Editing Investor BONDs (section)

===2.1.1      Floating commitment iBONDs===
The expressiveness of programmable smart contracts allows investors great flexibility in designing their financial instruments. For example, an investor can dynamically choose their level of commitment with floating commitment (fc) iBONDs. This fciBOND dynamically re-evaluates the uncertainty . Then, assuming this time-dependent probability is accurate, Constraint 9 gives the formula for the present value of the investment in the company .

This allows an investor to keep their investments liquid. As opposed to iBONDs where an investor’s money  is statically committed until the stopping time is met or the DAO goes bankrupt, an owner of an fciBOND may dynamically remove their principle at any moment. However, as the uncertainty changes, their return coefficient will change. If risk increases, the reward should increase lest the investor pull out. If the investor hasn’t statically committed yet, by the time the DAO becomes more established, then their reward drops as the uncertainty decreases. At any point the investor can lock in their return coefficient by statically committing.  

To find the formula for fciBONDs we use Proposition 9.

'''Proposition 10''' ''Suppose an fciBOND contract for an investment  at time  with uncertainty  and  tokens minted. Then the variable rate of return is  and its expiration date is a stopping time which is the first time  when''


''is met.''

So the first moment  when the inequality is satisfied, the fciBOND expires, as the proper present value of the variable investment has been paid. Before the hitting time occurs, the part of the investment  that has not yet been paid out can be removed by the investor. This value is

at time . (The symbol  stands for commit or cull.) If you lose faith in your investment and remove what remains of your principle at time , then you will can demand . In that case, you will not receive the benefit of the  reward multiplier. Instead you receive what you would have gotten from a safe investment with floating interest (the first term in ), minus the amount you have already received from the REP salary (the second term). On the other hand, if you decide to statically commit your investment at time  then you receive an iBOND under the previous rules which continues the payout until stopping time  satisfies


Now, none of these considerations considers the DAO’s point of view. In order to have a large amount of liquid fciBOND investment and be able to use it, the DAO will need to make safeguards that are more complicated than the fciBOND rules that were derived above. Over the course of history, economists have found several regulations essential for healthy financial markets. With smart contracts we can include rules of any complexity. So the fciBONDs can have disclosures for precisely how they will execute in every eventuality. Then investors can monitor the transparent transactions to verify everything is executing as promised.

One basic consideration the DAO must make is how much of the liquid fciBOND cash can be used at any given time. This is similar to traditional banking’s reserves. For instance, in the US, banks are required to hold a certain percentage of their deposits in reserve, so that if an unusually large number of customers happen to request to withdraw their deposits at the same time, then the bank can cover the demand. If investors remove their investments from the fciBONDs ''en masse'', and there is not enough liquid cash in reserve in the DAO, then there needs to be complicated rules in place to handle how the DAO will react to the inevitable loss of faith. Without explicitly exposing fciBOND investors to the greater risk, a DAO logically should be required to hold larger reserves relative to the amount of liquid fciBONDs. If we accurately estimate the uncertainty , which includes the amount of reserves relative to liquid deposits, we can make reasonable standards for such regulations. A well-established DAO with a history of stable fee rates typically requires less reserves than a newly proposed DAO, which typically shouldn’t use fciBONDs at all.