Understanding Bond Trading and Zero-Coupon Bonds
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Introduction
In decentralized finance (DeFi) world, bond trading has been largely unexplored, with most platforms focusing on pool-based lending and borrowing. Secured Finance emerges as a pioneer in this space, bridging the gap by introducing bond trading to the DeFi ecosystem through Orderbooks. This innovation is pivotal as it establishes a much-needed benchmark for DeFi assets. Through this article, we will delve into the concept of bonds, focusing on zero-coupon bonds, and explore how Secured Finance facilitates bond trading in the DeFi space.
What are Bonds?
In traditional finance, bonds are debt instruments entities use to raise capital. Investors who purchase bonds are lending money to the issuer in exchange for periodic interest payments plus the return of the bond’s face value upon maturity. In DeFi, users can lend out their digital assets to earn interest or provide their digital assets as collateral to borrow other forms of digital assets for various applications.
Zero-Coupon Bonds
Zero-coupon bonds are a unique type of bond that does not entail periodic interest payments. Instead, they are issued at a discount to their face value, and the investor receives the face value of the bond at maturity. For a more in-depth understanding of zero-coupon bonds, refer to Secured Finance’s Head of Markets Kenji’s article, where he offers a comprehensive insight into how zero-coupon bonds work and their significance in the financial market.
Bond Trading on Secured Finance
In the context of Secured Finance, lending and borrowing of loans can be interpreted as buying and selling of zero-coupon bonds. When you lend, you buy a zero-coupon bond, paying an amount today. At maturity, you receive the bond’s face value, which includes the funds you lent plus interest. Conversely, when you borrow, you sell a zero-coupon bond and receive the bond’s price today. At maturity, you repay its face value, which consists of the principal amount you borrowed plus interest.
Secured Finance’s Orderbooks offer the bid-ask spread, which allows users to understand the difference between the highest price that a buyer is willing to pay for a bond (bid) and the lowest price at which a seller is willing to sell (ask). This spread is a key measure of the bond’s liquidity and can help users make informed decisions when trading on the platform.
How to do Bond Trading on Secured Finance
Bond trading on Secured Finance is a seamless and intuitive process. Here’s a brief introduction of our webapp to help you get trading:
- Accessing Secured Finance Webapp
To begin, navigate to the Secured Finance Webapp page. Ensure your digital wallet is connected to interact with the platform. This is crucial for executing trades and managing your portfolio.
Toggle to Advanced UI to view our Orderbook.
2. Navigating the Bond Market
Here, you’ll find different orderbooks for various zero-coupon bonds. Each order book represents a market for different digital assets and maturity dates. You can also toggle between market dates by clicking on our yield curve.
At the bottom of our yield curve, you will be able to see the Orderbook.
3. Understanding the Bond Details
Before making any trades, it’s imperative to understand the bond details. Market Details will show you the latest ongoing of the current Orderbook. You will need to pay attention to the Bond Price as it will indicate the Annual Percentage Rate of the bonds.
If you are borrowing, do take note of your collateral management as well!
4. Making an Order
Ready to trade? You can place either limit or market order. You will be able to set your price if you are doing limit order.
A limit order is an order to buy or sell a bond at a specific price or better while a market order is an order to buy or sell a bond at the best available price in the current market.
Choose whether you want to lend or borrow. If you opt to borrow, you’ll need to provide collateral. This is a safety measure to ensure that borrower can repay the borrowed amount.
If you are lending, you are able to choose the source of your assets.
Add in the amount, and you are ready to “Place Order”.
5. Monitoring and Closing
Keep an eye on your trades through the Portfolio Management Page. Here, you can monitor the performance of your bonds and your loan portfolio. You are also able to monitor your asset under ‘Asset Management’. These are assets held at Secured Finance’s Vault. They can be your collateral or your borrowed assets.
When you’re ready, you can add, reduce or unwind your positions from the loan details.
6. Explore More Markets
Don’t limit yourself to just one market. Secured Finance offers a plethora of options. Check out our Market Dashboard to explore other markets and diversify your portfolio.
Check out all our Loan Orderbooks for different assets and different maturity dates.
Conclusion
Bond trading is a fundamental aspect of financial markets, and Secured Finance’s introduction of bond trading to the DeFi space is revolutionary. With the ability to trade zero-coupon bonds, Secured Finance is paving the way for more sophisticated financial instruments in decentralized finance. The platform equips both seasoned traders and newcomers with essential tools and benchmarks. In the evolving DeFi landscape, staying informed and grasping the nuances of bonds is key. Happy trading, and here’s to secure and prosperous investments!
