A Primer on Securities – Part III

Bonds

Case C in securities (creditor of an institution) is what is known as debt issuance (bonds) of an institution. The bonds are an acknowledgment of the debt of an institution (company, state, etc.) to the “holder”, which can be an individual or other institution (individual investor, investment fund, bank, financial company, insurance company).

The bonds pay interest, and optionally, capital dues.

 

The payments in this case are:

  1. the capital invested
    • returned in capital installments
    • returned in one payment upon arrival of the expiration date of the bond
    • returned in a single payment at the discretion of the issuer (this payment must be manually triggered)
  2. interest on invested capital, which may be:
    • fixed interest (an interest rate is agreed upon issuing the bond)
    • variable interest, where the interest rate to be used to calculate interest will be a market rate (Libor, US Treasury bond rate, others)
    • it is paid in fixed dates (monthly, quarterly, annual)
    • limited in number (x installments) because the bond has a predetermined amount of installments for the return of capital
    • limited in number (1 installment) because the bond has a fixed date for the return of capital in a single payment
    • unlimited in number (n installments) because the bond does not have a predetermined date for the return of capital, and interest is paid until the issuer of the bond decides to return the capital

 

Case C (issuance of debt of an institution) covers the following data:

 

data of the institution issuing the debt:

  • brand name of the institution
  • the corporate name of the institution
  • jurisdiction in which it operates

 

token issued as a bonus, with its own data:

  • token name
  • number of tokens issued (example: 100,000 tokens)
  • total capital represented by tokens (example: 100,000 tokens can represent 100,000 dollars or 1,000,000 or 10,000,000)
  • in this case, there is no right to vote

 

data for payments of capital quotas to be executed:

  • capital payment schedule (monthly, quarterly, annual, single date at maturity of the bond) (then it must be executed periodically, or in the case of being a single payment at discretion, it will be executed manually)
  • payment to be made to each token holder (pro-rata calculation) where the calculation is made as follows:
    • total capital composed by investors (example: 1,000,000 dollars) / amount of return fees (example: 10 installments, 100,000 dollars per installment)
    • the capital to be returned is prorated over the number of tokens (example: if there are 1,000,000 tokens there are 0.05 dollar cents for each token, that is, it is divided by the total amount of tokens issued, and then multiplied by the number of tokens of each holder)
    • Example: on a 100,000 dollars investment, capital return fees are received as follows:
      • month 01 => 10,000 (balance 90,000)
      • month 02 => 10,000 (balance 80,000)
      • month 03 => 10,000 (balance 70,000)
      • month 10 => 10,000 (balance 0)

 

data of interest payments to be executed (fixed rate):

  • interest payment schedule (monthly, quarterly, annual) (then must be executed periodically)
  • default annual interest rate payable
  • payment to be made to each token holder (pro-rate calculation according to interest rate) where the calculation is made as follows:
    • total capital by interest rate (example at fixed rate: 1,000,000 dollars for 10% per year = 100,000 dollars)
    • the interest is prorated on the amount of tokens (example: if there are 1,000,000 tokens there are 0.10 cents for each token, that is, it is divided by the total amount of tokens issued, and then multiplied by the amount of tokens of each holder)
    • example at a fixed rate: on an investment of 100,000, interest payments are received as follows:
    • total investment 1,000,000 / individual investment 100,000 = the participation rate is 10%
    • month 01, rate 10% => 100,000 => 100,000 / 10 = 10,000
    • month 02, rate 10% => 100,000 => 100,000 / 10 = 10,000
    • month 03, rate 10% => 100,000 => 100,000 / 10 = 10,000
    • month 10, rate 10% => 100,000 => 100,000 / 10 = 10,000

 

data of interest payments to be executed (variable rate):

  • interest payment schedule (monthly, quarterly, annual) (then must be executed periodically)
  • annual market interest rate payable (Libor, US Treasury bond rate, others to be defined) (this must arrive by oracle, since it is dependent on the evolution of the chosen market rate and cannot be calculated in the blockchain)
  • payment to be made to each token holder (pro rata calculation according to interest rate) where the calculation is made as follows:
    • total capital by interest rate (example at variable rate: 1,000,000 for 10% per year = 100,000, 1,000,000 for 7% per year = 70,000, 1,000,000 for 5% per year = 50,000, 1,000,000 for 8% per year = 80,000)
    • the interest is prorated on the amount of tokens (example: if there are 1,000,000 tokens there are 0.10 cents for each token, that is, it is divided by the total amount of tokens issued, and then multiplied by the amount of tokens of each token holder)
    • variable rate example: interest payments are received on an investment of $ 100,000:
      • 1,000,000 total investment / 100,000 individual investment = the participation rate is 10%
      • month 01, rate 10% => 100,000 => 100,000 / 10 = 10,000
      • month 02, rate 7% => 70,000 => 70,000 / 10 = 7,000
      • month 03, rate 5% => 50,000 => 50,000 / 10 = 5,000
      • month 10, rate 8% => 80,000 => 80,000 / 10 = 8,000

 

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