September 25, 2023

GM! Today we check in a little on the MakerDAO mafia. Plus, the biggest holders of U.S. Treasurys.

Today's newsletter is 1,052 words, a 4-minute read.

⚖️ 1 big thing: Number go sideways (which is fine)

Sébastien Derivaux, co-founder of Steakhouse Financial. Photo illustration: Aïda Amer/Axios. Photo: Brady Dale/Axios

Tapping into yields from U.S. Treasurys will be key to keeping crypto's biggest decentralized autonomous organizations (DAOs) operational until the industry gets busy again, Brady writes.

Why it matters: In theory, decentralized finance projects can build through the downturn and come out better when the market comes back, but only if they steward resources well.

Driving the news: Sébastien Derivaux is a co-founder of Steakhouse Financial, a firm created to help DAOs do just that.

  • What he's saying: "DAO treasuries are key to unlock some new DeFi primitives. This year I think tokenized T-bills are the clear primitive to unlock," Derivaux told Axios in an interview during the Real-World Asset Summit in Brooklyn.

Background: Derivaux previously worked via contract on a core unit of MakerDAO, the granddaddy of DeFi projects, known for stewarding the fairly decentralized stablecoin dai (DAI).

  • MakerDAO has a gigantic treasury, in the billions of dollars. It's almost entirely the funds users have posted as collateral in order to borrow DAI.

Today, Derivaux says MakerDAO has moved $2.2 billion of its $5 billion under management into U.S. Treasurys (it started moving in this direction this summer).

Between the lines: Derivaux's expertise in particular is enabling blockchains to interact with analog world financial products. He helped set MakerDAO up in its prior experiments with entities like Societe General and Huntingdon Valley Bank.

  • Interacting with so-called "real world assets" was always in the vision for MakerDAO, though it took years of tinkering with legal structures before a DAO without a legal identity could do it.
  • Then it needed to wait for the macro shift where there are once again real yield opportunities out there (particularly, Treasurys).

State of play: Today, Steakhouse is working with some of the biggest DAOs, such as Lido (which makes derivatives out of assets staked to blockchain validators), Venus Financial (a money market in the Binance ecosystem), the Ethereum Name Service (basically a decentralized domain registrar), and MakerDAO.

The bottom line: Some blockchain purists are uncomfortable about leaning on traditional finance as it seeks yield, but Derivaux sees this as myopic.

  • "If you want to change the world, you need to change the real world," he said.
  • "You can change your video game, which is the blockchain, but if you want to impact the life of everyone, you need to change the financial world."

Go deeper

💵 2. Charted: Sovereign holders of U.S. Treasurys

Screenshot: Slide from Castle Island Ventures' Nic Carter

Will stablecoins serve or subvert U.S. interests?

  • That is one outstanding question regulatory agencies are wrestling with, but one that Washington will ultimately decide, according to Castle Island Ventures' Nic Carter, per his talk at Mainnet last week.

The intrigue: Stables are also the best example out there of utility for tokenized real-world assets, with most referencing the U.S. dollar and many backed by U.S. T-bills, Crystal writes.

  • Zoom in: Compared with sovereigns, stablecoins are the 16th largest holders of U.S. Treasurys, behind Hong Kong and Singapore, but bigger than Norway and South Korea, according to data compiled by Carter.

What we're watching: Stablecoins are a high priority for regulatory agencies to tackle, putting better odds on legislation for that corner of crypto making it through Congress.

  • Conference panelists still put very low odds on it passing this year, anyway.

📝 3. The Fed's paper on tokenization

Illustration: Gabriella Turrisi/Axios

The Federal Reserve Board published a working paper last week on tokenization, examining how it could benefit or pose risk to financial stability, Crystal writes.

Of note: The paper doesn't represent the views of the Federal Reserve Board but is meant to be subject for discussion and critical comment.

The big picture: Some people, like BlackRock's Larry Fink, think tokenization is the future of financial markets. Others poo-poo it as a marginal improvement on existing alternatives that work just fine.

Zoom in: Things that have been tokenized include agricultural commodities — like wheat and corn — as well as precious metals such as gold, real estate and of course, securities like U.S. Treasurys.

  • Still, it's a small corner of the crypto world — private credit protocols have about $4.4 billion in total value locked, and roughly $620 million of U.S. Treasurys have been tokenized, according to data firm (For comparison, the stablecoin market is roughly $124 billion, according to CoinGecko.)

Details: The authors of "Tokenizations: Overview and Financial Stability Implications" say potential benefits include lower barriers to entry for otherwise inaccessible investments, more competitive and liquid markets, and better price discovery.

  • The risk: If the overall value of tokenized markets were much larger and linked to the traditional financial system, crypto market shocks could be transmitted over.
  • "At sufficient scale a fire-sale of tokenized assets might reverberate through traditional financial markets, as price dislocations in crypto markets provide incentives for market participants to buy the token, redeem it for its reference asset, and sell the latter."

Yes, but: "Tokenizing an asset that is more than a dollar in a box is hard," Robert Leshner, CEO of Superstate and founder of Compound Labs, said at Mainnet last week

  • Between the lines: The overall value of tokenized markets is likely to stay low in the near term.

💭 Our thought bubble: So threats and benefits of tokenizing the real world are largely theoretical.

📢 4. Catch up quick

Illustration: Annelise Capossela/Axios

🇭🇰 Hong Kong's securities regulator will step up scrutiny of unregulated crypto exchanges. (Cointelegraph)

👾 Decentralized wallet service Mixin Network temporarily suspended deposits and withdrawals following a $200 million hack of its cloud service provider. (The Block)

👨‍👩‍👦 The Bankman-Fried family bubble. (New Yorker)

🐋 5. Culture hash: A BTC whale

Screenshot: @saylor (social media)

Enterprise software firm MicroStrategy is the publicly traded company with the biggest holding of bitcoin on its balance sheet, Crystal writes.

  • That's more than big-time miners like Marathon Holdings, and even Coinbase, the U.S.'s largest crypto exchange, according to

Driving the news: MicroStrategy's stash just got bigger, with its chairman Michael Saylor touting its most recent purchase of 5,445 BTC for roughly $147.3 million.

In the weeds: That puts the average purchase price of its $4 billion-plus BTC stash at $29,582 per bitcoin.

  • Yes, but: That's still above the current price of around $26,000 as of Monday afternoon.

The good news is that new accounting standards for crypto means companies like MicroStrategy won't have to write down the value of their BTC holdings at the lowest value per reporting period.

  • Between the lines: If bitcoin doesn't just go down on balance sheets, the optics for holding it are better even when prices are down.

This newsletter was edited by Pete Gannon and copy edited by Chris Speckhard.

Here's a new WSJ podcast on Sam Bankman-Fried. We expect lots o' SBF content as everyone gears up for the trial next week. —B & C.