Interpretation of EIP-3475: Supporting the Issuance of Multiple Redeemable Bonds and Financial Derivatives

Author: D/Bond

Source: Wu Talk

Recently, the proposal "EIP-3475: Abstract Storage Bonds" submitted by the decentralized bond ecological platform D/Bond was approved by the Ethereum Foundation. EIP-3475, as an application standard proposal, provides a new API standard—ERC-3475.

EIP-3475 supports the creation of tokenized certificates with abstract on-chain metadata storage, allowing each bond category ID to represent a new configurable token type corresponding to each category, making it possible to issue bonds with various redemption data.

Under the ERC-3475 standard, any user can customize the issuance of decentralized bonds and financial derivatives with complex structures, such as futures, options, warrants, swaps, etc., just like in the TradFi market.

Filling the Gaps in DeFi Bonds

DeFi is considered a decentralized "parallel world" to traditional finance, where various business forms such as savings, lending, asset management, exchanges, derivatives, insurance, and funds in the TradFi market can find corresponding mirrored scenarios in DeFi.

However, as one of the basic financial instruments in TradFi, bonds have yet to see a truly decentralized bond product on the blockchain. Although there are some fixed-income products, they have not generated significant responses.

This is because bonds are often classified into different types based on their specific characteristics. By interest calculation method, there are fixed-rate bonds and floating-rate bonds; by credit risk, there are secured bonds, guaranteed bonds, and unsecured bonds; by duration, there are ultra-short-term financing bonds with a minimum of 7 days and long-term bonds lasting over 10 years; by repayment conditions…

Previously, the industry lacked a technical standard and DeFi protocol to support the issuance of complex interest-bearing bonds. For example, the currently most common token standard, ERC-20, requires separate smart contracts to be deployed for each type of bond based on its classification, and different categories of bonds cannot be compatible, which clearly fails to meet the issuance needs of bonds with complex data structures.

Moreover, due to the differences in bond categories, it is almost impossible to issue bond products that rely on ERC-20 tokens to provide liquidity pools based on existing DeFi protocols, as ERC-20 tokens do not possess complex data structures.

Additionally, ERC-20 does not support storing bond returns and redemption logic on-chain, as this would lead to high gas costs.

Clearly, if DeFi wants to venture into the bond sector, a new standard that supports complex data structures and various redemption functions is urgently needed. The absence of this standard has left DeFi powerless in the fixed-rate product field—unable to develop smart contracts with clear terms such as return rates, repayment conditions, interest rates, and maturity dates.

ERC-3475, with its complex data structure, allows ERC-3475 tokens to store more bond information, enabling developers to build more complex logic for their bond redemption and return mechanisms, thus filling the gap in DeFi's fixed-income market.

A Major Upgrade to ERC-20

ERC-3475 is a brand new smart contract interface standard for issuing and managing multiple redeemable bonds.

Under the ERC-3475 standard, a single contract can contain any given number of bond categories, bond random numbers, and bond amounts at a certain address. This standard provides independent functions to read and transfer any collection of bonds and allows for the redemption of bonds from the issuer when certain conditions are met.

The complex data structure gives ERC-3475 tokens sufficient flexibility to support various redeemable bonds, each assigned an independent algorithm without the need for additional smart contracts. That is, a single contract can manage multiple bonds with different categories, interest rates, and redemption conditions, making it not only convenient and efficient but also more economical, saving users gas costs.

Based on the ERC-3475 standard, it is possible to create not only standard bonds in the traditional sense but also more complex financial derivatives such as forwards, futures, options, binary options, warrants, and swaps, including off-chain derivatives. Users can bundle existing bonds into derivatives covering different risk-return combinations and trade them on the D/Bond DEX.

Furthermore, automated market makers (AMM) need to use separate smart contracts and ERC-20 LP tokens to manage trading pairs, which greatly reduces the overall liquidity of LPs and incurs unnecessary gas fees, leading to transaction delays due to network congestion.

Unlike the ERC-20 standard, where automated market makers (AMM) require separate smart contracts and LP tokens to manage trading pairs, ERC-3475 uses multi-layer liquidity pools to support larger LPs creating numerous trading pairs. Since each bond stores all its necessary data (such as bond supply and type), ERC-3475 does not need to deploy separate contracts each time a new LP pair is added, which not only greatly enhances LP liquidity and saves gas fees but also avoids the risk of being attacked. Therefore, ERC-3475 will significantly simplify LP management.

In simple terms, ERC-3475 is an upgrade to ERC-20 LP tokens, transforming them into multi-dimensional tokens that store metadata on the blockchain.