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3) Fixed duration P2P loans

High LTV, low fee, peer to peer loans

Table of content

TL;DR

TL;DR

The most flexible lending and borrowing experience on SOLANA

Introduction

What are Bonds?

Bonds are a new lending product unlocking several highly competitive features, such as higher Loan to Value (LTV), lower fees, the possibility for lenders to fund loans partially and to sell them instantly to other lenders (via Automated Market Maker (AMM))
  • The UX for the borrowers is very simple and similar to the experience they are used to with our existing products. With Bonds, borrowers can still benefit from an improved UX via bulk loans and 12-hour Grace Period protection
  • Lenders can decide to use the easy-mode or the pro-mode. The easy-mode is very similar to the experience they are used to with our existing products (they deposit SOL in a lending pool and earn yield over time), while the pro-mode is for users willing to manage their loans manually in order to earn higher yield
  • Technically, Bonds are fungible tokens that can be traded between borrowers and lenders :
Borrowing money = Creating, then selling bond tokens to lenders
Lending money = Buying bond tokens from borrowers, then burning for SOL
These bond tokens accumulate yield over time, which lenders can collect if they hold the bond tokens until loan expiration. Alternatively they can instantly sell these bond tokens to other lenders (using Cross-Token AMM). All the bond tokens are the same but we are able to identify exactly which loan each lender funded. The technical whitepaper is available here

Why use the Bonds?

Below are a few capital efficiency use-cases :
  • Borrow to buy/trade/mint NFTs
  • Borrow to buy/trade tokens
  • Borrow to arbitrage NFTs or tokens
  • Borrow to lend at a higher rate
  • Borrow to provide fungible liquidity on AMMs such as Orca or Raydium
  • Borrow to provide NFT liquidity on NFT AMMs such as Hadeswap
  • Borrow to participate in FRAKT liquidation raffles
  • Lend at different available risk levels in order to earn yield on your SOL
  • Lend to get defaulted NFTs at discount if the borrower doesn’t repay at expiration

Key concepts of the Bonds

✅ As a lender = funding 1 full jpeg = buying 1 Bond = buying 100 FND tokens
  • Borrowing = (issuing +) selling bond tokens to lenders
  • Lending = buying bond tokens from borrowers (+ burning them when redeeming for SOL)
✅ When the borrower pays back his loan, the lender(s) can redeem their bond tokens (FND tokens) for SOL proportionally
✅ When lenders decide on the LTV parameter of their offers, it will follow the market until the offer funds a loan. The LTV% is therefore relative to whatever the floor price is (as opposed to an absolute SOL amount)
✅ Lenders using the pro-mode compete in one single order book but on two levels :
  • The LTV (= the risk level) per bond
  • The Interest (in %) for the duration of the loan
For each LTV%, the offer with the smaller Interest% is higher in the order book and therefore more likely to be fulfilled by borrowers

For borrowers

Competitive advantages for borrowers

  • Higher LTV than competition (more efficient liquidity)
  • Lower fees than competition
  • Possibility to bulk borrow/repay for better UX than competition
  • 12-hour Grace Period protection for better UX than competition

How complex is it to borrow money with Bonds?

For borrowers the user flow is exactly the same as for Flip and Perpetual loans, just the loan parameters (LTV, interest rate and duration) will be different. We plan on unifying the user flow for our three loans types so in the end the borrower just decides on the terms without having to choose between different loan types

What are the protocol fees for the Bonds?

  • 2% of loan value upfront (waived for a period of time to promote product launch)
  • 10% grace period penalty fee

For lenders

Competitive advantages for lenders

  • Lenders can earn higher Interest% via higher risk loans
  • Lenders can fund loans partially (half of a SMB for example vs 1:1 loans on other platforms). Smaller lenders can now fund loans for more expensive but less volatile bluechip NFTs
  • Lenders can fund loans in bulk
  • Loans are tradable - Lender can exit/sell the loan instantly to another lender (via AMM) before the loan expires, that way the lended liquidity isn't stuck during the duration of the loan
  • Lenders have the option to get defaulted NFTs when funding full loans
  • Compounded interest for lenders depositing in Easy-mode lending pools

How complex is it to lend money with Bonds?

Lenders can choose to use our Bonds in two different ways :
  • Easy-mode : using the “Strategies” tab
This is very similar to our lending pools for Flip and Perpetual loans. As a lender you can deposit your SOL in Strategies with different risk levels (higher risk = higher LTV). In the background an Automated Lending Strategy will use the pool liquidity to fund bonds
  • Pro-mode : using the “Bonds” tab
This interface is for more experienced lenders willing to fund loans manually. They will earn a higher yield in pro-mode because they will be able to fund more loans by sometimes undercutting the automated strategy

How can I earn yield using the Easy-mode?

Step 1 : You need to decide for which collection you want to lend money to borrowers
Step 2 : When depositing SOL in the lending pool for that collection, you will have to define the risk parameter :
  • Medium risk = up to 40% LTV = our lending pools for Perpetual loans
  • High risk = up to 100% LTV = our lending pools for Bonds. In the background there will be an automated strategy that deposits your SOL into the associated order book. It is a lending pool that automatically places offers, earns interest and distributes it across lenders over time. The interest distribution mechanism is similar to the Flip/Perpetual lending pools so yield is accumulated continuously. The difference from Flip/Perpetual lending pools is that the interest is compounded

How can I earn yield using the Pro-mode?

