BondAppetite Stablecoin Peg Lost

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BondAppetite

BondAppetite was a stablecoin backed by real-world yield generating bonds. The bonds that back USDap were reportedly stored by a licensed custodian in a stable jurisdiction.

After multiple excursions below $1, the peg appears to have been lost at some point on April 18th, 2022. On June 8th, the protocol announced a buy-back of the tokens at a $0.97 USD price, however the token price remained far lower until December 14th, 2022. There have been limited updates to the BondAppetit Twitter page.

About BondAppetite

BondAppetite USD is a decentralized finance (DeFi) protocol launched on April 5, 2021 that offers a stablecoin backed by real-world assets and a fixed periodic income. BondAppétit aims to connect real-world debt instruments (bonds) with the Ethereum ecosystem. It aims to solve multiple challenges such as high volatility and a lack of ties to real-world assets, limiting the blockchain integration with traditional finance. It allows businesses to borrow money using bonds as collateral, accepting both fiat and cryptocurrency. The team behind BondAppetit includes experienced individuals such as the CEO Artem Tolkachev, who was previously the head of Deloitte Blockchain Lab. BondAppetit received $350,000 from investment fund Digital Fortress, and partnered with EAST.Finance, an enterprise-grade DeFi protocol that combines real-world and crypto assets. The token of EAST.Finance were partially backed by $USDap.

BondAppetite described "USDap [a]s a stablecoin done right. Algorithmic automated issuance, real-world assets as collateral, and publicly available oracles for real-time collateral verification." BondAppetite USD (USDap) is a stablecoin that is backed by real-world assets in the form of outstanding debt secured by collateral in the form of bonds. Built on the Ethereum blockchain, the protocol connects traditional debt instruments with decentralized finance, involving regulated securities and cryptocurrency broker/dealers. It is issued automatically through a smart contract when there is sufficient collateral available in the real world. The governance and reward token of BondAppetit is $BAG, which is used for on-chain voting and collecting interest from bonds in dollars. Investors can stake $BAG and earn income in $USDC stablecoin. The BondAppetite protocol allows users to buy USDap and earn interest income in USDC by holding BAG tokens, which are backed by the bonds that support USDap. Users can also stake their BAG tokens and earn rewards in USDC.

USDap maintains a constant value of $1 and is issued only when sufficient collateral is available. Loans offered by BondAppetit are either secured by bonds or issued in exchange for bonds. The protocol aims to provide transparency by storing the bonds with a licensed custodian in a stable jurisdiction and allow anyone to check their availability online. To ensure transparency, the protocol updates the price of real-world assets through trusted oracles such as Bloomberg and CBonds. The protocol aims to provide public information on the collateral and real-time verification through publicly available oracles. It aims to provide stability and connect with fiat cash-flows, offering a unique opportunity for investors to benefit from income generated by collateral and interest payments between 3-7.5% per annum. The price of USDap is automatically balanced using a basket of real-world debt obligations held by the protocol. The availability of collateral can be checked online. Various issuers and their corresponding debt amounts, coupons, maturities, and ISIN codes are listed on the BondAppetit website. They reportedly include various bonds from companies such as Delta Air Lines, Nexa Resources, Xerox Holdings, Ford Motor Co, Ecopetrol, and American Airlines.

BondAppetit is governed by its community, and early investors have the opportunity to participate and help grow the protocol. The protocol also has a treasury to cover fees associated with intermediaries and the process of transferring funds between the fiat and crypto worlds. The treasury is formed through the offering of governance tokens and allocation of the protocol's profits. Additional capitalization can be achieved through the sale of governance tokens from the protocol's reserves or through private and public offerings of the tokens.

USDap also provided its own liquidity pools composed of liquidity flows from real-world assets. When compared to other stablecoins like Tether (USDT), USD Coin (USDC), Dai (DAI), Binance USD (BUSD), and Pax Dollar (USDP), USDap offers unique features such as decentralized issuance, collateral backed by real-world assets, and crypto-liquidity backed by real cash-flows. The protocol also utilizes collateral assets in the form of fixed-income securities, preventing over-collateralization.

