Bonding is swapping a certain type of crypto assets to the protocol for BTCH, at a discount price. The protocol quotes an amount of BTCH and a vesting period for the trade. The BTCH bonded is released in a certain period of time.
The BTCH tokens are minted from the contract. When you trigger the Bonding function, you are selling your cryptoassets or LP tokens. The protocol creates more BTCH to you than you’d get on the market, which means you are buying BTCH at a discount. But your exposure becomes entirely to BTCH and no longer to the paid assets or LP tokens.
How bond discount is calculated?
Bond discount = (outstanding bond / BTC value in PCL) * control variable + base variable.
Initially, control variable = 0.5, base variable = 0.8.
The real discount a bond buyer can get is determined by the total deposit the buyer makes. For example, the buyer sees the current discount shown on the DAPP page is 5%, after the buyer deposits 1000 USDC for the bond, the discount shown is 3%, then the real discount the buyer gets for the deposited 1000 USDC is 4%.
What happens when bonding?
1. Bonding is a win-win mechanism for the holders and the protocol
When users choose to buy bond, they will sell their crypto assets or LP tokens, and trade for some discounted (to the market price) BTCH tokens that are vested in 7 days. The tokens are auto staked and released linearly. Like in a 7-day term, after 3 days, 3/7 of the BTCH tokens can be claimed.
The choice is also good for BTCH holders, as after they can enjoy some discount in getting more BTCH tokens by bonding, in 7 days. They may harvest some instant profit in a relatively short period of time, as the BTCH is much less volatile than the BTC price. They can choose to realize the profit by selling or continue to earn by staking.
2. Bonding provides a cheaper way to get BTCH for newcomers and users stacking more
Through Bonding, users are likely to get BTCH at a discounted price (though it is not guaranteed according to the market and algorithm in pricing the bond). This is a valuable choice for newcomers or the ones stacking more BTCH exposure, as it could be cheaper than buying BTCH from the secondary market.
3. Bonding can provide arbitraging opportunities for traders
The price for Bonding is dynamically controlled by the embedded algorithm. Therefore, according to the current price and the bonds outstanding, there could be arbitraging opportunities against the secondary market price, especially the BTCH price is tracking a 365-day moving average price of BTC. For example, when the Bonding price is cheaper, which translates into a larger discount, traders could trigger the Bonding function and sell on the market later to capture profits.
4. The process allows the Hodl DAO to accumulate its own liquidity
Importantly, the Bonding process can allow the Hodl DAO to accumulate its PCL (Protocol Controlled Liquidity). More PCL ensures there is always locked exit liquidity in our trading pools to facilitate market operations and protect token holders.
Bond Vesting Schedule and auto-staking
The Bond Vesting Length is by default set to 7 days.
The bonded BTCH is automatically staked in a linear vesting schedule at the end of each epoch following the Bond Vesting Length.
The USDC will be used by the Protocol to
Buy WBTC from DEX;
mint corresponding BTCH;
Rebalance PCL if necessary;
add WBTC/BTCH into PCL;
note to save cost, to mint BTCH and put into PCL will be done by offline function calls.
A 10% (BondRewardstoStakers Percentage) of minted BTCH is minted in addition and sent to the Staking Reward Pool.