Step 1 : You need to decide for which collection you want to lend money to borrowers
Step 2 : You need to select a few parameters for your offer :
  • Select LTV (Loan to Value = Risk level)
  • Select Loan duration
  • Compete on Interest% for the loan duration with a visible order book
  • Define how much SOL to lend (Size)
= Complete Flexibility, for all levels of size and risk
Step 3 : Your offer will be added to the order book
Step 4 : Once funded, your loan can be managed from your “Bonds” tab. Technically, by funding a loan you actually buy bond tokens (FND tokens) from borrowers
Step 5 : In the “Bonds” tab you can track your active loans, exit/sell bonds instantly to other lenders and/or redeem SOL (principal+interest) for loans that reached expiration

What is the LTV (risk level parameter)?

As a lender, it is important to understand that when defining the LTV for your offers, it won’t represent a fixed amount of SOL but instead a fixed % of the floor price, therefore following the market until funding a loan
LTV % parameter is relative to whatever the floor price is
For example, when deciding to lend 100 SOL (size) for SMBs at 50% LTV, you could actually fund 1 full SMB loan when the floor price is 200 SOL or 2 full SMB loans when the floor price is 100 SOL
Indeed in order to create the Bonds FND Market, we need to have good Market Parameter Standards. That way the market participants know the quality of bond tokens they are trading, so they can offer the price for it accordingly. The main parameter we need to look at is the bond collateralization rate or LTV (Loan to value) as we call it on frakt.xyz.

What is the offer Interest%?

As a lender, the Interest% is the yield you want to receive from the borrower for the duration of the loan. It is important to understand that the Interest% defines the price of your offer for the bond tokens. The smaller the Interest%, the higher an offer sits in the order book and therefore is more likely to be fulfilled by borrowers.
After repayment of the loan by the borrower, the lender can redeem their bond tokens (burn them in exchange for SOL)
The Interest% is therefore just the difference between the price at which the lender bought the bond tokens and the SOL they receive when redeeming each bond token.
So for example if you as lender buy bond tokens for 0.95 SOL and then burn it for 1 SOL the interest you earned is 5% :
As 1 bond = 100 bond tokens (FND tokens)
If 1 SMB value is 100 SOL
If LTV% is 100%
If lender defines Interest% so Interest for offer is 5 SOL
Then price for 1 bond = 100 SOL - 5 SOL
Then price for 100 FND tokens = 95 SOL
Then price for 1 FND = 0.95 SOL

What is the offer Size?

As a lender, the "Size" you define represents how much SOL you want to lend for a specific collection at the LTV (per Bond), Duration and ARP you selected for your offer

How does the order book work?

The order book displays the Interest% and Size of all offers. It is an aggregation of all existing pools for that collection (similar to how Hadeswap markets work).
The goal of the order book is to show where your offers stand/ will stand compared to other offers. The higher the offer in the order book the closer it is to the borrowers.
As a lender, once your order is filled it will disappear from the order book and appear in your “Bonds” tab as a bond/loan that you can manage (track, exit, redeem).

What defines the position of your offers in the order book?

For each LTV%, the price of the bond tokens (FND) is a variable based on the Interest%. For the sake of simplicity we therefore only show the Interest% values in the order book
As a lender you therefore define the price of your offer by defining the Interest%. The lower the Interest%, the higher the price of the bond tokens.Therefore for each LTV% lenders will be competing on the Interest% (fee to be paid by the borrowers).

How are lenders competing in the order book?

Lenders using the pro-mode compete in one single order book but on two levels :
  • The LTV (= the risk level) per bond
  • The Interest%
For each LTV%, the offer with the smaller Interest% is higher in the order book and therefore the closer to borrowers

What happens when a borrower takes a bulk loan?

It will fill the equivalent amount of orders at the top of the order book (for the chosen LTV)

Are loans from different parameters displayed in the same order book?

Yes, all orders are in 1 order book (similar to all Hadeswap pools)
For each LTV %, the offer with the smallest Interest% is on top

What is the loan expiration?

When the loan is paid back (before end of the loan duration) or liquidated (if the borrowers doesn’t repay in time)

What happens if the borrower doesn’t pay back their loan before the end of the grace period?

Then their collateral will be liquidated using the Liquidations process and the lenders will be able to redeem the SOL recovered from the liquidation process. In such a case, there is a chance of redeeming less SOL than was initially provided (negative interest rate). Lenders using Pro-mode have the option to get defaulted NFTs for fully funded loans.

What happens when a lender redeems their bond after expiration?

He will exchange their bond tokens (FND tokens) and receive SOL :
  • If the borrower repays their loan in time, when a lender redeems their bond tokens (FND tokens), each FND token can be exchanged (and burned) for SOL
  • If the borrower doesn’t repay their loan in time and the collateral gets liquidated, when a lender redeems their bond tokens (FND tokens), each FND token can be exchanged for SOL proportional to amount of SOL recovered from the liquidation

Will there be more liquidation raffles with Bonds?

High LTV loans will bring more liquidations with smaller margins

What is the relationship between the LTV% and the Interest%?

There is no direct relationship but we expect high LTV loans to be more expensive for the borrower (higher Interest) as the lender takes more risk

What is the relationship between the loan duration and the price of the bond tokens (FND tokens)?

The loan duration and token price are unrelated. After expiration of the loan the lender can exchange their bond tokens back for SOL (action is called "Redeem" in app).

What is the relationship between the Interest% and the price of the bond tokens (FND tokens)?

The lower the Interest%, the higher the price of the bond tokens
For the sake of simplicity we therefore only show the Interest% values in the order book

What is the PnL?

Profit and Loss (PnL) = gain/loss if you sell your bond tokens (FND) right now to other lenders (“exit”). If the floor price increases during the duration of the loan, lenders can decide to exit (sell the bond tokens) before expiration and make a profit.

For liquidity providers

Whales can provide liquidity (FND tokens - SOL) on cross-token AMM in order to earn yield from bond tokens trading fees