The BondAppetit whitepaper provides detailed information on the history of bitcoin, stablecoins, and loan services. USDap was listed on platforms like CoinGecko, CoinBase, and CoinMarketCap, and users can subscribe to stay updated on protocol updates and new features. Liquidity provision is vital for the protocol's operation, and it initially provides its own liquidity pools on exchanges like Uniswap. Users can interact in a community through Telegram. The protocol also provides governance and offers resources such as a whitepaper, litepaper, GitHub repository, and documentation.

High Profit Potential

"The protocol was launched on April 5th, 2021. In a few days, it reached a TVL of $8 million." - BitCourier

In the first few days since launch, the volume of locked funds reached $8 million. In the first weeks since launch, the profitability of BondAppetit pools was hovering over 1,000% per annum, values which attracted many players from the DeFi market." [TBD - Can't find the source anymore. Still can't find it.]

These collateral assets are part of the global corporate bonds market, which has a total size of approximately $128.3 trillion.

Founder and CEO Artem is "[f]ormer head of the Blockchain Lab at Deloitte. For over seven years, Artem has been one of the key opinion leaders in the CIS region in blockchain and tokenization. Since 2011, he has been a lawyer by trade and an entrepreneur." CTO "Vlad has over 17 years of experience in web development. He launched and managed a number of major ICT products and services on the CIS market." "USDap represents a means of transferring value and it is defined as such exclusively by market participants. The token itself does not imply any obligations of the protocol, any of its participants, or third-parties."

"During the second development stage which is planned to start in 2022, BondAppétit aims to create a borrowing platform that will operate directly with issuers of fixed-income debt instruments. Therefore, providing access to traditional financial instruments in a fully decentralized manner. As a platform, BondAppétit will charge fees from the borrowers for each deal completed on the platform. Another feature that is vital for correct operations of the protocol during the second stage is the automated prediction system that will forecast asset price, calculate coupon payments and forecast possibility of default for each issuer."

"First AMA session by BondAppetit founder Artem Tolkachev. Artem talked a lot about the development strategy, the regulatory environment, and other related issues. We recommend that you listen the recording of the AMA if you missed it or had joined late."

"First governance initiatives. Starting from the first days since launch, BondAppetit has implemented a community governance system. All key decisions are passed through a general vote."

BitCourier interview - October 18th, 2021.

BondAppetit.io was created by a team of experienced coders, lawyers, and financiers who have worked with renowned global companies such as Deloitte, Interfax, Mango Insurance, VK, and Art. Lebedev Studio. The protocol was launched on April 5th, 2021, and quickly gained a total value locked (TVL) of $8 million. The launch of BondAppetit occurred in three phases, with the first phase focused on attracting liquidity and proving the business model by distributing 5% of the initial BAG offering to liquidity providers. In the second phase, the protocol acquired bonds to back the USDap stablecoin and started distributing coupon payments to governance token holders. The third phase will commence once the protocol reaches a capitalization of at least $100 million, with no additional BAG tokens being issued to the open market.

BondAppetit aims to target three audiences: big and mid-sized businesses seeking cheap financing opportunities, lending protocols in need of decentralized stablecoins with robust collateral, and crypto investors interested in using USDap as a means of payment and investing in the governance token, BAG. By October 2021, BondAppetit achieved key milestones, including USDap being fully backed by yield-generating bonds and the distribution of interest income generated by bonds to BAG holders. The protocol is still in the MVP stage but is prepared for scaling and aims to grow the supply of USDap and offer loans.

To verify the existence of collateral, the bonds are stored by Wise Wolves Finance, a Cyprus-based Investment Firm regulated by the Cyprus Securities and Exchange Commission (CySEC). The availability of collateral can be checked online at the provided link, ensuring transparency through digitally signed data that prevents data spoofing.

Investing in BondAppetit offers advantages such as greater security, as the protocol can acquire additional collateral through issuing more BAGs in the event of default, and higher income potential for BAG holders, as more USDap leads to more bonds and increased returns. The BondAppetit governance token, BAG, serves as a governance and reward token for voting on-chain and collecting interest from bonds. It is an ERC-20 token based on the Compound Governance system, allowing members with over 1 million BAG tokens to initiate governance proposals.

