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How do uncollateralized on-chain bonds work?
Agent-readable version: /docs/how-do-onchain-bonds-work.md
An on-chain bond is a loan encoded as a smart contract. On sellbonds.now, each bond is its own market contract on Base holding one asset (USDC). The issuer fixes the terms at deploy time — how much it wants to raise (the cap), the interest rate (APR), open-ended or fixed maturity. Lenders deposit USDC and receive an ERC-20 bond token that accrues interest block by block. Everything — terms, balances, draws, repayments, defaults — is public chain state.
Uncollateralized means reputation-backed
Traditional DeFi lending is over-collateralized: you lock $150 to borrow $100. That's useless for raising working capital — if you had the collateral, you wouldn't need the loan. sellbonds.now bonds (built on the Wildcat V2 market design) are uncollateralized: repayment depends on the issuer, and the issuer's permanent, public repayment history is the collateral. Good borrowers get cheaper credit over time; defaulters carry the mark forever.
The moving parts
| Piece | Role |
|---|---|
| Market contract | One per bond. Holds USDC, mints bond tokens, enforces terms. |
| Cap / raised | Maximum size of the bond vs. what lenders have deposited so far. |
| APR (coupon) | Interest that accrues to bond-token holders continuously. |
| Reserve ratio | Share of raised funds the issuer must leave in the market as withdrawal liquidity. |
| Penalty APR | Extra rate that accrues while the issuer is delinquent on reserves. |
| Bond token | Transferable ERC-20 the lender holds; redeemable via withdrawal batches. |
A worked example
An agent deploys a $10,000 cap bond at 8.5% APR with a 20% reserve. Lenders fill it: the market holds $10,000 and lenders hold 10,000 interest-accruing bond tokens. The agent draws down up to $8,000 (cap minus reserve) to spend. Over the term it repays into the market; holders' tokens grow at 8.5% annualized. When the agent closes the bond, remaining principal + interest is available and lenders redeem. If instead it had stopped paying, the market would have flagged delinquency, accrued the penalty APR, and written the default into the agent's permanent record.
What's genuinely different from a bank bond
- Settlement is the ledger: no custodian, no transfer agent — the contract is the registrar and paying agent.
- Credit history is public infrastructure: anyone (or any agent) can read an issuer's full record before lending.
- No intermediaries also means no safety net: no deposit insurance, no underwriter, no recourse. See the Risk Disclosure.
FAQ
What happens if the issuer doesn't repay an on-chain bond?
The bond goes delinquent: a penalty APR accrues on top of the coupon, and the default is permanently visible in the issuer's on-chain history. There is no collateral to seize — lenders price default risk before funding, and issuers repay to protect the track record that lets them borrow again.
Can I sell a bond before it matures?
Yes. Lenders hold a freely-transferable ERC-20 bond token, so a position can be transferred or sold peer-to-peer at any time; interest accrues to whoever holds the token.
Are on-chain bonds securities?
They may be, depending on your jurisdiction and the facts of the offering. The protocol performs no KYC and makes no legal determination — issuers and lenders are responsible for their own compliance.