DeFi
Debt-Backed (CDP) Stablecoins

Another Maker RWA Default?

Maker’s RWA vault sees another 1.84M default from ConsolFreight following HarbourTrade’s default. Is this something to be worried about?

By segmenting them into their various loan types, we see that Maker has a large concentration of DAI loans used in T-bills and its related products, e.g., IBTA and IB01.

Shifting our perspective to the other side of the spectrum, it becomes evident that RWA loans also bear exposure to riskier counterparties and loan types. Within the allocated loans, certain choices appear suboptimal due to their elevated risk profiles.

  • Coinbase Custody: Coinbase corporate family B2, senior debt B1 rating by Moody’s, at 2.6% IRR

  • BlockTower RWA-012: Majority of loans are in BBB- and BBB loans, 4% IRR

  • BlockTower RWA-013: Majority of loans are in BBB- and BBB loans, with 3rd largest exposure being A, 4% IRR

  • Fortunafi: Revenue-based financing to small businesses or SaaS company, 4.5% IRR

As mentioned in our recent stablecoin Pro report, “These loans could expose the RWA vaults to tail-end default risks that would ultimately impact the RWA’s revenue and collateralization. It is understandable that some of the loans were provided prior to the rise of interest rates. However, at the current stage, where interest rates are at 5.5%, there is no reason to expose the protocol to unnecessary risks that do not justify their rewards.”

The incidence of defaults should prompt a heightened sense of selectivity when extending loans. Moreover, when assessing small business loans, the rationale behind seeking an on-chain loan rather than a traditional bank loan should be scrutinized. If these businesses are being denied loans by banks, it might signal potential red flags, indicating higher counterparty risks.

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Source: Makerburn

Thankfully, the default amounts on the loans are relatively small in comparison to the protocols’ overall size. MakerDAO is currently projected to generate an annual profit of $60M, a sum ample enough to cover current defaults.

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