Bond Architecture

Liquidity Bond Semi-Technical Documentation

Liquidity Bonds are a protocol for lending staking rights of ADA without giving custody of ADA to the borrowing party. The lender, apart from interest paid in any native token on an epoch-to-epoch basis, gets Bond Tokens representing their lending position each of 100 ADA face value. They can be used to transfer their position or use it in other protocols.

Terms of the loan are agreed upon upfront and have limitations such that the length of the loan is bounded and every Bond Token will be able to be redeemed, at longest, at the end of the maximum duration. It is worth noting here that just as the lend side is transferable, so is the borrow side. An NFT, minted at creation of a borrow offer, governs what stake key is attached to the entire position.

Despite being referred to as 'bonds', terms of the loan specify a duration, which is a maximum a specific position will be able to be maintained for. The loaned ADA is non-custodial as it remains locked inside the smart contracts until duration meets maturity, at which point the funds are returned to the lenders. This interaction allows the borrow side to be undercollateralized.