Step 1: Create an Offer for investors
Step 2: Activate and issue the Maple Smart Bonds
Step 3: Receive Dai and reinvest in DeFi lending platforms
Step 4: Redeem the Maple Smart Bonds, repay Investors and keep the profit
To Issue Maple Smart Bonds you need to have a MetaMask wallet and a Compound lending account. The MetaMask wallet lets you interact with Maple and store your tokens. The Compound lending account is where you will source the collateral, cDai, which secures the Maple Smart Bonds you create. When you create Maple Smart Bonds, the cDai in your Compound account is transferred to a Maple smart contract as collateral.
Once you create a Maple Smart Bond offer, you can cancel it until the end of the Offer Period.
When the Offer Period ends, the Maple Smart Bonds become Active and the Dai raised from Investors is transferred to you.
There are two stages:
1. Creating the Offer;
2. An Offer Period (set by the Issuer) during which Investors bid.
The Offer Period has no minimum, but we suggest allowing 2-7 days. When creating the Offer, you also set the minimum level of bids for the Smart Bonds to become Active. If investors bid for more than this threshold percentage of your Offer, the Smart Bonds will become Active.
At Maturity Date, the Dai withdrawn from Compound may be insufficient to repay all of the Maple Smart Bonds.
Any loss is first deducted from the Equity Class Maple Smart Bonds kept by the Issuer.
A shortfall may occur if:
1. (Code flaw on Compound) Compound’s smart contracts have been audited previously, however an undetected vulnerability may result in funds being inaccessible.
2. (Systemic Compound liquidations) At the time of writing, the collateral ratio on Compound is ~400%. While unlikely, a drop in the price of Ether of more than 60% in a very short time period would trigger liquidations on Compound. This could cause undercollateralisation of the Maple Smart Bonds and may result in a loss for Investors.
3. (Compound supply rate falls below the Class 1 interest rate) The ratio of cDai to MDTs on Activation should be 100%, so Investors will not suffer a loss of principal if the Compound lending rate falls significantly. Even if the Compound lending rate were zero, it would be unlikely for the Investors not to receive all accrued interest. This is because the interest is repaid from the cDai before the Equity Class receives any repayment.
Issuers can use Maple to speculate on or hedge Compound interest rates. The Issuer earns a floating interest rate from the cDai collateral but pays a fixed interest rate on the Maple Smart Bonds.
If the Compound lending rate increases before the MDTs reach Maturity Date, then the Issuer’s profit will increase. So Issuer’s can speculate on interest rates. The Issuer is taking a long position on DeFi lending rates.
If the Compound interest rate decreases below the Class 1 MDT interest rate for a long enough period, the Issuer may incur a loss by having to pay Investors more than they earn. This is because the Maple Smart Bond interest is fixed while the lending rate earned on the collateral is floating.