I’d actually love some help on brainstorming it. This would be a good start for anyone interested: A Primer on Bonding. Olympus does everything a bit… | by OlympusDAO | Medium
The basic idea is instead of giving perpetual LM rewards we allow Sovryn (and all sub-protocols) to buy and liquidity from the users. So, the protocol buy the liquidity, therefore would own a larger percentage of the AMM pool, therefore reducing the risk of losing tons of liquidity.
For example, if a user owns any sort of LP position such as: $100 of SOV/rBTC, then very likely you are receiving SOV rewards as incentive, aka yield farming. Instead, Sovryn can say we’ll offer a bond where you as the user sell us $100 of that LP (the rBTC/SOV in the AMM) and we offer you $110 of SOV that bonds over a small timeframe, like 7 days. The protocol now owns the liquidity and the user gets discounted tokens but cannot immediately dump them on the market, so it’s a win-win.
This model can be expanded to all sub-protocols and it’s a service that we can earn revenue on by charging a fee on every bond that is sold.
To recap:
- Protocol buys liquidity
- Users get discounted tokens
- Protocol earns revenue as a service
What I am trying to sort through is what are the feedback loops and economic incentives?
For example, if we offer this bonding model to Origins platform and Origins wants to buy OG/rBTC LP tokens, then they have to offer OG tokens at a discount via a bond. So $100 of OG tokens to buy $95 of OG/rBTC LP or whatever. The question is how does this impact SOV token? Maybe it means Origins has to mint more OG by locking SOV into the bonding curve. Or does it mean the receivers of the OG token will sell those into the bonding curve and thus lowering SOV price. Or maybe that doesn’t matter because we earn revenue every time they redeem OG for SOV?
Long story short. Bonding is a great model but what are the un forseen risks or beneifts of adding it.