# Interest Rates & Bonds

As of 2021, the size of the bond market is estimated to be at $119 trillion worldwide. Derivio is positioned to be the pioneer that brings bond products to the DeFi landscape through its game-theoretical design.\
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Providing liquidity on Derivio is effectively holding a market-neutral index while generating yield from market making & fee sharing. As the yield can be highly profitable, it also comes with uncertainty. Derivio's interest rate & zero-coupon bond markets allow users to have ultimate control over their portfolio, while providing powerful legos for building novel DeFi strategies such as pseudo-fixed income products.

`DLP = rDLP + bDLP`

`One DLP can be used to mint one rDLP and one bDLP. rDLP represents revenue, and bDLP is effectively a zero-coupon bond.`

1. Stake rDLP, locked for 7 days, to share 7 days revenue
2. Stake bDLP, locked for 7 days, receive 2% of the staked rDLP
3. By staking 1 rDLP, 7 days later, less than 1 rDLP + 7 days revenue can be claimed
4. Rebalancing is done every hour
5. By staking bDLP for a long period of time, a bDLP staker continuously gets rDLP, so bDLP converges back to DLP, which can be redeemed for the underlying asset.

<figure><img src="https://321027494-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FIIIrSj6j1yGgDveIXYRQ%2Fuploads%2FwjhCujo29XxNvDTujIeh%2Fimage.png?alt=media&#x26;token=c6f78aba-eb28-48c2-b980-fc3bbe11c661" alt=""><figcaption><p>Zero-coupon Bond*</p></figcaption></figure>

<figure><img src="https://321027494-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FIIIrSj6j1yGgDveIXYRQ%2Fuploads%2FuPApl6AfelVx2V3b158j%2Fimage.png?alt=media&#x26;token=ae8d1c55-f7c1-4866-95e8-4e8dea3c3a3b" alt=""><figcaption><p>Interest Rate*</p></figcaption></figure>

\*: Note that the period (i.e. \~1 year) in the pictures is flexible to user's choices.

The separation allows different kinds of traders to participate: those who want yield from the platform can buy rDLP from the market, and hence enjoy a leveraged position, whereas the bond investors will be able to lock in a fixed investment return by buying bDLP. In the TradFi world, rDLP is the variable yield, and bDLP is a [zero-coupon bond](https://www.investopedia.com/terms/z/zero-couponbond.asp). And the game theory behind the mechanism design pushes the corresponding prices of yield and bond to converge to the **Schelling point** — that is, rDLP represents the yield, and bDLP represents the principal ownership.\
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**FAQ:**

**- Why would I buy rDLP?**

Notice that rDLP has zero delta exposure. For yield-hungry investors, rDLP offers the most capital-efficient way of doing (leveraged) delta-neutral farming without the risk of liquidation.<br>

**- Why would I buy bDLP?**

For conservative investors who favor passive investment, bDLP offers the most capital-efficient way of entering principal-protected passive investment opportunities over a variety of indices.

Read more here & Use Cases:

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