Lend (Buy & Bid)
Lenders can lock in a fixed rate of return by depositing USDT in the Buttonwood Zero app.
To lend on Buttonwood Zero, users need to specify: a. The asset they would like to lend cash against (ETH, wBTC, & AMPL) b. The desired level of risk (A-Tranche is the safest and paid out first) c. Whether they want to Lend through Buying Bonds on the Spot Market, or through placing a Bid Order on the AMM.
Lenders earn yield by purchasing discounted tranche tokens, which then have an expected redeemable value of $1.00. In the below example, a user might purchase ETH A-Tranche tokens for $0.81 per token, implying a discount rate of ~19%, and an implied return of 23.46% (See More: Discount Rate vs. Yield).
Note: In times of low borrowing demand, lenders could be forced to place Bids rather than Buy on spot market.
After selecting the desired bond, the next step is to input how much cash (USDT) to lend:
The Estimated Tranche Output is the number of Tranche tokens users receive based on the inputted borrow amount
After beginning the process of purchasing the bond users are asked to confirm through their wallet. Currently, the supported wallets include Metamask, WalletConnect, Coinbase, and Authereum.
In times of low liquidity or low borrowing demand, it may make more sense for users to place a bid order, rather than purchasing bonds on the spot market. This allows users to lock in their desired rate.
If the liquidity is thin enough, users might only be able to place a bid:
After selecting Bid, users decide how much USDT they would like to deposit:
Lenders then need to set their bid price (Note: Bids must be below market price):
Then, users confirm their bid:
Confirm the bid with your wallet:
- Collateral Asset: This is the asset that underlies the tranche tokens. The risk profile of the tranche tokens is related to the changes in value of the collateral token.
- Tranche: On the spot market, lenders can choose between A-Tranche and B-Tranche to lend against. The A-Tranche is paid out first and therefore receives a lower discount rate in normal market conditions.
- CDR: This is the current collateralization ratio of the bond. Generally, higher CDR values are safer to loan against because it indicates a larger buffer before tranche tokens begin to lose value.
- Maturity Date: This is the number of days until the bond matures. Maturity is the date upon which the tranche tokens are redeemable for underlying collateral tokens.