The team behind BondAppetit includes Founder and CEO Artem Tolkachev, formerly the Head of Blockchain Lab at Deloitte, CTO Vladislav Komissarov with extensive experience in development and technical direction, CMO Igor Varnavsky with a background in marketing and journalism, and advisor Sasha Ivanov, the founder of Waves Tech.

While BondAppetit does not require an extensive ecosystem like Layer-1 protocols, it is interested in collaborating with intermediaries, custodians, and potential borrowers from key markets, including the UK.

BondAppetit protocol was launched on April 5, 2021. In its first year of operations, the protocol reached the TVL of $10 million, built a vibrant community, launched on Binance Smart Chain, Waves Exchange and Swop.fi, established its first partnership with EAST.Finance, acquired bonds to fully back the USDap (it’s RWA-backed stablecoin), raised the first investment round from the Digital Fortress investment fund and started distributing profits among BAG token holders.

TBD Review more

The Reality

Disclaimer On Website

The BondAppetite website included a disclaimer.

"You must consider the risk that BondAppétit may not be able to implement the Protocol Launch Phases described herein. You must bear in mind that the launch of Phase 2. RWA Collateralization and Phase 3. Direct Investment may be postponed or cancelled. Your investments are not secured. In case it is not possible to implement any of the phases of the BondAppétit protocol, you may lose all of your investments."

What Happened

After multiple excursions below $1, the BondAppetite peg appears to have been lost at some point on April 18th, 2022.

