Bonds have not yet played an important role in DeFi, but this situation may change

Author: debond

Introduction: Although bonds have existed for decades, a new crypto project believes that this asset class has yet to enter the world of decentralized finance.

Social Media Title: Bonds are moving towards crypto—this new project indicates they provide much-needed modernization for an asset class that has existed for decades.

Keywords: bonds, cryptocurrency, Debond, D/Bond, recession, bear market, assets, investment

Bonds have yet to play a significant role in DeFi, but that is about to change

Major economies around the world are on the brink of recession, and ongoing uncertainty means the outlook for the next 12 months will be exceedingly bleak. Nomura Investment Bank recently predicted that central banks' continued tightening of monetary policy to combat inflation could lead to recession risks in major economies like the U.S. and the Eurozone, while medium-sized economies like Australia and Canada could face deeper recessions than expected if interest rate hikes spread.

These measures aimed at curbing inflation have resulted in rising interest rates, slowing growth expectations, and declining stock markets. This coincides with a prolonged bear market in the cryptocurrency space, where the total market capitalization has fallen below the $1 trillion mark for the first time since June 2021.

But amidst this turmoil, bonds seem to be gaining attractiveness.

In large economies where volatility remains high, bonds continue to serve as effective debt instruments—notes issued by governments and corporations and held by the public, becoming a prominent wealth preservation tool during uncertain times.

Bonds help reduce risk based on market fluctuations and are a reliable investment that diversifies investors' portfolios while providing regular fixed-rate payments.

However, investing in bonds is not always an easy choice for most people during times of economic uncertainty: the barriers to entry for this asset class are extremely high.

Bringing Bonds to DeFi

The vision of making bonds accessible to a large number of people is considered the core of the new cryptocurrency project.

D/Bond believes that this asset class has yet to enter the emerging financial technology world of blockchain, known as decentralized finance (DeFi), and aims to address this by ensuring it is open to everyone.

DeFi carries additional value such as trust, transparency, and accountability, as it replicates and improves upon every financial service in traditional finance (TradFi), including lending, yield, and loans—except for bonds.

Bond products have been missing on DeFi platforms because there are currently no tradable tokens available. This is due to the lack of fixed-rate functionality in DeFi, which makes it impossible to define certain contractual terms, such as specified interest rates and repayment dates, when issuing bonds. Since the existing ERC-20 token standard cannot handle such agreements, porting this agreement to the blockchain space is not yet feasible.

D/Bond states that its new token standard ERC-3475 is designed to ensure that securities can be issued on the blockchain and can even be easily traded before maturity. The company believes that this multi-redeemable bond standard will open the door for anyone to create their own bonds, and the platform will allow these bonds to be traded through a customized decentralized exchange.

D/Bond's CEO Liu Yunan told Cointelegraph, "ERC-3475 is unique and represents a significant improvement over what the TradFi system currently offers. It helps us bring much of DeFi's potential into the TradFi market, as our platform provides fixed-rate interest and guaranteed repayment, as fund managers say the threat of economic recession is real, and there are signs that the trajectory of spreads is changing."

A Decentralized Bond Ecosystem

D/Bond believes that traditional bonds are in urgent need of modernization, and thus, with the growth of interest, its innovative ERC-3475 token standard helps facilitate interoperability between decentralized bond markets.

They can also be divided into smaller pieces, allowing investors to sell their bond shares on the secondary market 24/7, unlike traditional bonds, which can only be traded between 8 AM and 5 PM.

"The bond market is an area that DeFi has missed, and soon we will see how DeFi disrupts and develops it," the project is aimed at the ERC-3475 standard, and the development of this standard is currently complete.

A security audit of the D/Bond backend conducted by PeckShield is underway. Meanwhile, the project also shows a partnership established with Blockpit, making it easier for clients to manage their finances.

D/Bond is set to launch in the fall and will shake up the bond market.