zClay Bonds

What are zClay bonds?

zClay bonds are zero-coupon bonds given to users in exchange for staking Clay tokens acquired through mining or purchasing Clay.

How do zClay bonds work?

zClay bonds work exactly like zero-coupon bonds. Sumero users lend their Clay tokens to the Sumero protocol via the bond page and receive zClay bonds in return. Upon maturation, zClay bonds are redeemable for the original Clay bonds deposited plus the additional Clay tokens accrued over the duration of the bond period. As mentioned above, the difference between the purchase price of the zClay bonds and the value of the tokens redeemed at the end of the bonding period indicates the investor's return.

What are zClay bonds denominated in?

zClay bonds are denominated in Clay, Sumero’s native currency.

How is the price of zClay bonds determined i.e. what price discovery mechanism is used by zClay bonds?

Bonding curve theory, which allows for a fixed and predetermined price discovery mechanism, is applied in the context of zClay bonds to determine price at any given time. In theory, the closer a zClay bond gets to maturity, the more expensive it should become as the bond is closer to the bond maturity date at which the bond holder can use it to claim Clay. Those that buy zClay bonds earlier (further from the maturation date) take on more risk as the uncertainty of Clay’s price at the maturation date is greater. Thus, the more risk the user takes on, the lesser the price of a zClay bond will be to account for this additional risk. For example, if one were to purchase a zClay bond 3 days prior to maturation, the buyer in this case assumes much less risk and uncertainty with respect to Clay’s price at maturation, and consequently must pay a premium for that reduction in risk.

Who sets the maturation date of zClay bonds?

The maturation date of zClay bonds is set by the GAL.

Do zClay bonds mature at the same point in time or in a segregated fashion?

All zClay bonds reach maturity at the same point in time.

How are zClay bond issuance rewards calculated?

The bonds are issued at a 60% APY

How are zClay bonds priced after issuance?

If the market is efficient, prices of zClay denominated in Clay on the secondary market would be expected to be the same as the daily issuance price and continue to decline at the same rate shown here once issuance has finished after 1 year. The price should reach almost 1:1 on the final day before maturation.