To Learn about dBond and its 4%+ APR
This is a simple FAQ on our newly released feature, the dBond.
Where to buy dBond: https://bonds.duet.finance/
FAQ on dBond: https://duet-protocol.gitbook.io/duet-protocol/synthetic-assets/dbonds-faqs
1. What is dBond? How does it work?
dBond is a blockchain token-based IOU certificate. After a user exchanged a dBond Token using their USDC, we use the received funds buy US Treasuries in a regulated financial institution, we use JP Morgan Chase at the moment which is one of the largest bank in the world, and in the next one or two months, we will introduce an third-party trustee company as an intermediary to further strengthen the credibility of the product; upon maturity, our custodian will automatically convert the US Treasuries into USD cash, and we will deposit the corresponding amount of USD cash back to the on-chain redemption contract in the form of USDC, so the yield is actually from US Treasury, that’s different from most DeFi projects, which yield comes from crypto trading or lending, you know in the current bear market, the reward-risk ratio of DeFi is much lower than traditional financial market.
2. Why did Duet roll out this special feature? What’s the purpose of this special feature? Is it the first of its kind in the DeFi world?
Yeah, following the above question, although the crypto market lacks opportunities, users do still have a lot of assets hoarded on the chain, such as more than $100 billion in stablecoins with nowhere to go.
We see the very poor reward-risk ratio of financial management on the blockchain. The largest lending protocol AAVE repays USD with a return of only a little higher than 1%, and users have to bear both the risk of smart contracts and the risk that the system may unable to liquidate in time and cannot recover funds. 1% is a ridiculous yield compared to the potential risks.
So at this point a real-world high quality asset, like a U.S. Treasury bond, has an APY of over 4.5%, which is much better than the on-chain return. Given that the Fed expecting keep interest rates high all year, Treasury assets will be competitive for the foreseeable future. Duet’s vision is to allow users to invest in global assets with just one wallet, so we launched this bond product last month.
3. How to buy dBond? What are the options we have at the moment? How much is the return? Which one do you recommend?
Go to https://bonds.duet.finance/ , now only ETHEREUM network is supported, and USDC can be exchanged for U.S. Treasury bonds at a very low cost. The current APY for bonds remaining duration of less than six months is around 4.6%. What’s interesting is that because the big players in Wallstreet are so pessimistic about the U.S. economy that they expect the Federal Reserve to cut interest rates later this year, so the yields on longer-dated U.S. Treasury bonds are even lower, currently around 3.5% for 10-year notes. So we chose short term treasury bills for user’s good.
While 4.6% is not a great yield, but pls keep in mind that this is a debt that the U.S. government has promised to pay, and there is no safer asset in the world, both British Chinese or Japanese government bond has better yield can compare to United States.
4. If I buy it, can I redeem it before the maturity date? Or do I have to wait?
You can’t do that directly. Because the US treasury won’t pay anyone before it’s debt maturity. However, you can trade it. We set aside a percentage of USDC (similar to a bank’s reserve) in the contract, you can trade with the contract in real time at a price close to the current secondary market. We also plan to introduce an LP mechanism in the future to build an on-chain secondary market for U.S. Treasuries.But that requires enough bond tokens to be issued first.
5. Is the security of my deposited funds guaranteed?
The dBonds series is issued by Metabase Labs and all dBond Tokens are 100% backed by a corresponding number of U.S. Treasuries. We regularly release our proof of holdings. Our contracts are audited.
The interesting thing is unlike the fully decentralized DeFi protocols, we are in fact a hybrid protocol with limited contract risk, similar to USDC and BUSD. USDC deposited by users will be used to buy treasury bonds, while the real savings funds are in USD and treasury bonds. As the blockchain only serves as a bookkeeping credential, you don’t need to worry about the risk of project failure due to contract security issues.
6. Any other new features to look forward to in the near future?
As I mentioned, we will introduce tripartite independent custodians for more transparent management of bonds. DUET is also developing a system of on-chain perpetual contracts to support assets such as gold, crude oil and foreign exchange, allowing users to trade these assets with leverage. You know, even though we now have an unleveraged trading system, the willingness to use traditional assets is limited by their low volatility.
Haha, but from my personal opinion, however, it is always recommended that users should keep low leverage to reach a healthy long-term allocation.
7. Bond yields seem to fluctuate. How is this determined?
Since most bonds usually trade at a discount price in the secondary market, and the holder gets the full face value at maturity, this part of the discounted value will be counted as the yield. Changes in the secondary market trading price lead to changes in the APY of the bond. The DUET system uses the Reuters fair pricing of Treasury bonds, which is updated on a daily basis.
8. How does DUET make money?
When you exchange dBond, we take a small percentage of fee, but currently is 0%. We will decide when to charge according to the development of the market.
9. Who is allowed to invest?
Non-US investors are allowed to purchase dBond tokens.
If you are from a sanctioned country, you will not be able to purchase tokens due to restrictions by the Office of Foreign Assets Control (OFAC). Sanctioned countries include Balkans, Belarus, Burma, Côte D’Ivoire (Ivory Coast), Cuba, Democratic Republic of Congo, Iran, Iraq, Liberia, North Korea, Russia, Sudan, Syria, and Zimbabwe.
