DeFi Project Builds Innovation for a Bond Market with Stable Returns

The investment journey of a user starts with a diversified portfolio, clear financial goals, and well-thought-out risk management. Tailoring investments to variable circumstances, minimizing costs and fees, and maintaining emotional discipline are musts. 

Bonds have the potential as a financial instrument where the issuer promises to repay the principal and interest to investors after a certain period. However, the bond market demands financial expertise, and the transactions are sluggish and expensive. Hence, they might not be the most suitable option for everyday investors. This is where blockchain-based bonds come into play.

Blockchain, the technology behind cryptocurrencies, enables peer-to-peer transactions without intermediaries or centered authority. When the innovation of blockchain meets the bond market, a new settlement system usable by a much bigger investor profile emerges.

Stable returns with cryptos

From the outset, inherently unstable cryptos have appealed to speculators, traders, and short-term investors. Blockchain-based bonds potentially alter this dynamic and attract new inventors who prefer low risks. In this context, Secured Finance, an interbank-grade DeFi initiative, introduces a safe and transparent bond market into the crypto world. The crypto bond market enables investors to access new financial products, fostering diverse investment strategies and risk diversification. This development enhances the market’s maturity and provides investors with unique opportunities

In the DeFi ecosystem, a significant challenge revolves around ensuring sufficient liquidity to offer fixed interest rates to the market. Existing projects predominantly focus on variable interest rates within liquidity pools, where investors lock their tokens to earn yields. In a pool-based system, the burden falls upon users, as interest rates rely on the volume of locked funds.

This intricacy makes achieving a fixed interest rate challenging within such a system. Acknowledging this gap, Secured Finance has introduced a novel solution to the market by providing fixed interest rates. Through a unique market structure that combines an order book system and a clearinghouse, the platform has successfully fortified liquidity in the secondary market.

Secured Finance utilizes a yield curve to facilitate more intricate financial product transactions and augment market depth. This curve illustrates interest rate movements over varying periods, enabling investors to predict future market trends and make more informed investment decisions. Integrating the order book system and yield curve empowers investors to assess market risks accurately and devise appropriate risk management strategies.

Reducing transaction costs

Blockchain technology eliminates the cumbersome structure of traditional finance (TradFi) bonds, but it comes at a cost. Each transaction on the blockchain incurs a gas fee, which is crucial for ensuring network continuity. Users may face high fees, especially on Ethereum, a popular blockchain for DeFis. Security Finance addresses this challenge using technological innovation, specifically lazy evaluation, enabling efficient order book operation while managing costs effectively.

“Lazy evaluation reduces transaction costs, offering a more economical experience for users,” Masa Kikuchi, the founder and CEO of the Swiss developer Secured Finance AG, explained. It allows for managing the order book efficiently by performing calculations only when necessary and lowering costs.

Kikuchi’s team has built the Secured Finance protocol, which will be operated by a decentralized autonomous organization (DAO). He claimed that the Secured Finance bond market is not just any market —it marks a stride in ushering a new dimension into cryptocurrency, crafting a safer and more reliable investment environment for investors.