13. How do the securities and bonds work?
The EURxb Security Asset ERC721 NFT represents a call against the collateral backing the protocol’s bond reserves, and is locked into EURxb’s Bond Smart Contract that mints a linked EURxb Bond ERC721 NFT. This token represents a bond subscription to the ISIN Registered Security and is in turn locked into the EURxb Euro Smart Contract to generate the EURxb stable coin - which appreciates at the bond interest rate (normally 7% per annum). This means that each Bond NFT’s value is overcollateralised at a security/debt ratio of 4:3 with the value of a counterpart Security Asset NFT, and that the EURxb stable coin is always backed by tokenised ISIN Registered Securities as reserves.
At maturity, the EURxb stable coins that are in circulation have to be bought back by Bond Holders from the market, to be repaid into the EURxb Euro Smart Contract before unlocking the Bond ERC721 NFT token. The Bond NFTs must then in turn be bought back by the issuer, with the principal and interests due to the NFT holder (per the issuer’s contracted bond agreement terms) in order to settle the issuer’s legal liability. Should a bond holder be unable to pay back the EURxb tokens to the Euro contract, their Bond NFTs will remain locked and they will be unable to lay claim to the principal and interest repayment until it is unlocked. It is likely that some EURxb stable coins will remain in circulation after the 4 year maturity date, and therefore these will remain secured by Bond ERC721 NFTs - which will then become backed by the paid out principal and interest from the bond maturity (which can be called upon at any later stage), as the Security Asset ERC721 NFTs is updated to reflect these funds (at 1:1 value with the Bond ERC721 NFT) as opposed to the original over collateralized security - and simply cease earning interest but still be fully backed by secured reserves.
In the unlikely event that the ISIN Registered Bond Issuer fails to abide by the respective ISIN compliance terms at any time, or make due payment on the notional (principal) and interests due, EURxb.finance requires that an issuer stipulate in their Bond Contract that the claim of the Bond NFT and Security Asset NFT holder is prioritised over any other. Therefore should a liquidation action (or any other) occur to settle the Bond principal and interest, the Bond NFT holder will receive the first proceeds on the sale of the security collateral as tokenised by the Security Asset NFT in line with market regulations, ensuring that the EURxb stable coin value is secured.