Paxos wants to pay interest for MakerDAO to hold 1.5 billion stablecoin USDP

Stablecoin issuer Paxos has offered to pay a fee to DeFi giant MakerDAO to hold $1.5 billion in stablecoin Pax USD (USDP) as one of its reserve assets.

Paxos proposes to pay interest for MakerDAO to hold 1.5 billion stablecoin USDP

According to a proposal posted on Maker’s admin forum on January 19, Paxos suggested MakerDAO increases the amount from the current $450 million to a maximum, also known as the debt ceiling, of $1.5 billion in the form of USDP stablecoins in the Peg Stability Module reserve system for Maker’s stablecoin DAI.

In return, Paxos will pay a “marketing fee” equal to 45% of the federal funds rate (EFFR), equivalent to 4.3% annually at the present time. Paxos will only pay the fee if the debt ceiling is at $1.5 billion or more on all days. Paxos estimates this reserve will generate about $29 million in annual passive income for Maker if maintained. The debt ceiling would then rise to $2 billion by 2024, according to the proposal.

USDP is a USD-collateralized stablecoin. Both Paxos and USDP are regulated by the New York Department of Financial Services (NYDFS), the state’s top financial regulator. It is known that Paxos will transfer part of the revenue earned from government bonds to Maker.

On the MakerDAO side, the community will first discuss the proposal and then give it a vote. This proposal comes as MakerDAO is working to reduce its reliance on Circle’s USDC stablecoin through investing in less risky assets like government bonds, along with a variety of investment strategies that generate steady cash flow from its $7 billion in assets in its reserve.

In November 2022, MakerDAO community approved proposed to increase the interest rate of stablecoin savings DAI from 0.01% to 1% annually, with the expectation of making stablecoins more attractive to investors. In addition, another recently approved proposal is the retention of Gemini USD (GUSD) stablecoin as part of the reserve asset for DAIdespite the groves surrounding the exchange.

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