Secured Finance Docs
HomeBlogGitHubCommunityStablecoin ↗Fixed Income ↗
  • Introduction
    • ⚜️About Secured Finance
    • 🎏Vision & Mission
    • 🌍Ecosystem Overview
    • 🏁Roadmap
      • Roadmap 2024
      • Roadmap 2023
    • 📚DeFi Starter Guide
      • 🔄DeFi vs CeFi
      • 👛Wallet Setup
      • ⛽Gas Fees
      • 🤝DApps
      • 🏦DEX
      • 📝Smart Contracts
      • 🪙Governance Tokens
      • 🏛️DAOs
  • USDFC Stablecoin
    • 📢Overview
    • 🧙Getting Started
      • ⛽Creating Your First Trove
      • 👛Minting USDFC Step-by-Step
      • 🤝Managing Collateral Effectively
      • 🏦Monitoring Your Position
      • 🏊Using the Stability Pool
      • 💸Redeeming USDFC
    • 🔦Core Mechanics
      • 🏗️System Overview
      • ✏️The Trove System
      • 💰Mint & Borrow
      • 🚰Liquidation
      • 💸Redemption
      • 🧀Protocol Fees
    • 🎓Advanced Topics
      • 🚨Recovery Mode
    • 📔Contracts and Security
    • ❓FAQs
  • Fixed-Rate Lending
    • 📢Overview
      • 📖White Paper
      • 🎓Concept Paper
    • 🧙‍♂️Getting Started
      • 💵Lending Assets
      • 🏦Borrowing Assets
      • 📈Managing Positions
      • 🎮Platform Guide
        • 💰Trading
          • 💲Supported Currencies
        • 📈Markets
        • 🐋Portfolio
        • Bridge
        • 🚀Points
        • 📣Campaign
    • 🔦Core Mechanics
      • 🧩Order Book System
        • 🆎Order Type
        • 🪃Order Life Cycle
          • 💫Case Study: Order Status & Transition
      • 📐Standardization
        • 💠Zero-Coupon Bonds
        • ⏳Fixed Maturity
      • 🏋️Collateralization
      • 🪙Tokenization
      • 🚰Liquidation
        • ⚖️Mark to Market
        • 👮‍♂️Liquidators
          • ✏️How Liquidation Works
        • 📋Liquidation Case Study
      • 🧀Protocol Fees
    • 🎓Advanced Topics
      • 📈APR vs APY
      • ➗ZC Bond Price to APR
      • 📉Discount Factor
      • 🏋️‍♀️ZC Bond Collateral
        • 🏍️ZC Collateral Case Study
      • 🧬Market Dynamics
        • ♻️Auto-Rolling
          • 💰Price Discovery for Auto-Rolling
        • 🗓️New Market Listing and Delisting
          • 🤝Itayose - Fair Price Discovery
      • 🛡️Safety Measures
        • 🚦Circuit Breaker
          • 🛑Price Range Limits
        • 🪄Base Price Adjustment
        • 🌎Emergency Global Settlement
      • ⛓️Orderbook Deep Dive
        • 🎡Orderbook Rotation
        • 🎋Red Black Tree
        • ⏯️Lazy Evaluation
        • ⏮️Genesis Value
        • 🔄Compound Factor
    • 📔Contracts and Security
    • ❓FAQs
  • Developer Portal
    • 🧑‍💻Introduction
    • 🔌API Reference
      • 📈Fixed-Rate Lending Subgraph
        • 🔍Query Examples
    • 📦SDK Reference
      • ⛽Fixed-Rate Lending SDK
      • 👛USDFC SDK
    • 🐛Bug Bounty
  • Community
    • 🤝Overview
    • 🏛️Governance
    • 🪙Tokenomics
      • 🔵Secured Finance Coin (SFC)
      • 🔶Secured Finance Points (SFP) v2
        • 🔶Secured Finance Points (SFP) v1
    • 🎗️Support & Contacts
  • Resources
    • 🖼️Media Kit
      • 🖼️Secured Finance Logo
      • 💲USDFC Logo
    • ⚖️Legal
      • 📜Terms of Use
      • 🔒Privacy Policy
      • ⚠️Risk Disclaimer
Powered by GitBook
On this page
  • Overview
  • How It Works
  • Key Parameters
  • Examples
  • Example 1: Lending with Zero-Coupon Bonds
  • Example 2: Borrowing with Zero-Coupon Bonds
  • Common Questions
  • Why use Zero-Coupon bonds instead of traditional interest-bearing loans?
  • How do I calculate the yield on a Zero-Coupon bond?
  • Can I sell my Zero-Coupon bond before maturity?
  • What happens at bond maturity?
  • Related Resources

Was this helpful?

