Topos Grant - Finacial Bonds Tokenization

Issue and manage financial bonds with the help of Blockchain technology

Description

This project demonstrates the issuance and management of Financial Bonds through ERC7092. The following functionalities have been implemented

• Identity Registry: This simulates an identity registry.
• ERC-7092 Interface: This provides an implementation of the ERC-7092 standard interface.
• Bond Contract: A contract designed for managing bonds.
• Bond Contracts Deployer: A contract used for deploying bond contracts.
• Bond Call Contract: A contract used for making calls to bond contracts.
• Investment Bank Contract: A contract for managing issuers, investors, deals and bonds life cycle
• Exchange Contract: A contract used for exchanging bonds between two parties.

Installation

To install the project along with all the dependencies run:

$ cd client
$ npm i

In some cases you may need to remove the package-lock.json in /client folder before running the command.

The next step is to launch an instance of Topos Subnet, and update the hardhat.config.js file to include the Topos Subnet.

Include the Topos Subnet in hardhat.config.js

To configure the Topos Subnet, we need to add a new network in the networks object in hardhat.config.js. This network will be called topos:

  networks: {
    topos: {
      chainId: Number(process.env.TOPOS_CHAIN_ID),
      url: `${process.env.TOPOS_ENDPOINT}`,
      accounts: [
        `${process.env.KEY1}`,
        `${process.env.KEY2}`,
        `${process.env.KEY3}`,
        `${process.env.KEY4}`,
        `${process.env.KEY5}`,
        `${process.env.KEY6}`,
        `${process.env.KEY7}`,
        `${process.env.KEY8}`,
        `${process.env.KEY9}`,
        `${process.env.KEY10}`
      ]
    }
  },

where chainId is the Topos sunbnet ID, which is 2359, and url is the Topos endpoint "https://rpc.topos-subnet.testnet-1.topos.technology". The accounts field is an array that contains private keys that will be used to deploy and sign transactions.

Contract Compilation and Deployment

To compile and deploy the contract on Topos Subnet, we first need to get some TOPOS tokens to pay for the gas fees Topos Faucet. Once received, run the following command in /client folder

    // Run Hardhat Network and keep it running
    $ npx hardhat node

    // Runs the deployment script and initializes contracts addresses
    $ sh deploy.sh 

Tests

To run tests, type the following command in /client folder

    npx hardhat test test/Bonds.js

Lauch the Dapp

To launch the Dapp, you first need to add the Topos to your Metamask, check here. Once Topos subnet is added to Metamask, run the following command in /client folder

    npm start

What is a Bond

A bond is a fixed income instrument that represents a loan made by an investor to a borrower. Bonds are used by companies and governments to borrow money from investors. A bond usually pays interests at regular interval of time, and repays the principal invested at maturity. Each bond must specify the coupon -the interests that investors will be earning-, and the maturity date -the date when the bond will mature-. Some bonds don't pay interests. In that case, the bond is sold at discount to allow investors make a profit.

How Bonds Work

Traditionally, when a company wants to issue bonds, they hire an investment bank that arranges the deal, issues bonds to investors and transfers the funds to the issuer.

Tokenized bonds are representation of debt issued on the blockchain as a token. Unlike bonds issued in a traditional way where their management is delegated to brokers and custodies, tokenized bonds are held by investors in their wallet. Investors are then responsible for the management of their tokens, lowering then costs related to fees from these entities.

Tokenized Bonds Workflow

To issue nad manage tokenized bonds, the following steps have been implemented

• Register a Bond Manager account. The bond manager account is responsible of executing some operations like issuing bonds, to investors redeeming bonds, approving a deal, etc.

• Register issuers and investors. This process simulates the registration of users to an Identity Registry. Only registered accounts can issue or invest in tokenized bonds.

• Submit a registration request to register an account as either issuer or investor.

• The bond manager approves or reject users request to become either issuer or investor.

• Approved accounts as issuer can submit a deal with a link to the deal prospectus.

• If the deal is approved then registered investors can invest on it.

• Investors register to a deal by submitting their investment

• When the issue volume is reached, the bond manager deploy the bond contract: ERC-7092 for the deal, and issue bond tokens to investors.

• Investors can now manage their bonds through their wallet.

• Registered investors can transfer bonds. They can also list a given amount of their bonds on the Exchange.

• Bonds listed on the Exchange can be updated by the seller. Operations like increasing the amount listed, updating the bond price or cancelling the listing are possible.

• Registered investors can buy bonds on the Exchange.

• After maturity, the bond manager call the redeem function to retire the bonds and repay the principal back to investors.

• The bond manager can call payInterest function to pay interest to investors.

• The bond manager is in charge of transferring the funds to the issuer. The platform takes a comission fee from each deal.

Improvments

Some processes like coupon payment and principal repayment can be automated. This require to integrate protocols like ChainLink. This cannot be done right now since automation through chainlink require Link tokens on the blockchain used by the Dapp. And at the moment, there is no Link tokens deployed on Topos yet.

Another improvment will be to allow bonds to be managed accross several blockchains. This is an interesting use case that can be used to test bonds management accros different subnets.