Bitcoin Bonds: A New Way to Borrow!
Bonds are a preferable form a debt for many borrowers. They enable the borrower longer access to the principle borrowed compared to a loan. With a bond if you borrow 10 Btc you have the ability to keep most of that 10Btc for the life of the bond and then pay it off in a lump sum at the end. In comparison, with a loan you would have access to the 10Btc only when you first borrowed. Then as you make installment payments, the capital you have borrowed goes down. So in this after 1 payment of 1.1 Btc you only have 8.9 Btc left to utilize and so on as you pay back the loan.
Bonds can seem intimidating, but they are just another form of debt much like loans, mortgages, and all other debt we are used to. Traditional bonds (the ones traded on Wall Street) are issued by large corporations or governments. But, at Btcpop individual investors can list bonds that act exactly like traditional bonds, maybe better. And borrowers can even issue collateralized bonds , using shares and altcoins as collateral.
Here is a video to help explain how traditional bonds work. https://www.youtube.com/watch?v=0DT6WBwZJbw
At Btcpop, the idea is the same, but the currency, market size, and borrower is different. Btcpop makes bond investing simple and doesn’t use traditional bond terminology such as coupon rate and par value. There are 3 main actions you can do with bonds at Btcpop;
- Fund new Bonds
- Trade existing bonds
- Create your own Bond
Funding bonds is very easy. If you determine the terms of the bond and the quality of investor/collateral is a good investment you simply buy as many bonds as you like. All Bond requests are split into 10,000 bonds, so the price will vary by the amount taking out. You can do the math prior to purchasing, or you can guess. Bonds can always be canceled during the funding phase.
Normal Bond: Normal bonds are like traditional bonds. They should be priced and valued according the the borrower’s reputation. Bonds will have an issued price, Length, buyback price, and possibly dividends. Interest is handily calculated for you with the Dividend APR and Buyback APR. So investing in these bonds is only slightly different than investing in a P2P loan. With the main difference being how interest is paid. As with bonds interest can be paid in dividend payments, or just on the buyback of the bond.
Collateral Bond: A collateral bond can be either a normal bond or a limitless bond. The main feature with collateral bonds is individually selectable collateral. This means you are free to choose individual shares and or altcoins to use as collateral for bonds. A good example use of this would be using a altcoin or share that you have no intention of selling during the bond term. You can easily borrow against that asset, and it being locked has little effect on your investing strategy.
Limitless Bond: Limitless bonds are unique to Btcpop and they provide both the borrower and the investor lots of flexibility with the debt. Limitless bonds allow the borrower an indefinite time to pay back the bond so long as the mandatory dividend is being paid on time and in full. So essentially, the bond acts as a line of credit for the borrower where the borrower sets his own rate. However, individual investors will still choose to invest or not, hence creating a market rate for borrowers debt. Limitless bonds go great with collateral that the borrower intends to hold long term. They provide both the borrower and the investor lots of flexibility with the debt.
Investing in Bonds
At Btcpop you can invest in brand new bonds being funded, or already funded bonds, that investors have sold on the bond market. You can access the bond market by simply going to the bonds Trading tab. The only difference between investing in existing or traded bonds and funding bonds is that funding bonds are not debt yet until activated. The pricing of existing bonds will likely be less predictable than funding bonds as they are traded on the bond market.
- Price Per Bond: This is the cost of a bond when funding. The reason you would invest in bonds is to gain interest on your money, so the bond price is the base cost. You can then try and sell the bond on the bond market for a profit, or hold the bond to maturity and receive the interest payments.
- Buy Back Per Bond: The buyback rate is the amount the borrower promises to pay to buy back the bond from you. The borrower has a choice to pay the interest either here at the end or in the middle as dividends. Btcpop handles the calculations for you and provides a BuyBack ROI statistic for you.
- Buy Back Duration: Pay attention to this when investing in bonds. If you invest in a limitless bond there is no set end date that you will receive your funds back or the buyback interest. You will however be free to sell your bonds at any time on the exchange.
- Fee Per Dividend: Dividends periods will be set by the borrower. Typically they are 1 month but borrowers can customize to meet their needs. The fee per dividend is the interest the holder of the bond receives within that time frame. Whoever holds the bond at the time the borrower pays dividend receives the dividend. Keep that in mind when selling your bonds or buying on the exchange.
- Dividend APR: Btcpop calculates the APR rate for you on the value of dividends per share. This is the return you receive on your investment just in dividend payments.
- Buy Back APR/ROI: Btcpop calculates the APR rate for you on the bond buyback price. If the borrower says he is going to buy back bonds for a 1% premium in 1 year the APR would be 1%. On limitless bonds, because the date is indefinite Btcpop will list a buyback ROI. This is simply the price over the original bond price the borrower can buy the bond back at.
- Bond Security: Bond security is collateral that is locked into Btcpop as collateral for the bond. If the borrower defaults, collateral will be liquidated to pay back the investors. Pay attention to the breakdown and type of collateral for each bond. Borrowers are able to individually select collateral for bonds. So the collateral could be all Dogecoin, be careful.
Creating Your Own Bond Offering
Like Btcpop’s custom loans, Btcpop bonds allow the borrower the ability to set their own custom rates and terms. The market of investors will decide if the bond gets funded or not. When listing a bond, you can follow the same criteria as listing your first Bitcoin loan. You will need to first verify and then build up a reputation or collateral to create your loan. Like loans, collateral is king at Btcpop and you will find that collateral is very helpful in getting your loan funded.
Loan Details:First step is to title your bond listing and choose how much you are going to attempt to raise. Again I would refer to listing your first Bitcoin loan post for tips on borrowing. Remember collateral is king, and reputation is a slow expensive thing to build so be patient.
Bond Repayment: Bond repayment is the amount you will have to pay the bond holder at the end of the bond life, or to stop the interest payments on ongoing bonds. If you set this equal to the bond price calculating interest is easy and it is just equal to dividend payment interest rate. However, if you set the bond repayment higher than bond price, you will need to calculate this interest. Btcpop will calculate it for investors once the bond is listed, but to avoid cancelling listings (which hurts your reputation score) just do the APR calculations prior to listing.
Dividends: Dividends are mandatory for ongoing bonds, but optional for regular bonds which have ROI built into the buyback price. Interest payments can be thought of like loan payments, except you are only paying interest and nothing towards principle. If you miss a dividend payment it will be handled like missing a loan payment.
Individually Selectable Collateral: Collateral is king when lending with Bitcoin. With bonds you get the option to select what specific assets you want to use as collateral for your bond. This is very handy if you plan on holding some assets long term anyway, but want to keep other assets liquid. All altcoins and share balances can be selected. Once those are locked as collateral though you will not have access to them again until the bond is paid back. Investors will also look at collateral before investing, and investors have individual preferences for different altcoins and shares as collateral. Ethereum is usually the most valued Altcoin as collateral, and POP + INST1 shares are usually the most valued shares as collateral. This however varies by investor preference so there is no set order.
Have questions or comments? Please feel free to share them in the comments section below.