Bond Trading

Bond Trading Market

The bond trading market consists of two trading pools, one is interest pricing pool and the other is lending pool. The interest pricing pool applies automatic market maker (AMM) to promote decentralization and fairness. Users trade against the interest pricing pool to get their money priced (how much interest they need to pay or could receive). And then they could trade against the lending pool to borrow or lend the assets they wish to. The non-custodial feature of AMM platform is key to being part of the decentralized finance ecosystem.

Interest TokenINTToken

The interest is traded through the “Interest Pricing Pool", and the principal is traded through the "Lending Pool". The two trading pools are coupled through algorithms, forming a decentralized bond trading market.

INTToken Pricing

Interest Token (Ticker: INTToken) is an ERC-20 token, mint through Hipo protocol. One INTToken stands for the amount of accrued interest attached on one share of bond at the point of time when bond is traded.
The amount of INTToken, loan and shares of bond following relationship below:
——Amount of loan
——Amount of INTToken
——Price of INTToken
——Shares of bond
——Par value of Bond(i.e. 1 USDC or 1 ETH)
For example, a bond buyer want to purchase 1000 shares of 30 days USDC zero coupon bond. Par value is 1 USDC per share. The buyer would be given 1000 share of INTToken first. Then the buyer sells all of them, if the INTToken price is 0.03 USDC, the underlying bond price would be 0.97 USDC per share. The bond buyer pay the principal 970 USDC at beginning. Hold to maturity, the buyer would receive 1000 USDC, including 30 USDC interest.
The price of INTToken, given through automatic market maker (AMM) mechanism, decides the bond price. The bond price can be calculated with the following formula:
The underlying interest rate is,
——The bond price
——The interest rate
——Holding period

Mint INTToken

INTToken would be minted once a purchase requisition has been made. The number of new INTToken created is equal to the number of bond shares been purchased.
For instance, after receiving buying order of 1000 shares of 30 days USDC bond, the protocol would mint 1000 shares of INTToken for intended buyer. Then the buyer trades against interest pricing pool to lock the accrual interest should obtain in future.
Purchase of INTToken
Bond issuers need to purchase INTToken to get their bond priced and borrow assets. The number of INTToken they supposed to purchase are equal to the shares of bond they wish to issue, in the other word, the amount of cryptocurrencies they wish to borrow.
For example, to issue 1000 shares of 30 days USDt bond, the bond issuer should purchase 1000 shares of INTToken to pay for bond interest and get borrowed assets.

Bond Issuer

The issuer need to purchase INTToken from interest pricing pool and trade against the lending pool to collect cryptocurrency wish to borrow. The number of INTToken should purchase is the same as the shares of bond issuer wish to issue.
The amount of loan is calculated by following function:
——Amount of loan obtainable by bond issuer
——Price of INTToken after trading
——Shares of bond issued
The bond pice is,
The interest rate is,
——Bond price
——The interest rate
——Holding period
By maturity date, bond issuer should repay cryptocurrency borrowed from the lending pool. The bond issuer need to add the borrowing voucher and repayment to Hipo. When protocol affirms the reimbursement, bond issuer could redeem the collateral. A liquidation event happens if the bond issuer fail to repay by the maturity date.

Bond Buyer

Buying bond is equal to lending cryptocurrency for a period of time and receiving interest by maturity date. Bond buyer determines the number of shares intend to purchase (or the amount of cryptocurrency to lend), inquire the same amount of INTToken from Hipo protocol and trade against interest pricing pool to get interest priced. By doing so, bond buyer could also get bonds priced.
Deposit the amount of lending cryptocurrency indicated by previous step in lending pool and get voucher. Hipo protocol would automatically start to account accrual interest.
The accrual interest along with lending principal would be paid by the maturity date or settlement day.