Bonds are very simple #debt instruments, yet they
account for a whopping $120T market size globally and are being bridged to DeFi at a jaw-dropping speed.
A 🧵on everything you need to know about on-chain bonds and how to invest in them.
(Not Financial Advice.)
account for a whopping $120T market size globally and are being bridged to DeFi at a jaw-dropping speed.
A 🧵on everything you need to know about on-chain bonds and how to invest in them.
(Not Financial Advice.)
Warm-up: What is a bond?
A #bond is a debt instrument that allows the issuer (borrower) to raise money from investors (lenders) willing to lend them money for a certain amount of time.
A #bond is a debt instrument that allows the issuer (borrower) to raise money from investors (lenders) willing to lend them money for a certain amount of time.
Three main types of bonds are:
◦ Corporate bonds, issued by companies.
◦ Municipal bonds, issued by states and municipalities.
◦ Government (sovereign) bonds such as those issued by the U.S. Treasury or other forms of sovereign debt.
◦ Corporate bonds, issued by companies.
◦ Municipal bonds, issued by states and municipalities.
◦ Government (sovereign) bonds such as those issued by the U.S. Treasury or other forms of sovereign debt.
The legislative process for the public use of the blockchain is notoriously lengthy and complex, ruling out municipal/government-issued bonds from the current on-chain bonds landscape:
◦ Corporate bonds
◦ M̶u̶n̶i̶c̶i̶p̶a̶l̶ ̶b̶o̶n̶d̶s̶
◦ G̶o̶v̶e̶r̶n̶m̶e̶n̶t̶ ̶b̶o̶n̶d̶s̶
◦ Corporate bonds
◦ M̶u̶n̶i̶c̶i̶p̶a̶l̶ ̶b̶o̶n̶d̶s̶
◦ G̶o̶v̶e̶r̶n̶m̶e̶n̶t̶ ̶b̶o̶n̶d̶s̶
In TradFi, corporate bonds are issued by firms and companies. What are the DeFi parallels of those companies?
Crypto-native institutions.
More specifically? Crypto market makers, VCs, asset management protocols, exchanges, and DAOs.
Crypto-native institutions.
More specifically? Crypto market makers, VCs, asset management protocols, exchanges, and DAOs.
To grow in perpetuity, these institutions need to be capitalized in a way that allows them to fund ops and expenses, bootstrap liquidity, exercise delta-neutral trading strategies, and/or generate non-operating income/investment returns.
Besides retained earnings (business revenue + non-operating income) and equity (token sales), the cheaper form of financing is actually debt.
💡Debt financing occurs when an entity raises money by selling debt instruments to individuals and/or institutional investors.
💡Debt financing occurs when an entity raises money by selling debt instruments to individuals and/or institutional investors.
Debt financing is one of the most common ways to raise capital because it:
+ is cheaper than equity/token financing
+ is predictable/easy to plan
+ doesn't dilute token values
+ preserves future profits
+ is cheaper than equity/token financing
+ is predictable/easy to plan
+ doesn't dilute token values
+ preserves future profits
Existing DeFi debt financing options include a host of protocols that offer either
◦ uncollateralized loans with inflexible terms (@maplefinance requires $1M min. loan amount; avg. loan amount at @TrueFiDAO is $10.1M)
or
◦ uncollateralized loans with inflexible terms (@maplefinance requires $1M min. loan amount; avg. loan amount at @TrueFiDAO is $10.1M)
or
◦ overcollateralized loans (@AaveAave, @compoundfinance, @MakerDAO) - Not feasible for institutional borrowers whose collateral lacks liquidity and whose revenue model hinges upon capital efficiency.
Furthermore, these lending pools lack a working risk framework that hedges against market volatility and, as a result, the risk of DeFi bank runs.
The logical follow-up from lending pools would be a direct, peer-to-peer (#P2P) model that prioritizes flexibility above all.
The logical follow-up from lending pools would be a direct, peer-to-peer (#P2P) model that prioritizes flexibility above all.
The best candidate for that model?
You guessed it: it's Bond.
You guessed it: it's Bond.
An on-chain bond is a flexible-collateral debt solution that not only offers competitive rates to institutional borrowers and lenders but sufficient flexibility that removes barriers to originating a loan of any size and with any terms.
At Solv, we believe that institutional borrowers should be able to
◦ Borrow any amount with no collateral
◦ Customize for their own financing needs
◦ Close the bond sale fast
◦ Build on-chain credit history to get more favorable loan terms going forward
◦ Borrow any amount with no collateral
◦ Customize for their own financing needs
◦ Close the bond sale fast
◦ Build on-chain credit history to get more favorable loan terms going forward
and that lenders should be able to enjoy
◦ Higher yields than other DeFi protocols
◦ Fixed income w/ upside (when investing in #convertiblebonds)
◦ Transparency via the borrower's credit history
◦ A risk framework that hedges against bank runs
◦ Ability to cash out assets
◦ Higher yields than other DeFi protocols
◦ Fixed income w/ upside (when investing in #convertiblebonds)
◦ Transparency via the borrower's credit history
◦ A risk framework that hedges against bank runs
◦ Ability to cash out assets
And that's exactly what the team at @SolvProtocol has strived for months to achieve:
@SolvProtocol is currently the only platform where crypto-native institutions can issue corporate bond-like, collateral-free debt instruments on-chain while...
@SolvProtocol is currently the only platform where crypto-native institutions can issue corporate bond-like, collateral-free debt instruments on-chain while...
...enjoying lower APRs and thorough customization for their issuances.
It offers a unique setup for debt financing which is not available anywhere in DeFi at the moment.
It offers a unique setup for debt financing which is not available anywhere in DeFi at the moment.
Solv is committed to capturing the next DeFi megatrend of bridging the #TradFi bond market to #DeFi.
If you are a lender or institutional borrower who loves this thread and also loves #freedom and competitive rates, reach out to us via this form ⤵️
forms.gle/mni2mhnxb6cTjk…
If you are a lender or institutional borrower who loves this thread and also loves #freedom and competitive rates, reach out to us via this form ⤵️
forms.gle/mni2mhnxb6cTjk…
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