Why DeFi Needs Bond Products

6 min readJan 20, 2022

Let’s start with what everyone is thinking…

Admittedly, bonds are not the most exciting topic in finance. Low yields, opaque markets, and decades-long maturities don’t capture the imagination of investors. This is especially true for retail investors whose attention is almost exclusively directed toward stocks or equity derivatives. Further out on the risk spectrum, you’ll find investors considering crypto–a far cry from ten-year treasuries.

a mental model for comparing assets; not scientific or to-scale

Those building the decentralized financial system of the future cannot overlook bonds. Bonds seed and stabilize the global economy by enabling debt and anchoring portfolios. With bonds, borrowers and lenders can transact with a higher degree of certainty, whether they are financing a new initiative or seeking a safe, stable return. In traditional financial markets, the global bond market was worth $17.7 trillion more than the global stock market in 2020, demonstrating the demand for stable, income-generating assets.

There are many ways to describe crypto today, but ‘certain’ and ‘stable’ are not common. If anything, crypto is synonymous with volatility and only for those with an insatiable appetite for risk. Catering to these users alone is not a sustainable path forward for the open, inclusive financial system of the future. DeFi cannot just be for degens — it must accommodate all risk tolerances and user groups. We need on-chain bond products that offer stable, high returns for investors, DAOs, and institutions who want to keep their capital in crypto and grow it in a sustainable, risk-adjusted way.

Bonds in TradFi

In traditional finance, global bond markets were worth $123.5 trillion in 2020. Comparatively, global equities were worth $105.8 trillion the same year. This fact may come as a surprise, but it demonstrates the global demand for low-risk, income-generating assets. Even in a low-to-negative yield environment, global bond issuance grew 19.9% year-over-year in 2020.


Building the financial system of the future #crypto #defi #web3