Key Event Timeline - BondAppetite Stablecoin Peg Lost

Date	Event	Description
April 5th, 2021	BondAppetit Protocol Launched	The BondAppetit protocol is reportedly launched.
April 18th, 2021	A Nightmare on Stable Street	BondAppetit CEO Artem Tolkachev publishes "A nightmare on Stable Street" on CoinTelegraph. Central banks are closely monitoring the stablecoin market and looking to exert control over it, but decentralized stablecoins may offer a solution. Central bank digital currencies (CBDCs) have gained interest as a digital alternative to cash, allowing central banks to have more control over cashless transactions. While CBDCs are not intended for trading or cryptocurrency use, they serve as a controlled digital alternative to cash. Central banks are strict about regulating money, and they are likely to apply the same principles to existing market participants in the digital currency space. A bill introduced to the US Congress aims to apply banking regulations to centralized stablecoin issuers, potentially impacting the stablecoins currently available. This situation could pave the way for decentralized stablecoins to replace centralized ones. However, decentralized stablecoins face challenges in terms of stability and governance due to the absence of an issuer. Some decentralized protocols are attempting to solve this by delegating governance to the community and ensuring transparency and control over collateral. A potential solution could be a community-managed decentralized stablecoin backed by real-world assets, which could provide stability and transparency as an alternative to centralized stablecoins. Such solutions could significantly impact the stablecoin industry, offering traders a reliable alternative amid regulatory pressures.
October 28th, 2021 11:12:38 AM MDT	Digital Fortress Investment Fund	A Medium post highlights an investment from Digital Fortress, a venture capital fund, of $350,000 in BondAppetit. Digital Fortress will receive 1.74 million BAG tokens. According to Evgeny Yudin, Director of Digital Fortress, DeFi services are expected to capture a significant share of the corporate loans and short-term liquidity markets, which are valued in the tens of trillions of dollars. BondAppetit aims to become a major player in the debt financing market by utilizing its hybrid model and experienced team with connections in both traditional finance and cryptocurrency. The protocol's stablecoin, USDap, is backed by 100% collateral that consists of stable assets from the traditional financial sector. The investment will be used to acquire bonds and increase the emission of USDap. Digital Fortress, headquartered in Cyprus, focuses on investing in innovative blockchain projects across various sectors with the aim of shaping the future of an open economy.
November 5th, 2021 4:20:00 AM MDT	Project Announced On Twitter	A Twitter post explains the BondAppetite project as a decentralized finance (DeFi) platform that has its native stablecoin called $USDap. The stablecoin is built on the Ethereum blockchain and is fully backed by yield-generating bonds. The availability of collateral can be verified online on the BondAppetit website. The platform also has a governance and reward token called $BAG, which is used for on-chain voting and collecting interest from bonds in dollars. Investors can stake $BAG and receive income in $USDC. The team behind BondAppetit includes the founder and CEO Artem Tolkachev, who was formerly the head of Deloitte Blockchain Lab, and the CTO known as @cryptoappetit. The project has received an investment of $350,000 from the Digital Fortress investment fund, and it has formed a partnership with EAST.Finance, an enterprise-grade DeFi protocol that will partially back its token with $USDap.
November 9th, 2021 7:01:03 AM MST	H1 2021 Plans Released on Medium	The BondAppetite team releases a summary of the last 6 months. "The last month marked six months since the launch of BondAppetit. The protocol is still at the MVP stage, but it has already passed several important milestones." TBD more details.
December 5th, 2021 10:31:00 AM MST	Price Jumps Back To Peg	The price of USDap jumps from $0.841 USD back up to the peg at $0.996 USD.
March 31st, 2022 12:38:00 PM MDT	Lowest Local Price	The USDap token ultimately reaches a price of $0.681 USD before rebounding.
April 17th, 2022 7:30:00 PM MST	Peg Is Lost Again	The USDap token drops from $0.992 USD down to $0.903 USD, and continues to fall.
April 22nd, 2022 4:34:00 AM MDT	Price Local Minimum	The price continues dropping until a level of $0.682 USD is reached before starting a rebound.
April 22nd, 2022 6:19:00 AM MDT	Price Local Maximum	The price recovers to $0.844 USD, a peak before the price starts to fall back down again.
April 30th, 2022 11:55:00 AM MDT	Price Local Minimum	The price collapses to $0.666 USD, before starting a rebound again.
May 8th, 2022 4:15:00 AM MDT	Price Local Maximum	The price recovers to $0.841 USD, before starting to fall again without restoring the peg.
May 9th, 2022 5:20:00 AM MDT	Kredika Maker Announcement	An announcement on the MakerDAO forum is posted with a description of a new Kredika platform.
May 12th, 2022 6:30:00 AM MDT	Kredika Twitter Announced	BondAppetit announces Kredika on Twitter. Kredika is an end-to-end solution that aims to tokenize real-world assets (RWAs) based in the European Union (EU) and the United Kingdom (UK). It combines a technology platform and a legal framework to facilitate the tokenization of these assets and secure funding from both traditional finance (TradFi) and decentralized finance (DeFi) sources. Kredika plans to leverage BondAppetit's smart contracts as the foundation for its technological infrastructure. The primary objective of the BondAppetit protocol is to identify market demand for its stablecoin, USDap, and explore various options to meet that demand. In one example, Kredika proposes adopting BondAppetit's technology for private lending, specifically for onboarding property-backed loans to Maker vaults. While this proposal does not immediately impact BondAppetit, future iterations may involve incorporating other asset types, such as bonds, into Kredika. This partnership with YesGrowth, a real estate company, will bring attention to the BondAppetit protocol and create new opportunities for expansion within the MakerDAO community.
May 26th, 2022 1:27:00 PM MDT	Price Local Minimum	The price completes it's collapse all the way down to $0.508 USD before starting a slight recovery.
June 8th, 2022 3:44:00 AM MDT	USDap Buyback Procedure	BondAppetit mentions a new buy-back procedure for the USDap token, and links to their Telegram account. This is the last update placed on the BondAppetit Twitter account.
July 10th, 2022 5:00:00 AM MDT	Further Low Price	The price reaches a new low of $0.452 USD briefly.
July 13th, 2022 4:26:00 AM MDT	Honourable Mention	Twitter user Proof of No Work mentioned this case along with other failed stablecoin projects in his Tweet.
October 15th, 2022 5:00:00 AM MDT	Further Low Price	The price reaches another new low of $0.408 USD before recovering slightly.
November 15th, 2022 4:19:00 PM MDT	Lower Price Shelf	The price collapses from $0.449 USD down to $0.281 USD before a very slight recovery.
November 21st, 2022 4:04:00 AM MDT	Lowest Price Recorded	The USDap token shows a price of $0.172 USD.
November 24th, 2022 9:01:00 AM MDT	Major Price Jump	Price climbs rapidly up to $0.785 USD.
December 14th, 2022 10:33:00 AM MDT	Another Price Jump	The price climbs back up to $0.976 USD.
December 22nd, 2022 4:40:00 AM MDT	Price Approaching Peg	The price has now reached $0.992 USD before starting to fall slightly.
January 28th, 2023 1:00:00 PM MDT	Peg Restored	The price reached $1.026 USD from $0.985 USD, shooting past the peg.
March 20th, 2023	Token Listed As Inactive	The BondAppetite USD live chart on cryptorank.io lists the token as inactive.

