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Bond Tokens: Democratizing Access to Corporate Bonds

Bond Tokens (BTs) establish a new standard for digital corporate bonds, combining the stability and returns of traditional bonds with blockchain innovation and accessibility.


BTs are ERC-20 tokens backed by corporate bonds purchased in traditional markets. These tokens combine the stability of traditional corporate bonds with blockchain composability, offering retail investors, institutions, and DeFi protocols access to corporate bond markets.


Traditional emerging market corporate bonds typically require minimum investments over $100,000, which excludes most retail investors and smaller institutions. Bond Tokens solve this through fractionalization, with each token representing a $100 face value and supporting up to 18 decimal places for precise trading and ownership.


While BTs do not represent direct ownership of the underlying bonds —meaning holders cannot redeem them directly in traditional markets before maturity— they provide full exposure to bond economics including automated coupon payments and full principal redemption at maturity through the burning mechanism.

Token Architecture​

Bond Tokens achieve a balance between regulatory compliance and DeFi composability:


Full Fungibility:

• ERC-20 compatibility enables DEX trading
• Compatible with DeFi protocols (lending, borrowing, yield farming)
• Collateral for money markets
• Snapshot-Based coupon (interest) payments ensure fungibility


Technical Features:

• Transfer Resistance: Historical coupon entitlements immune to gaming
• Verifiable Distributions: All claims cryptographically verifiable via Merkle proofs
• 18 Decimal Precision: Enables precise fractional ownership


Naming Convention​

Each Bond Token corresponds to a specific bond issue, following the naming convention btXXX, where XXX represents the first word of the issuer's name. This ensures clear identification across the platform and DeFi ecosystem:


Examples:
• A bond from Alpha Corporation → btALPHA
• A bond from Beta Enterprises → btBETA
• A bond from Gamma Holdings → btGAMMA


DeFi Composability​

Bond Tokens function as DeFi assets while maintaining bond economics:


DEX Integration:

• Trade on automated market makers
• Provide liquidity to earn trading fees
• Participate in price discovery


Money Market Potential:

• Designed for use as collateral; borrow against Bond Token holdings
• Lending capabilities


Yield Strategy Integration:

• Participate in yield farming with BT-stablecoin pairs
• Automated coupon rolling
• Combine with other DeFi primitives for strategies

Tokenomics and Distribution​

Supply Mechanics​

Bond Token supply is determined using the bond’s dirty purchase price, accounting for the accrued interest paid at the time of purchase:


Total Supply = (Target Funding Amount × 10¹⁸) ÷ Dirty Price

This calculation ensures economic equivalence between traditional bond ownership and tokenized representation, while enabling precise fractional trading down to 18 decimal places for DeFi compatibility.


Token operations use the Math.mulDiv function to maintain precision across 18 decimal places, following OpenZeppelin standards.


For a worked distribution example with decimals and exchange rate math, see the FpUSD Real‑World Example.

Coupon Distributions Using Snapshot-Based Entitlements​

Coupon distributions are automated for KYC-verified users. Manual claiming via claimCoupon is generally not required; Bondi runs the necessary services to finalise distributions and (where applicable) submit automated claims. The mechanics are documented here for transparency, with exact Merkle rules in the Merkle Snapshots & Claims (Implementation Spec).


Snapshot Technology:

• Balance Snapshots: Token balances captured at coupon announcement blocks via off-chain orchestrator service
• Historical Immutability: Once finalised onchain with a merkle root, tampering with past ownership records is cryptographically impossible
• Transfer Resistance: Transfers after snapshot don't affect that distribution
• Verifiable Calculations: All distributions provable against snapshot data


Automated Distribution:

• KYC-verified users receive coupons automatically with zero friction
• Non-KYC users accumulate pending benefits until verification
• Merkle proof verification ensures efficient, secure and verifiable distributions


Distribution Mechanics:

• Historical Entitlements: Previous coupon rights remain with original holders
• Future Benefits: New coupons distributed to current token holders
• Transfer Freedom: Tokens trade freely without affecting past claims


DeFi Benefits and Fungibility Preserved:

• Full liquidity provision capabilities
• Unrestricted trading and transferability
• Protocol composability
• Natural price discovery mechanisms

Principal Redemption​

At bond maturity, KYC-verified holders can redeem principal by burning Bond Tokens:


Redemption Process:

• Combined with final coupon (i.e. final coupon is not automated) for complete bond lifecycle conclusion
• Burn Bond Tokens to receive proportional principal repayment

Compliance​

Bond Tokens balance regulatory compliance with DeFi innovation. The tokens are fully fungible and freely tradeable, while real-world financial benefits require KYC verification for regulatory adherence.


BTs implement multiple layers of risk management including automated compliance checks and blacklist functionality for sanctioned addresses. This approach ensures that tokenized bonds maintain the same regulatory standards as their traditional counterparts while benefiting from blockchain transparency and efficiency.

Permissionless Operations (No KYC Required)​

DeFi Functionality:

• Trade on DEXs and automated market makers
• Provide liquidity to earn trading fees
• Potential use as collateral in lending protocols
• Participate in yield farming strategies
• Transfer to any wallet or smart contract


Secondary Market Access:

• Purchase tokens from other holders
• Sell tokens at market prices
• Access through DEX aggregators
• Participate in price discovery
• No identity verification required

Permissioned Operations (KYC Required)​

Bond Token Creation:

Bond Token minting occurs through participation in funding phases, requiring identity verification. This ensures all initial token holders meet regulatory requirements for bond investment participation.


Proceeds Distribution:

KYC-verified holders receive automated coupon distributions and can redeem principal at maturity by burning Bond Tokens. See the Coupon Distributions and Principal Redemption sections for details.

Additional Features​

Call Feature Implementation​

Bond Tokens include call functionality that mirrors traditional bond market mechanics. When bond issuers exercise early redemption rights at predetermined call dates and prices, Bondi executes corresponding onchain actions through forced token transfers and retirement. Token holders receive automatic compensation through smart contracts, ensuring integration between traditional and tokenized bond markets.

Document Management System​

Bond Tokens include a built-in, upgrade-safe document management system that follows the ERC-1643 standard: the contract stores the document's URI, content hash, and last-modified timestamp and emits the corresponding events. The purchase statement and the record of every prospectus, covenant update, or disclosure tied to the bond throughout its lifecycle is appended to the Bond Token and available at all times.