BONDs Mechanism
Description on how Bond Mechanism works.
What are BONDs?
BOND assets are unique tokens that can be utilized to help stabilize pegged assets price around peg by reducing circulating supply of pegged assets if the TWAP (time-weighted-average-price) goes below peg.
When can I buy BONDs?
BOND assets can be purchased only on contraction periods, when TWAP of pegged assets is below 1.
Every new epoch on contraction periods, BOND assets are issued in the amount of 3% of current pegged assets circulating supply, with a max debt amount of 35%. This means that if BONDs reach 35% of circulating supply of pegged assets, no more BOND assets will be issued.
Note: Pegged assets TWAP (time-weighted average price) is based on pegged assets price TWAP from the previous epoch as it ends. This mean that pegged assets TWAP is real-time and BOND assets TWAP is not.
Where can I buy BONDs?
You can buy BOND assets if any are available, through the BOND on Polaris Finance website, anyone can buy as many BOND assets as they want as long as they have enough pegged assets to pay for them.
There is a limit amount (3% of pegged assets current circulating supply) of available BOND assets per epoch while on contraction periods, and are sold as first come first serve.
Why should I buy BONDs?
First and most important reason is that BOND assets help maintain the peg, but will not be the only measure use to keep the protocol on track.
BOND assets don't have a expiration date, so you can view them as a investment on the protocol, because longterm you get benefits from holding bonds.
Incentives for holding BONDs
The idea is to reward BOND asset buyers for helping the protocol, while also protecting the protocol from being manipulated from big players.
So after you buy BOND assets using pegged assets, you get 2 possible ways to get your pegged assets back:
Sell back your BOND assets for pegged assets while peg is between 1 - 1.1 with no redemption bonus. This is to prevent instant dump after peg is recovered.
Sell back your BOND assets for pegged assets while peg is above 1.1 with a bonus redemption rate
The longer you hold, the more both the protocol and you benefit from BOND assets.
Example:
When pegged asset = 0.8, burn 1 pegged asset to get 1 BOND asset (BONDs price = 0.8)
When pegged asset = 1.15, redeem 1 BOND asset to get 1.105 pegged asset (BONDs price = 1.27)
So, which one is better?
If I buy pegged asset at 0.8, and hold it until 1.15 and then sell, I'm getting +0.35$ per pegged asset.
But, if I buy pegged asset at 0.8, burn it for BOND asset, and redeem it at 1.15, I'm getting 1.105 pegged asset * 1.15 (pegged asset current price) = 1,271 (+0.47$) per BOND asset redeemed.
But what if getting back to peg is taking too long?
We are going to adjust our use cases, to have different behaviors on contraction and expansion periods to benefit pegged and BOND assets holders when needed.
When can I swap BOND for a bonus?
BOND assets TWAP (time-weighted average price) is based on pegged asset price TWAP from the previous epoch as it ends. This mean that pegged assets TWAP is real-time and BOND assets TWAP is not. In other words, you can redeem BOND assets for a bonus when the previous epoch's TWAP > 1.1.
POLAR Bond (PBOND)
$PBONDs are available for purchase when falls below the 1 $NEAR peg. If $POLAR's TWAP is between 1.00 and 1.01, neither $PBOND nor $POLAR will be issued.
e.g. if $POLAR's TWAP < 1, exchange $POLAR for $PBOND will be in a 1:1 ratio.
$PBONDs are available for redemption when $POLAR goes above the 1 $NEAR peg.
To encourage redemption of $PBOND for $POLAR when $POLAR TWAP > 1.1 and incentivize users to redeem at a higher price, $PBOND redemption will be more profitable with a higher $POLAR TWAP value, of which $PBOND to $POLAR ratio will be 1:R, where R can be calculated in the formula as shown below:
R = 1 + [(POLARtwapprice) - 1) * coeff)]
coeff = 0.7
ETHERNAL Bond (EBOND)
$EBONDs are available for purchase when falls below the 1 $ETH peg. If $ETHERNAL's TWAP is between 1.00 and 1.01, neither $EBOND nor $ETHERNAL will be issued.
e.g. if $ETHERNAL's TWAP < 1, exchange $ETHERNAL for $EBOND will be in a 1:1 ratio.
$EBONDs are available for redemption when $ETHERNAL goes above the 1 $ETH peg.
To encourage redemption of $EBOND for $ETHERNAL when $ETHERNAL TWAP > 1.1 and incentivize users to redeem at a higher price, $EBOND redemption will be more profitable with a higher $ETHERNAL TWAP value, of which $EBOND to $ETHERNAL ratio will be 1:R, where R can be calculated in the formula as shown below:
R = 1 + [(ETHERNALtwapprice) - 1) * coeff)]
coeff = 0.7
TRIPOLAR Bond (TRIBOND)
$TRIBONDs are available for purchase when falls below the 1 $xTRI peg. If $TRIPOLAR's TWAP is between 1.00 and 1.01, neither $TRIBOND nor $TRIPOLAR will be issued.
e.g. if $TRIPOLAR's TWAP < 1, exchange $TRIPOLAR for $TRIBOND will be in a 1:1 ratio.
$TRIBONDs are available for redemption when $TRIPOLAR goes above the 1 $xTRI peg.
To encourage redemption of $TRIBOND for $TRIPOLAR when $TRIPOLAR TWAP > 1.1 and incentivize users to redeem at a higher price, $TRIBOND redemption will be more profitable with a higher $TRIPOLAR TWAP value, of which $TRIBOND to $TRIPOLAR ratio will be 1:R, where R can be calculated in the formula as shown below:
R = 1 + [(TRIPOLARtwapprice) - 1) * coeff)]
coeff = 0.7
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