Bond Market
What is Bonding?
Bonding is a process of trading a Liquidity Pool (LP) share to the protocol for its native token. Bonds allow transacting assets between the protocol and individual stakeholders, over a specified time-period and at completely market-driven prices.
The bonds pricing mechanism follows Sequential Dutch Auction (SDA), which is solely driven by market actors and does not rely on oracles.
The protocol gives an amount of its native token as the quote, and also offers a vesting period for the trade. When the bond is created, users give up their LP share. The protocol rewards the users with more native token than they would receive from the market. The exposure of the bond holders becomes completely protocol's native token.
Why Bonding?
Bonding helps projects to own liquidity instead of renting liquidity. Olympus DAO pioneered the concept of Protocol Owned Liquidity (POL), which owns a substantial amount of the OHM liquidity. This ensures users and protocols to swap OHM anytime, regardless of market conditions and external events.
PEPA bond market allows protocols to issue their own bond, exchange their token for liquidity, and open a secondary marketplace for bondholders.
Benefits for Users:
Purchasing native token at discounted rate
Eliminating the risk of traditional liquidity provision such as impermanent loss, and opportunity cost.
Benefits for Protocols:
Having protocol-owned liquidity
Growing protocol's liquidity
Turning liquidity from liability to revenue
Creating higher TVL for the protocol.
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