Edit on GitHub
Export as PDF
  1. Fixed-Rate Lending
  2. Core Mechanics
  3. Standardization

Zero-Coupon Bonds

Understanding Zero-Coupon Bonds as the standardized instrument in the Fixed-Rate Lending Protocol

PreviousStandardizationNextFixed Maturity

Last updated 1 month ago

Was this helpful?

Overview

Zero-Coupon bonds are debt securities that do not pay interest (coupons) but are traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value. The Secured Finance platform uses Zero-Coupon bonds as the standardized instrument for fixed-rate lending and borrowing.

How It Works

The Zero-Coupon standard was chosen for its cost efficiency, simplicity, and low risk. With only two cash flows involved in the transaction - the initial and final exchanges - it saves on gas and operational costs. Investors can enjoy the simplicity of not having to track or reinvest coupon payments. The frequency of transactions is minimized, reducing operational risks.

Zero-Coupon bonds are traded at a discount to their face value and redeemed at full face value at maturity. On the Secured Finance platform, bonds are redeemable at 100.

The platform streamlines the borrowing and lending process by allowing users to specify the desired 'Price' and 'Amount' parameters. The system instantaneously calculates the implied Annual Percentage Rate (APR), interest accrual, estimated $ value, and transaction fee upon submission. For further information on , please consult the relevant materials.

Key Parameters

Parameter
Description
Value

Bond Par Value

The value at which bonds are redeemed at maturity

100

Maximum Bond Price

The maximum price allowed for bond orders

100.00

Minimum Bond Price

The minimum price allowed for bond orders

Varies by asset

Price Precision

Decimal precision for bond prices

2 decimal places

Yield Calculation

How yield is calculated from bond price

Examples

Example 1: Lending with Zero-Coupon Bonds

Bob wants to lend 1,000 FIL for 1 year at a 25% APY:

  1. He navigates to the lending interface and selects the 1-year maturity market

  2. For a 25% APY, he sets his price at 80.00 (calculated as: 100 / (1 + 0.25) = 80)

  3. He places a limit order to buy Zero-Coupon bonds at this price

  4. When the order is filled, he pays 800 FIL (1,000 × 80.00 / 100)

  5. At maturity, he receives 1,000 FIL, earning 200 FIL in interest

  6. This represents a 25% return on his initial investment of 800 FIL

Example 2: Borrowing with Zero-Coupon Bonds

Alice needs to borrow FIL for 6 months and is willing to pay a 20% APR:

  1. After depositing sufficient collateral, she navigates to the borrowing interface

  2. For a 20% APR on a 6-month term, the price would be approximately 90.91 (calculated as: 100 / (1 + 0.20 × 0.5) = 90.91)

  3. She places a market order to sell Zero-Coupon bonds at this price

  4. When the order is filled, she receives 909.1 FIL upfront (1,000 × 90.91 / 100)

  5. At maturity, she will need to repay 1,000 FIL

  6. The effective interest paid is 90.9 FIL on a loan of 909.1 FIL for 6 months

Common Questions

Why use Zero-Coupon bonds instead of traditional interest-bearing loans?

Zero-Coupon bonds offer several advantages: they're simpler to implement on-chain (only two cash flows), more gas-efficient, eliminate reinvestment risk for lenders, and provide clear, upfront terms for both borrowers and lenders. The discount-to-par structure also makes yield calculations transparent and intuitive.

How do I calculate the yield on a Zero-Coupon bond?

For bonds with maturity less than 1 year: APR = (100/BondPrice - 1) × (365/DaysToMaturity)

For bonds with maturity greater than 1 year: APR = (100/BondPrice)^(1/YearsToMaturity) - 1

Can I sell my Zero-Coupon bond before maturity?

Yes, you can sell your position before maturity by taking an opposite position in the market. For example, if you initially lent (bought bonds), you can exit early by borrowing (selling bonds) of the same maturity. This effectively closes your position, though market conditions at the time will determine whether you realize a gain or loss.

What happens at bond maturity?

At maturity, Zero-Coupon bonds reach their par value (100), but the protocol does not have automatic settlement functionality. Users must manually unwind their positions by taking the opposite action in the market. Lenders who want to receive their funds must sell their positions, and borrowers must repay their loans by buying back their positions. The protocol does not handle this settlement process automatically.

What is the price range of the Zero-Coupon bond?

Our platform enforces a strict constraint on the ZC bond price, capping orders at 100.00. This indicates that the protocol precludes negative yields on the corresponding assets, rendering them unfeasible for placement.

Related Resources

See

🔦
📐
💠
ZC Bond Price to Yield conversion
Fixed Maturity
Orderbook Mechanics
ZC Bond Price to APR
Discount Factor
ZC Bond Price to APR