Bonds (bitBTCbond/bitDOTbond/bitADAbond/bitATOMbond)
What are Bonds?
Bonds are unique tokens that can be utilized to help stabilize price around peg by reducing the circulating supply of bitBTC/bitDOT/bitADA/bitATOM if the TWAP (time-weighted average price) goes below peg, 1.00.
When can I buy Bonds?
Bonds can be purchased only during periods of supply contraction and when the TWAP of BOMB is below 1.00.
At the beginning of every new epoch during contraction periods, Bonds are issued in the amount of 3% of bitBTC/bitDOT/bitADA/bitATOM's circulating supply, with a max debt amount of 35%. This means that if bonds reach 35% of the circulating supply of bitBTC/bitDOT/bitADA/bitATOM, no more bonds will be issued.
Note that during a zen epoch (when an epoch ends with a TWAP between 1.0 - 1.001), no Bonds will be issued, even though the Boardroom does not print.
BOND TWAP (time-weighted average price) is based on the bitBTC/bitDOT/bitADA/bitATOM TWAP from the previous epoch as it ends. In other words, the bitBTC/bitDOT/bitADA/bitATOM TWAP is real-time but the Bond TWAP is not.
Where can I buy Bonds?
You can buy Bonds if any are available through bitBOMB in the Bond section. Anyone can buy as many Bonds as they want as long as they have enough bitBTC/bitDOT/bitADA/bitATOM to pay for them.
There is a limit of available Bonds per epoch during contraction periods (3% of bitBTC/bitDOT/bitADA/bitATOM's current circulating supply), and are sold first-come-first-serve.
Why should I buy Bonds?
The first and most important reason to buy Bonds is that they help to maintain the peg, but they are not the only measure in place to keep the protocol on track.
Bonds don't have an expiration date, so you can view them as an investment in the long-term health of the protocol to be redeemed for a premium at a later date.
Incentives for Holding Bonds
The idea is to reward Bond buyers for helping the protocol, while also protecting the protocol from being manipulated by big players.
So after you buy Bonds using bitBTC/bitDOT/bitADA/bitATOM, you have two possible ways to get your bitBTC/bitDOT/bitADA/bitATOM back:
Sell back your Bonds for bitBTC/bitDOT/bitADA/bitATOM while the peg is between 1 - 1.05 with no redemption bonus. This is in place to prevent an instant dump as soon as peg is recovered.
Sell back your Bonds for bitBTC/bitDOT/bitADA/bitATOM while the peg is above 1.05 with a bonus redemption rate.
The longer you hold, the more both the protocol and you benefit from Bonds.
Example:
When bitBTC/bitDOT/bitADA/bitATOM = 0.8, burn 1 bitBTC/bitDOT/bitADA/bitATOM to get 1 Bond (Bond price = 0.8)
When bitBTC/bitDOT/bitADA/bitATOM = 1.15, redeem 1 Bond to get 1.105 bitBTC/bitDOT/bitADA/bitATOM (Bond price = 1.27)
So, which one is better?
If I buy bitBTC/bitDOT/bitADA/bitATOM at 0.8, and hold it until 1.15 and then sell, I'm getting +$0.35 per bitBTC/bitDOT/bitADA/bitATOM.
But, if I buy bitBTC/bitDOT/bitADA/bitATOM at 0.8, burn it for Bonds, and redeem it at 1.15, I'm getting 1.105 bitBTC/bitDOT/bitADA/bitATOM * 1.15 ( bitBTC/bitDOT/bitADA/bitATOM current price) = 1,271 (+$0.47) per Bond redeemed.
But, what if getting back to peg is taking too long?
We will adjust our use cases to have different behaviors on contraction and expansion periods to benefit both bitBTC/bitDOT/bitADA/bitATOM and Bond holders when needed.
What is the formula to calculate the redemption bonus for Bonds?
To encourage the redemption of Bonds for BOMB when bitBTC/bitDOT/bitADA/bitATOM's TWAP > 1.05 and in order to incentivize users to redeem bonds at a higher price, Bond redemption is designed to be more profitable with a higher bitBTC/bitDOT/bitADA/bitATOM TWAP value. The Bond to bitBTC/bitDOT/bitADA/bitATOM ratio is 1:R, where R can be calculated using the formula as shown below:
When can I swap Bonds for a premium?
You can only redeem Bonds for a premium when the previous epoch's TWAP is greater than 1.05.
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