The Process


The following chart summarizes the process and the steps required by different participants.

1. Deploy and hold IBO

The first phase of the bond-process is the IBO. The IBO phase is zero-commitment. (i.e. the DAO can deploy a Bond & IBO without actually moving any of their DAO-tokens into the IBO-Box until they are confident with the lending demand).
The IBO-Box acts as an refundable escrow until the bond is ready to be activated. The DAO should have the following information to deploy an IBO-Box:
Maturity date
  • End date for the convertible bond
  • ERC20 address of the stablecoin to be used for the loan & repayment
Interest Rate
  • A percentage of interest to be paid over the term of the bond
Tranche Ratio
  • In the event that the DAO fails to repay the loan, the lender/bond-holder is able to redeem a senior claim on the DAO tokens. The ratio specified here represents the size of the senior claim.
  • I.e. with a 20/80 ratio, the DAO forfeits the first 20% of remaining collateral when they don't repay their loan. For more info, please see the Buttonwood Docs.
Penalty %
  • Represents a % of the junior claim on the deposited collateral.
  • I.e. a 10% penalty with 20/80 tranche ratios means that the issuer has a claim on the last remaining 72% of buttonTokens at maturity
Once the IBO-Box is deployed, the DAO can create "IssueOrders" by depositing their collateral and lenders can create "BuyOrders" by depositing their stablecoins. Orders can be canceled before bond activation by burning the order for the underlying token.
Order creation involves deposting a token into the IBO-Box for an Order Token.
It's encouraged for DAOs to advertise/market their IBO in their community channels in order to attract lending demand. There is no on-chain enforced end-date for an IBO, but it's encouraged for the DAO to have a date planned for either activating the bond, or retracting their deposit.

2. Activation

Once the DAO is satisfied with the IBO deposits, they can activate the bond. This will simultaneously issue the bond-slips to the IBO-box.
Upon Activation, the DAO-token will be replaced with BondSlips and DebtSlips.
This will allow the DAO to execure their order token and withdraw the loan. Likewise, lenders can execute their "BuyOrders" to withdraw their BondSlips. If there was excess lending or borrowing demand, the unmatched orders will be able to cancel their order after bond-activation.
Once the bond is activated, the DAO can repay the loan at any time with the interest that has been accumulated. Bond holders can redeem the stablecoins any time after repayment.
Repayment involves paying the the loan amount + interest, and burning the DebtSlip.
BondSlip holders can redeem their slips for stablecoins as soon as they have been repaid to the box.
The issuer can also set a fee on the bond-box. This fee is paid to the owner of the bond-box and represents a percentage of the claim when slips are either repaid or redeemed. This is useful when DAOs issue a bond and expect that there will be free-market participants looking to borrow against their token.

3. Maturity

Once the bond has reached maturity, bond-holders can redeem any slips that have not been repaid for DAO-tokens. If the issuer chooses to not repay the loan, they can redeem their slips for the junior tranche of the collateral minus the penalty.
Last modified 6mo ago