A Sustainable Market
The vast portion of CeFi and DeFi margin lending markets exist to finance trade leveraging. This is a well-established market. Borrowing to margin on stocks has become an essential part of equity markets. Money is provided to investors of all sizes so that they may take leveraged positions on their stock or even bond portfolios. The limitation, though, is that in the traditional markets, this opportunity is exclusively available to large investment institutions or large brokers themselves.
This means this powerful and stable source of interest on capital has not been available to retail, except in the cryptocurrency market. DeFi has shed light on the great opportunity risk-averse retail investors have: they can avoid exposure to volatile assets and instead provide funds to traders who want leverage. This is not new in the cryptocurrency space. Exchanges like Bitfinex have been offering this for years, to the tune of billions of dollars in loan originations per week. CeFi further grew the market. DeFi is the newest player in town, in an otherwise well-developed market, in which capital is lent to traders who want to multiply their trade size.
At the same time, retail participation in margin funding across both CeFi and DeFi is hitting record levels. CeFi lenders like Celsius and BlockFi have amassed $1B to $1.5B in lendable deposits, each. Industry exchanges are offering similar services, allowing retail to become a part of the market, with exchanges like Binance, Huobi, Bitfinex, and other large operators each managing billion-dollar margin funding markets. DeFi, on the other hand, has also hit record levels with over $10B in participation.
Given that margin funding is not new, the market has evolved rapidly, picking up features from the traditional market, where necessary. We are now at a stage where billions of dollars are generating stable interest on principal deposits, while having ample resources to insure the principal. Still, this market only managed to attract people once it promised tripledigit returns through unsustainable farming. That’s because people cannot care about 8% to 10% annualized returns from a new market, if they can get the same in traditional markets.
The historical stable yields in CeFi and DeFi have hovered between 8% to 10%. While that may seem grood, it’s nothing outstanding. In fact, it’s just a bit higher than the S&P500’s average annual return over the past 20 years, and lower than the S&P500’s average annual return over the past 10 years. Meanwhile, the ease of accessing exposure to the S&P500 index is extremely easy, while also being a tried and tested means of acquiring wealth. The VRTB gives this sustainable yield generation a new avenue for growth, one far more exciting than stable returns of 8% to 10%. At the same time, the long-established status of the margin lending market ensures that the VRTB, as a product, is incredibly sustainable.
Through the Venture Risk Tokenized Bond, users delegate their interest earned via DeFi/CeFi over collateralized margin lending markets, to projects of their choosing. By locking up their staked assets for a predefined period, projects are given their target funding month to month via all users’ collective interest delegated to the project. Companies are funded based on their required burn rate. Projects can issue more bonds if their burn rate increases and the market showcases demand. However, the project cannot increase token supply so the tokens issued via a new round of bonds have to come from pre-allocated tokens.
Interest will be generated through NEPRIV Risk Tokenized protocol and on known third-party CeFi/DeFi providers in the market that have insured accounts. The market is already at a stage where all major centralized providers are deposit-insured, and key DeFi platforms are supported by smart contract insurance. Interest will only be generated strictly from margin lending markets that are built on high overcollateralization for borrowing. DeFi involvement will also be limited to established platforms that offer only overcollateralized margin lending. While novel DeFi products, such as liquidity pools, can generate more interest, they carry risk due to their market novelty, have yet to prove sustainability, and are likely to lack insurance.
To participate, users transfer funds to the NEPRI VRTB platform. Capital is then deployed on NEPRIV risk tokenized protocol, leveraging yield on insured centralized lenders or insured wallets participating in established DeFi lending. The interest generated from the principal is directed to early-stage ventures of the user’s choice. Users are offered a wide variety of companies, ranging from different technological and commercial markets, to choose from. Participation can only happen when a bond issuance is taking place through a primary offering. The bond’s terms are decided by the project issuing it. The bond may issue tokens on a periodic basis or only at maturity. Bond buyers are able to withdraw their principal at bond maturity.
Participation is similar to any investment, as users have to consider whether they believe in the venture. The key difference is that the Venture Risk Tokenized Bond makes venture participation much more tolerable as the risk is greatly reduced.
The tokens received from VRTBs could be liquid. Therefore, a value can be associated with the bond itself depending on the value of the tokens it is issuing. A Venture Bond exchange will be created to facilitate these bonds liquidity and trading at market-decided values, thereby making Venture Risk Tokenized Bonds attractive to investors as they can be as liquid as tokens.
The exchange will only support VRTBs of tokens, as trading of Venture Risk Tokenized Bonds of equities would require a securities exchange license, which may never be accessible. A private VRTB exchange for equities may be available for accredited investors only.