Porter Finance has a new idea to help DAOs grow: DeFi Bonds”

Porter Finance has a new idea to help DAOs grow: DeFi Bonds”

Currently, if a DAO with a treasury full of tokens wants to raise money to operate, its main option is to sell tokens either through private sales or on the secondary market. Porter Finance plans to give these DAOs (decentralized autonomous organizations) a new strategic tool that is more similar to issuing corporate bonds.

The platform will allow DAOs to borrow stablecoins at fixed interest rates, using their project's tokens as collateral, without any risk of liquidation. This is effectively a zero-coupon bond sold to investors looking for fixed income, Jordan Meyer, founder of Porter Finance, told Blockworks.

“No one has yet developed a DAO-friendly solution for borrowing,” Meyer said.

The platform will allow DAOs to deposit collateral from their treasury, create a “DeFi bond” offering at a discount for investors, and then have them repay the loan on the due date with interest set by the market.

"We let the DAOs choose how they want to structure [the offering]. The DAO can list the offering and only allow KYC-certified or accredited investors or, if they want, make a public offering - it's up to them," Meyer added.

The front end of the platform will initially be designed to exclude users from the US or sanctioned countries due to regulatory uncertainties.

There are some important differences from bonds in traditional financing, namely the risk profile. Bonds issued by DAOs will not be senior in any corporate capital stack, nor will the contracts be open to enforcement in bankruptcy, which is not practical for loans to DAOs. Instead, they are secured by the collateral in Porter Finance’s smart contracts.

Lenders assume some directional price risk of the underlying collateral asset, but in return receive an option premium determined by the market at the time of offering.

"This option premium - and discount - is set during the auction. Market participants who bid decide what the implied volatility is for them, how the option should be priced, essentially the market risk they take," Meyer explained.

For the DAO borrower, the system provides a mechanism to fund working capital for operations without driving down the price of their treasury token, losing governance rights, or risking liquidation in a money market fund like Rari Capital Backup pools — now part of the Tribe DAO.

A chance climb

Meyer fleshed out the idea for Porter Finance while climbing Mount Kilimanjaro in Tanzania in September 2021.

"You have 15 pounds on your back, but there are these other people helping you called porters...you would never make it up the mountain on this 7-day hike if you didn't have the porters to carry bags for you or to help you get up - and that was really impressive to me," recalls Meyer, who named the protocol after these hard-working helpers.

“We want to be able to empower DAOs to reach their peaks, their peaks, and their financial goals.”

The platform's original logo was a green backpack, which unfortunately was mistaken for a robot, said Meyer. Its branding has since been revised ahead of a planned June launch on the Ethereum mainnet following smart contract audits by Secureum and spearhead.

“We will go where the DAO treasuries are, and right now that is Ethereum,” Meyer said.

A “huge market”

Porter Finance has closed a $5 million seed round with investments from ParaFi Capital, Dragonfly Capital, Nascent Ventures, Buckley Ventures, Robert Leshner, Kain Warwick, Tyler Ward, Joey Santoro and Sam Kazemian.

Nascent co-founder Dan Elitzer told Blockworks he jumped at the chance to support Porter after discussing a similar concept with Ben Forman, founder and managing partner of ParaFi.

"Corporate debt is just an absolutely huge market. And companies that need liquidity don't just go out and sell more stock...debt-based financing just makes a lot more sense - effectively cheaper capital," Elitzer said.

“This is an important additional tool that DAOs should have in their toolbox,” he said.

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The post Porter Finance has a new idea to help DAOs grow: “DeFi Bonds” is not financial advice.