ForTube crypto bond solution

ForTube is a decentralized financial project developed by the Force Protocol. Relying on blockchain technology to carry out innovative experiments, it aims to practice inclusive financial services and provide appropriate and effective financial services to all levels and groups of society. ForTube will provide a complete set of solutions for the crypto bond market, including credit rating, bond issuance, bond liquidation, bond trading, etc.

Bond credit rating

On the ForTube platform, the issuance of crypto bond uses a registration system and does not require any centralized agency to review and approve. The basic information of bond issuance submitted by the bond issuer will be automatically verified by the ForTube platform. Crypto bond will be issued officially after the ForTube community vote to determine its credit rating.

Bond credit rating is a credit rating that is based on the value bonds issued by enterprises or economic entities. Credit rating is an evaluation of the default risk of bonds and provides a reference for investors.

Due to the current immature blockchain industry, it is not suitable for medium and long-term bond issuance. The current crypto bond market will be dominated by short-term bonds. Therefore, the ForTube adopts the following bond credit rating table.

Table : Bond credit rating table

Rating

Meaning

A-1

The risk of default is very small and the security is high

A-2

The risk of default is small and the security is relatively high

A-3

The risk of default is medium,security is vulnerable to adverse environmental changes

B

There is a certain risk of default

C

The risk of default is high

D

Cannot repay the principal and interest on schedule and cannot issue bonds

ForTube platform bond credit rating consists of community rating and professional rating. Community ratings are currently for holders of FOR, the Force Protocol ecological token. After learning about the bond information, voters lock their FOR to the voting level and retrieve the FOR tokens after the rating. Professional ratings are conducted by professional credit rating agencies or professionals. To become a professional rating agency or individual, you need to apply to ForTube developers (later transferred to the community) and provide materials that can prove your professional capabilities and qualifications.

The final rating will be determined jointly by the community rating and the professional rating, with a community rating weight of 60% and a professional rating of 40%. Participating in the rating will receive a rating service fee, which will be distributed in proportions.

BondTokens

After the bond credit rating is completed, crypto bond can be issued. Each bond is issued in the form of ERC20 and we call them BondTokens. Each type of BondTokens has its own ERC20 contract, which contains all the necessary information and related operations of the bond. BondTokens are indivisible, and their face value is usually $100. BondTokens is a kind of Debt Obligation. Like other Negotiable securities, it is also a kind of virtual capital, not real capital. BondTokens can be transferred arbitrarily. The person who holds BondTokens is the creditor in the debt relationship and can redeem the principal and interest on the ForTube platform.

Table : Bond information

Bond Information

Example

Issuer

Ethereum address

Bond credit rating

A-3

Circulation

1,000,000 DAI

Face value

100 DAI

Number of shares

10,000

Coupon rate

15%

Bond duration

30 days

Bond issuance date

2020-02-01

Bond expiration date

2020-03-02

Callable

No

Puttable

No

BondTokens is a new type of crypto assets. BondTokens with different pledged assets, different expiration dates, different interest rates, and different credit ratings can meet the diverse needs of the crypto asset market. BondTokens can be used as the underlying asset in various decentralized financial products and any individual or team can also develop innovative products based on BondTokens.

Bond liquidation

The liquidation of the pledged assets will be involved if the underlying pledged assets depreciate significantly or the issuer fails to repay on time. The ForTube currently adopts a discounted liquidation model, which means that liquidators can exchange pledges at discounted prices.

To facilitate calculations, the parameters are set as follows: the target collateralization rate is TCR, the current debt is CD, the current collateralization rate is CCR, the discount rate is Discount, the current price of the collateral is Price, and the remaining amount of the collateral before liquidation is AC. The discount rate (1-Dicount) is the liquidation reward for liquidators.

Liquidation of bonds during the lifetime

During the duration of the bond, when the value of the collateral falls by 20%, the system will send a reminder to the debtor. When the value of the collateral falls by 30%, the system triggers the disposal of the collateral, and the system will liquidate part of the collateral so that the collateralization rate returns to the initial value.

When

CCR ≤ 70% × TCR

Calculate the number of liquidated pledges X and the amount of liquidated debt Y

Y = X × Price × Discount

The calculation process of X is as follows:

If the pledged assets cannot pay off the debt:

AC × Price × Discount <CD

Then system will execute full liquidation:

X = AC

When the pledged assets can pay off the debt:

AC × Price × Discount ≥ CD

The collateralization rate after liquidation needs to be equal to the target collateralization rate TCR:

We can get X from the above formula:

Liquidation of overdue repayments

If the debtor fails to repay after the bond expires, the system will trigger the disposal of the collateral: the system will liquidate part of the collateral to repay all debts and service fees, and the remaining collateral is returned to the debtor.

If the pledged assets cannot pay off the debt:

AC × Price × Discount <CD

Then system will execute full liquidation:

X = AC

When the pledged assets can pay off the debt:

AC × Price × Discount ≥ CD

We can get X:

The number of remaining pledges (AC-X) can be retrieved by the issuer.

Bond trading market and bond derivatives

In order to facilitate bondholders to withdraw at any time and recover principal and interest, the ForTube platform will launch a bond secondary trading market. Bondholders can freely set the transfer price and transfer quantity on the reference pricing given by the system. Investors can view bond basic information, credit rating information, expected interest, etc. Investors can obtain BondTokens of the corresponding bonds after paying the investment fund, and can redeem the principal and interest on the platform after expiration date.

With the popularity of BondTokens, the ForTube platform will continue to launch more functions to support various bond derivatives, such as bond repo (including reverse repo), callable bond (a bond issuer may redeem an issued bond before the expiration date of the bond) , puttable bond (a bond holder may sell the bond back to the issuer before the expiration date of the bond), etc.

Data dashboard

Data dashboard reflects the overall operation of the ForTube platform. The contents displayed on the data dashboard include bond issuance volume, pledge value, bond default rate, liquidation rate, liquidation data, default rate of various credit ratings, data performance of professional rating agencies, etc.