Technical Details

TBD

Total Amount Lost

The total amount at risk has been estimated at $8,000,000 USD. The total amount lost is unknown.

Immediate Reactions

TBD

Ultimate Outcome

"BondAppetit is launching the USDap buyback procedure. The buyback procedure will involve the purchase of USDap/EUR on an OTC. We are offering a fixed purchase rate of 1 USDap = $1. The minimum amount for the transaction will be 30,000 USDap with the 3% transaction fee charged from our side (plus other fees charged by financial institutions)."

"In order to make an OTC transaction, you will be required to sign the relevant agreement and provide the documents requested for KYC procedures."

"The request for the transaction shall be made via email including the amount of the contemplated transaction (not less than 30,000 USDap), your personal details (including name/surname, wallet, and account information). Please note that we reserve the right to refuse to proceed with the transaction based on the provided information or change the type of the consideration for USDap indicated above."

"BondAppetite USD Price [as of November 4th, 2022]: $ 0.460" "USDap Total Supply: $1.09M"

New Buyback Procedure Implemented

.

Total Amount Recovered

While some portion of token holders were able to participate in the buyback process, participation was limited due to the required KYC procedures and discretionary nature of the redemptions. As a result, the price of the USDap token remained well below the $1 USD peg.

The USDap token appears to have ultimately recovered the peg on January 28th, 2023.

Ongoing Developments

The BonAppetite team appears to be working on the launch of a new Kredika protocol, which plans to make use of the original smart contracts and infrastructure.

Launch of Kredika Protocol

In May 2022, BonAppetite announced Kredika, an end-to-end solution that aims to tokenize real-world assets (RWAs) based in the European Union (EU) and the United Kingdom (UK). It combines a technology platform and a legal framework to facilitate the tokenization of these assets and secure funding from both traditional finance (TradFi) and decentralized finance (DeFi) sources. Kredika plans to leverage BondAppetit's smart contracts as the foundation for its technological infrastructure. The primary objective of the BondAppetit protocol is to identify market demand for its stablecoin, USDap, and explore various options to meet that demand. In one example, Kredika proposes adopting BondAppetit's technology for private lending, specifically for onboarding property-backed loans to Maker vaults. While this proposal does not immediately impact BondAppetit, future iterations may involve incorporating other asset types, such as bonds, into Kredika. This partnership with YesGrowth, a real estate company, will bring attention to the BondAppetit protocol and create new opportunities for expansion within the MakerDAO community.

Kredika is a financial technology company developing a platform and legal framework for tokenizing real-world assets (RWAs) in the UK and EU. Their solution aims to allow lenders and asset managers to use their RWA portfolios as collateral in Maker DAO institutional vaults. The platform incorporates smart contracts and oracles to ensure transparency and compliance with legal and regulatory requirements. Kredika plans to issue ERC-20 tokens representing the collateral and lock them into the vault. The initial implementation will focus on a £100 million vault for bridging loans secured with UK properties. The loans will be originated and managed by an FCA-regulated portfolio manager, YesGrowth. Kredika aims to continuously develop its platform to accommodate multiple asset managers and expand capacity. The chosen collateral of UK property-backed loans provides stability and resilience, and the platform leverages the technology and smart contracts of BondAppetit.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

Do not take customer assets and performing highly risky trades and investments without giving visibility to customers.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.

Work with other industry platforms to set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.