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Hipo enables users to deposit one set of collateral assets, while borrow another set of assets. Bonds issuer could borrow corresponding stable coins or Algo by depositing LPs Tokens from Uniswap V2 and issuing bonds.
Hipo V1 accepts LPs Tokens of USDC/ETH, ETH/USDt, DAI/ETH on Uniswap. Each token represents the LP’s share of the pool’s assets along with the trading fee percentage, thus the value fluctuated with impermanent loss and accumulated fee.
Bonds issued through Hipo are zero coupon bonds. A zero coupon bond is security that does not pay interest but instead trades at discount, rendering a profit at maturity, when the bond is redeemed for its full face value.
The maximum value of zero coupon bond, or in the other words, maximum borrowing amount, is function of underlying value of collateral assets. The margin reserved protects the protocol from default risk. The maximum number of bonds to be issued is calculated by following formula:
——Maximum number of bonds issued
——Quantity of token A underlying collateral assets
——Quantity of token B underlying collateral assets
——Ratio of bond value to collateral value (LTV)
The cryptocurrency of bonds is same as that of LP Token. For example, if the LP Token is USDC/ETH, the issuer may choose to issue either USDC bonds or ETH bonds. The total number of USDC and ETH bonds shouldn't exceed the maximum LTV ratio.
The bond issue fee is 0.2% of the total bonds issued, which is calculated at face value of the bonds. The issue fee is paid in the same cryptocurrency as the bonds. For example, the bond issuance fee is paid in ETH for ETH bond
Set Bond Time Periods
The bond expiration date is the date in the future, on which the bond issuer returns the notional value to its purchaser. The time period is calculated from the day bond issued to expiration date, it is set when the bond is issued. Hipo V1 supports a set of time periods, including 5 days, 10 days, 15 days, 30 days, 45days and 60 days.