Why The Decentralized Bond Market Unlocks Huge Business Opportunities
Decentralization is the bond market’s only chance of revival.
Traditional bonds offer stability to the economy as it provides a long-term investing contract with predictable returns.
Creditors (lenders) receive interest by lending to debtors (borrowers) to use the funds for various reasons.
A win-win for both parties.
But in today’s age, traditional bonds aren’t attractive.
Inflation is the main reason why — It causes bonds to lose their value as the US annual inflation rate beats the fixed interest rate of bonds. The lower the bond yield, the worse it gets for the investor.
Since 1981, the yield on bonds has been declining, and the 10-year Treasury yield is 1.44% as of December 2021.
Investing in traditional bonds is now considered a losing game.
Decentralization is the convenient way to fix the bond market, and it begins with DeBond.
A Decentralized Bond Market System
DeBond introduces an environment where you can issue a bond using digital assets as collateral.
Users can specify bonds to have a higher yield than the annual inflation rate in most countries. Plus, achieve a good yield return in fewer years than traditional bonds.
Also, traditional bonds aren’t available to everyone. They’re issued mainly by governments, municipalities, and corporations. DeBond doesn’t have any requirements for everyday investors to participate. The bonds users issue are dutch auctioned on the DeBond DEX (decentralized exchange), where investors can buy them.
A dutch auction is when an asset gets listed, and its price gradually declines until someone purchases it.
DeBond uses ERC-3475 tokens as a framework for bonds to systemize a decentralized zero-coupon bond architecture truly. ERC-3475 tokens are LP tokens capable of multiple callable bonds due to their complex data structure giving it flexibility and the ability to retain more information. ERC-3475 tokens also operate in a gas-efficient manner.
The benefits of ERC-3475 tokens:
- They can collateralize fungible and non-fungible tokens
- Having a bond standard promotes interoperability between decentralized bond markets
- They can be fractionalized so bondholders can sell a portion of their bond on secondary markets
Users Can Create Bond Derivatives
ERC-3475 tokens can be used to create financial derivatives such as futures contracts, perpetual swaps, options, indices, and off-chain derivatives with the help of oracles. Bond derivatives expand the opportunities and use cases for buying and selling bonds. Through DeBond, we can get unique decentralized instruments such as an NFT options contract or a metaverse index fund.
Derivative bonds can be used to hedge positions, receive more leverage, arbitrage opportunities, and speculate.
Extra Benefits Decentralized Bond Markets Offer
24/7 Market Hours
The US bond markets are subject to the trading hours between 8 am to 5 pm on weekdays. You cannot trade bonds on the weekends and holidays as the markets are closed. DeBonds can be exchanged at any time, just like cryptocurrencies.
Low Default Risk
Smart contracts backed by digital assets have a lower default risk than P2P traditional lending. If a DeBond isn’t redeemed at maturity, the debtor’s digital asset will be liquidated.
Removes Liquidity Risk
When investors purchase a DeBond, they have the option of selling it or a fraction of it on a secondary market. Fractionalized selling bypasses the liquidity issues traditional bond markets are known to have.
Removes Credit Risk
If you default on a traditional bond, your credit score can be negatively affected. DeBonds have no credit repercussions for defaulting.
Decentralized Bonds Will Innovate Aspects of Finance as Other DeFi Products Did
The bond market is an area DeFi has missed, and soon, we’ll see how DeFi manages to disrupt and evolve it. So far, DeFi has already proven to create lucrative opportunities out of traditional finance features.
A decentralized bond market is designed to stabilize the volatile crypto ecosystem. In due time, we’ll see how it impacts finance as a whole.
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