JP Koning: Maker Is on a Collision Course With Regulators – CoinDesk – CoinDesk

JP Koning: Maker Is on a Collision Course With Regulators – CoinDesk – CoinDesk

It’s a shots-fired moment for decentralized finance, or DeFi. MakerDAO, a decentralized bank and one of the cornerstones of DeFi, made its first “real world” loan last month. It is lending to Americans who want to fix and flip residential real estate.

If old-school bankers weren’t aware of decentralized banks before, Maker‘s new foray changes that. Maker is now treading the same hunting grounds as not only banking behemoths such as Wells Fargo, but also A+ Federal Credit Union of Austin and thousands of other credit unions.

J.P. Koning, a CoinDesk columnist, worked as an equity researcher at a Canadian brokerage firm and a financial writer at a large Canadian bank. He runs the popular Moneyness blog.

No business is more regulated than banking. As long as MakerDAO confined itself to the blockchain sector, bank regulators such as the Federal Reserve could stay unaware. They can’t now.

Decentralized banking = centralized banking

Wells Fargo, A+ Federal Credit Union and MakerDAO are all engaged in the magical business of banking. That is, they each create deposits out of nothing and lend them out. 

In Wells Fargo and A+’s case, dollar-denominated deposits are instantiated on centralized ledgers and then lent out to customers. MakerDAO does things a bit differently. It spins up dollar-denominated deposits, known as dai, on a decentralized ledger, the Ethereum blockchain, and then lends