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dBonds

Free standard for issuing and
tokenizing debt instruments

Vision

Being inspired by the @dGoods project we decided to create dBonds standard. dBonds is an open source and free standard for creating virtual debt instruments which may or may not have collateral inside and can represent a traditional (not collateralized bond); a bond, collateralized by an off-chain asset (e.g. real fiat-nominated bond), or a bond collateralized by on-chain collateral locked in dbond smart contract.

Another interesting implication of dBond protocol is constructing instruments similar to traditional derivatives (call and put options). dBonds standard doesn’t have any margin call or liquidation mechanics, all incentives are based on risk-profit profile.

dBonds offers a decentralized lending market. We believe, there is no more fair and efficient pricing than the one provided by market equilibrium, so any price or interest rate inside the protocol is decided entirely by market agents, not by any third party. As traditional bonds, dBond must be paid off or can be defaulted which makes collateral (if exists) available to a bond holder.

Advantages

1. Fair market risk-reward interest rate
Nobody but the market equilibrium provides current rates and prices.
2. Flexible customized conditions of loan/lending
Protocol gives you full freedom. You can choose any on-chain collateral, choose most liquid or stable on-chain currency to borrow, you can choose maturity time, early pay-off rules etc.
3. Diversified risk-reward market to invest
While dbond emitents may enjoy customized loans (once they found a buyer), lenders and fixed income investors can diversify their investment portfolio with multiple instruments with clear risk and reward.
4. Secondary debt market possible
Since dbond is nothing else than tokenized debt with risk-reward profile, once issued and initially sold, it acquires a market price and can be traded on secondary debt market as it usually happens with fiat secuirities.
5. Money can be borrowed against not liquid on-chain collateral
For example, against tokenized with dGoods protocol valuable assets with poor market activity.

Use cases

Issuing a classical bond by a trustworthy emitent
Just like in the fiat world, an entity or in our case any trustworthy EOS account may want to borrow crypto from the market. Using this standard, an emitent can issue and offer a bond, which, if priced wisely, can be bought on the market by other agents. If a company or team with a good credit reputation (say, Block.One) would want to borrow crypto at fair market conditions, they can issue a dbond and attract needed amount at fair market rate. Upon maturity, this dbond will be either paid by an issuer or not, and in that case is defaulted.
Issuing dbond collateralized by traditional fiat bonds or other real assets
Dbond can be collateralized by a real security (say, a bond of high quality emitent deposited in a custodian). In this case a dbond issuer provides real off-chain asset as a collateral, though dbond itself and provided loan is nominated in a cryptocurrency. In our view, this use case has a huge potential as it enables to create quite stable in value on-chain assets backed by real assets and real businesses. This approach is a cornerstone of our main project - Depos, a decentralized bank, which creates stable cryptocurrencies using real fiat bonds as a collateral. You can read more about Depos in our whitepaper and visit our site https://depos.io
Issuing dbond collateralized by valuable on-chain assets
As in other decentralized protocols, you can borrow, say, stablecoins (using dBonds you can borrow any on-chain crypto) by overcollaterizing your debt. The difference here is flexibility. You can choose the overcollateralization ratio and interest rate. For example, if issuing a bond for a week and you put 2x collateral in EOS, market would agree on 5-10% annual interest or even less, because the chance that EOS loses half of value in a week is miserable. On the other hand, if you put 1x collateral in EOS for a two year loan, the risk is high and the interest rate would be much higher.
Issuing dbond collateralized by valuable not liquid asset.
Imagine you have tokenized an asset, say, with @dGoods protocol. You like it, asset has value but lacks liquidity, so selling and buying back would cost you a lot. It happened you accidentally need money, so you issue dbond with dgood asset as collateral and borrow money, say, stablecoins of your choice, from the market. As far as dbonds protocol doesn’t imply any margin call mechanism, low liquidity of a collateral is not a problem (if dbond buyer believes the collateral is valuable enough).
Constructing decentralized derivatives (call and put options)

Imagine you want to buy a call option on EOS/USD with strike price, say, $10 and expiration date 1, December 2019 That means, if at the 1, December 2019 the EOS/USD price is x and x > $10, you receive (x-10) as profit, otherwise nothing happens with you. You make a deal with someone and pay, say, 3$ for having an opportunity to earn (x-10). You are welcomed to learn more about options if that sounds new to you. In dBonds terms that means the following. Imagine current EOS/USD price is 5$, you buy 1 EOS for $5, lock it as collateral in the dBond, use $10 as a redemption price and sell it on the market for $2 (instantly "paying" $3 for the deal).

If x hapends to be greater than $10, you redeem the dbond for redemption price $10 (which is equivalent to use the right to buy underlying asset at strike price) via smart contract, get your locked EOS back and sell it on market for x, earning (x-10). Otherwise, there is no incentive for you to pay off for the bond, it goes through default, so in total you spent $3 = $5 - $2, your counterparty receives locked 1 EOS.

So, when selling the dbond you participate in the call option trade at a buyer side, having the right to get collateral back at redemption (strike) price.

The same logic can be extended for the put option trade.

Partners

Contact us

We are very interested in your feedback. Please, fell free to leave a comment and tell us how dbonds can be valuable for you or how to make it better. You are also welcomed to join the discussion in social media.