MakerDAO, given that both Paxos and USDP are regulated and supervised by the New York Department of Financial Services (NYDFS).
Earlier this week, MakerDAO’s community voted in favor of retaining $500 million worth of Gemini’s GUSD stablecoin. Annual revenue of $7.3 million is expected from that arrangement.