Porter Finance Has a New Idea To Help DAOs Grow: ‘DeFi Bonds’
Blockworks Exclusive: The Ethereum dApp will let DAOs raise funds akin to issuing fixed-rate corporate debt
Meyer fleshed out the idea for Porter Finance on a climb of Mount Kilimanjaro in Tanzania in September 2021 | Source: Shutterstock
key takeaways
- Porter Finance has closed a $5 million seed funding round for its DAO credit marketplace
- Included in the round were ParaFi Capital, Dragonfly Capital, Nascent Ventures, Buckley Ventures, Robert Leshner, Kain Warwick, Tyler Ward, Joey Santoro and Sam Kazemian
When a DAO with a treasury full of tokens wants to raise cash for operations, its main option currently 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’s more like issuing corporate bonds.
The platform will let DAOs borrow stablecoins at fixed rates, using their project’s tokens as collateral, with no liquidation risk. This is effectively a zero-coupon bond sold to investors seeking a fixed income, Porter Finance’s founder Jordan Meyer told Blockworks.
“No one has built out a DAO-friendly solution for borrowing yet, until now,” Meyer said.
The platform will enable DAOs to deposit collateral from their treasury, create a “DeFi bond” offering, at a discount to investors, and then let them repay the loan at the maturity date with interest set by the market.
“We are allowing the DAOs to choose how they want to structure [the offering]. The DAO can choose to allow-list the offering, and only allow KYCed or accredited investors or, if they want, they can make a public offering — it’s up to them,” Meyer added.
The platform’s front end will initially be designed to exclude users from the US or any sanctioned countries, due to regulatory uncertainty.
There are some important differences compared to bonds in traditional finance, namely the risk profile. DAO-issued bonds will not be senior in any corporate capital stack, nor are the contracts open to enforcement in bankruptcy, which is not practical for loans to DAOs. Instead, they are secured by the collateral in the Porter Finance smart contracts.
Lenders take on some directional price risk of the underlying collateral asset, but in exchange they receive an option premium set by the market at the time of the offering.
“That option premium — and that discount — gets priced during the auction. Market participants who are bidding, they decide what the implied volatility is for them, what the option should be priced at, essentially the market risk they are taking,” Meyer explained.
For the DAO borrower, the system provides a mechanism to finance working capital for operations without putting downward pressure on their treasury token price, losing governance rights or risking liquidation in a money-market fund like Rari Capital Fuse pools — now part of the Tribe DAO.
A fortuitous climb
Meyer fleshed out the idea for Porter Finance on a climb of Mount Kilimanjaro in Tanzania in September 2021.
“You have 15 pounds on your back, but there are these other people who are helping you called porters…you would never make it up the mountain, in this 7-day trek, if you didn’t have the porters to carry the bags for you, or to help you up — and that was really impactful on me,” recalled Meyer, who named the protocol after these hardworking enablers.
“We want to be able to empower DAOs to reach their peaks, their summits and their financial goals.”
The original logo of the platform was a green backpack, inspired by the packs porters carry, Meyer said, adding it was unfortunately mistaken for a robot. Its branding has since been revised in advance of a planned June launch on the Ethereum mainnet, following smart contract audits by Secureum and Spearbit.
“We’ll go where the DAO treasuries are, and right now that’s Ethereum,” Meyer said.
A “massive 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’s co-founder Dan Elitzer told Blockworks he jumped at the chance to back Porter after discussing a similar concept with Ben Forman, ParaFi’s founder and managing partner.
“Corporate debt is just an absolute massive market. And companies, if they have cash needs, they don’t just go and sell more shares…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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