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Charles Lee

Smart Bond - XDC Use Case

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Hi everyone,

After speaking to Atul, it became evident that XDC can be used in the TradeFinex Smart Bond in the following ways:

 

1.Paying XDC as a processing fee on exchange.tradefinex.org
The TradeFinex platform is powered by the XDC01 Protocol and a small processing fee is charged to deploy a bond onto the platform.

Where is XDC used?  - In order to record and deploy a smart bond on the platform, a small amount of XDC is required to be paid to process the deployment.

 

2. Lending and borrowing in XDC backed stable coin
A stable coin, for example called XSC (XinFin Stable Coin), can be issued at a conversion rate of 1 XSC = 1 XDC. Lender B can purchase $100 million equivalent of XSC and lend that to Borrower A. Borrower A pays the same number of XSC to Lender B when the bond expires.

Such a stable coin would be backed by multiples of XDC as a collateral to protect against the fall in value of XDC. For example, a ratio of 1/5 would imply that 5 XDC will be used to back the 1 XSC. In this case, even though 1 XSC = 1 XDC, additional 4 XDC would be held as collateral to protect against a reduction in the value of XDC. When Lender B receives the total number of XSC back that is equivalent to the total number of XSC borrowed, Lender B can have a peace of mind that the value equivalent to $100 million USD is returned to them.

Where is XDC used?  - The 5 XDC in this case would be locked into the XinFin blockchain and only released when the bond expires.

The advantages of using a XDC backed stable coin are as follows:
- Settlement on the XinFin/TradeFinex platform is significantly quicker compared to fiat
- XDC backed stable coin is most likely going to be fully regulated and hence will be more transparent than USDT (USD Tether)
- Participate and support the growth and stability of the XDC ecosystem.
- Increase the value of the XDC digital asset as a result of a reduced supply of XDC.
- Potential upside gain from an increase in the value of XDC.
- Benefit from the protection against falls in the value of XDC.
- Drastically reduced cost of foreign exchange fees if Lender B and Borrower A are in different countries requiring different forms of fiat.
- With traditional fiat becoming more and more unstable , stablecoins backed by digital assets may be a better way to hold your value. XDC can serve as a protection against fiat inflation over the longer term as XDC is fixed in supply.
- XSC could be represented as an IOU on the globally accepted standard of internet-based value exchange mechanism called the Interledger Protocol (ILP) and the value could be exchanged into other forms of fiat, digital assets or commodities with minimal friction and cost of conversion.

The disadvantages are as follows:
- An opportunity cost may exist as a significant amount of additional XDC would need to be sourced as collateral and locked-in XDC cannot be used for another purpose until bond expiry.
- The holder of the collateral would incur the loss should the value of XDC fall.

 

3. Lending and borrowing in fiat backed stable coin deployed on XinFin
A USD backed stable coin, for example called UBSC (USD Backed Stable Coin), can be issued at a conversion rate of 1 UBSC = 1 USD. Lender B can purchase 100 million UBSC and lend that to Borrower A. Borrower A pays back 100 million UBSC to Lender B when the bond expires.

Where is XDC used? - In this case, no XDC would need to be locked-in as a collateral. A smart contract processing fee analogous to ETH gas would be paid in XDC to execute the smart contract.

The advantages of using a USD backed stable coin are as follows:
- Settlement on the XinFin/TradeFinex platform is significantly quicker compared to fiat
- UBSC could be represented as an IOU and the value could be exchanged to other forms of fiat, digital assets or commodities using the Interledger Protocol (ILP) with minimal friction and cost of conversion.

The disadvantages are as follows:
- UBSC would lose value over time equivalent to the loss of value of USD over time due to inflation. Such a risk can be mitigated by increasing the bond interest receivable to include the anticipated level of inflation over the 5 years.

 

4. Lending and borrowing directly against XDC
Lender B would purchase $100 million USD equivalent of XDC from the open market and lend that to Borrower A. Borrower A pays back the same number of XDC to Lender B when the bond expires.

Where is XDC used? - XDC will need to be purchased from the open market.

The advantages of using XDC directly are as follows:
- Participate and support the growth and stability of the XDC ecosystem.
- Increase the value of the XDC digital asset as a result of increased demand for XDC.

The disadvantages are as follows:
- Lender B holds a significant risk due to the fluctuation in the price of XDC over the longer term should the value of XDC decrease significantly over the 5 years. 
- Borrower A holds a significant risk of not being able to pay back the same number of XDC should the value of XDC increases significantly over the 5 years

The above risks are likely to reduce significantly over the longer term as the XDC ecosystem matures and the increased liquidity of XDC results in lower price volatility until such time that the volatility becomes comparable to the fiat market FX fluctuations.
 

Hope you find this useful!

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I have published the full article here. I hope there is something valuable that you can take away from it!

https://medium.com/@guest1x/deep-dive-into-xinfin-part-1-tradefinex-smart-bonds-and-the-xdc-use-case-ca984ec20ba

 

We can use this section to discuss this article, especially if there are any fresh ideas regarding the 2 main XDC use cases:

1. Lending and borrowing in XDC backed stable coin

2. Lending and borrowing directly against XDC

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This article  has attracted 100k XDC bounty from the XinFin team!!!

If you have any quality content on XinFin related topics, you are invited to write articles for bounty.

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