Bond Creation

The customizable parameters will be as follows:

Pool Address:

This Staking Account Address will be the Stake Pool address that will be receiving the bond’s delegation until maturity. BECH32 pool id address must be used here. This should be the address the pool is registered with. This Pool Address will be stored in an NFT Ownership Certificate and will denominate staking rights for the duration of the contract.

Bond Duration:

The terms of the bond, issued in six, twelve, or eighteen month intervals. It is to be noted that for consistency’s sake, one month is equal to six epochs, and thus: 6 Months = 36 epochs, 12 Months = 72 epochs, and 18 Months = 108 epochs.

Bond Value:

The ‘Bond Value’ is the amount of ADA an SPO wishes to borrow for delegation. The ‘Bond Value’ is denominated in ADA, and allows for 1M, 1.5M and 2M bonds.

Bond Amount:

The ‘Bond Amount’ is the number of bonds technically issued when an SPO submits a bond order for a certain amount of ADA as indicated by ‘Bond Value’. The ‘Bond Amount’ is automatically calculated, as every bond has a face value of 100 ADA. Thus, it will show as 10,000 for 1MM ADA borrowed, 15,000 for 1.5MM ADA borrowed etc.

Interest Rate:

The interest rate to be paid by the SPO to the lenders for providing liquidity to the bond. SPOs set the interest rate offered, parameterized from 3% to 6% at initial launch. In the future, dependent upon market conditions and demand, Optim will open the interest rate range. The interest rate is set and fixed at bond issuance. If an SPO offers a bond with an interest rate that the market deems too low and is not able to capture enough liquidity, they are able to cancel their Borrow Offer and reissue a new bond at a more competitive interest rate.

Premium:

The Premium is required as an upfront deposit of interest and is automatically calculated depending on the Bond Duration and Interest Rate. Currently, the Premium is set to provide three months of guaranteed duration of the bond, though a higher amount is welcome if the SPO wants to signal a commitment for longer durations up front. The Premium must be paid in full in order for the bond to be issued and become available to lenders. The Premium covers the required Interest Buffer of 6 epochs as well as Additional Interest of 12 epochs.

Interest Buffer:

The Interest Buffer is the amount of interest that must always remain deposited in a bond in order for it to stay active. The SPO will need to monitor and ensure that a Bond always contains enough future interest to meet the Interest Buffer. The Interest Buffer is a global parameter initially set at 6 epochs, or 1 month, by the protocol. In the case that deposited interest falls below this threshold, the bond can be canceled by the lenders.

The SPO has until the Close function is called to deposit any additional interest to keep the bonds active. If the Close function is indeed called, this trigger prevents the SPO from further depositing any more interest and makes the bonds redeemable for the underlying ADA plus accumulated interest, ending the life cycle of the bond. It is to be noted that since updating staking delegation has a two epochs delay, SPOs will need to be aware that they will not receive any staking rewards from the first two epochs, but will receive staking rewards for two epochs after the bond expires.

• Example: An SPO has a bond with 10 epochs of interest deposited, including the 6 epoch minimum buffer. Additional interest will need to be deposited within 4 epochs to keep the deposited interest from falling below the required minimum 6 epochs. When the deposited interest falls below the 6 epoch threshold, the bond becomes cancelable. If the bond is canceled, lenders can immediately redeem the underlying ADA plus accrued interest. Since the SPO loses the 6 epochs of the Interest Buffer, this can be seen as a sort of deposit to prove their intent to keep the bonds active for a predetermined amount of time. This also allows the lenders to not have to check daily on the status of their assets, as they could be missing out on staking rewards if their ADA is unknowingly not being used anymore.

Additional Interest

Additional Interest is the amount of interest deposited in a Bond beyond the required Interest Buffer. In the beginning it is 12 epochs = 18 epochs of ‘Premium’ minus 6 epoch Interest Buffer.

Subsidy:

All interest subsidies will be added to bonds right after the bond has been issued by an SPO. Once an SPO pays the required 3 months of premium, a bond issuance occurs, and the bond appears on the Optim front-end; Optim will add an additional 1 month of premium (interest payment) to the bond. Additional premium/interest payments can be added by anyone and don't require action by or permission from the SPO bond issuer. Subsidy Applications are handled by the Optim team individually and need to be approved before execution.

Ownership NFT:

Upon bond execution, the SPO will automatically receive their NFT Ownership Certificate for the respective bond. This Ownership NFT can be used to transfer the delegation to another pool in the case an SPO wants to exit their position and they have a willing person to transfer the bond to. If the Ownership NFT is lost, nothing changes besides their ability to transfer ownership of the bond and can keep their position as usual.