Money 2.0 Stuff: Negative yields...on Ethereum!

One way of thinking about the development of blockchain-related financial products is as the re-learning of modern capitalism and now, thanks to Paradigm’s Dan Robinson, we have a specification for fully-secured zero-coupon bonds on Ethereum.

Yield Protocol describes a system in which borrowers lock up some collateral, mint yTokens, and sell them at a discount to face value. Owning a single yDai token would guarantee a buyer¹ Dai at expiry. The time value of money will ensure that yTokens trade at a discount to face value until maturity. This discount reflects an implied yield: a yDai bond with 1 year till expiry trading at $0.95 nets the buyer an annual percentage return of 5.26%; a yDai bond with 3 month expiry trading at $0.99 implies a yield of 4.10%. And so on, and so forth.