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How does borrowing work?
Let's say Uniswap issues 1,000,000 convertible bonds maturing in 12 months and backs each with 0.5 UNI as collateral with each bond being convertible into 0.04 UNI.
Uniswap decides to sell the bonds via an auction with a minimum price of $0.943, knowing that they are happy to borrow at or below 6% interest ([1 - $0.943] / $0.943 = 6%). The more demand, the higher the bonds will sell for which lowers the interest rate Uniswap pays. During the auction, there was sufficient demand and the clearing price ended up being $0.95. Therefore, Uniswap raised $950,000 (1,000,000 bonds * $0.95/bond) and will owe $1,000,000 in 12 months, which translates to an effective interest rate of 5.3% ($0.05/$0.95).
For every bond that is repaid, Uniswap is able to withdraw the collateral/bond which is 0.5 UNI.
If Uniswap fully repays the $1,000,000 before the 12 months have passed, they will be able to withdraw all their collateral.
If Uniswap defaults on their promise and only repays $500,000 (failing to repay the remaining $500,000 by the maturity date) the bondholders will be able to redeem their bonds for $0.5 and 0.25 UNI.
If Uniswap defaults on their promise and does not repay the bonds by maturity, the bondholders will get the full amount of collateral, 0.5 UNI/bond.
If UNI appreciates in value and bondholders elect to convert their bonds into the convertible UNI tokens, UNI will owe $1 less for every bond converted. Also, for every bond repaid, Uniswap will be able to withdraw the collateral/bond until there are only convertible tokens left. Convertible tokens cannot be withdrawn until maturity to ensure the bondholders have the ability to convert their bonds.