Bond Mechanism
Last updated
Last updated
Bonds are unique tokens that can be utilised to help stabilise aUSD price around peg ($1) by reducing the circulating supply of aUSD if the TWAP (time-weighted-average-price) goes below peg ($1).
Every new epoch in contraction periods, Bonds are issued in the amount of 3% of the current aUSD circulating supply, with a max debt amount of 35%. This means that if bonds reach 35% of the circulating supply of aUSD, no more bonds will be issued.
Note: aBOND TWAP (time-weighted average price) is based on aUSD price TWAP from the previous epoch as it ends. This means that aUSD TWAP is real-time and aBOND TWAP is not.
You can buy Bonds if any are available, through the BONDS page on the app.airbrick.finance website. Anyone can buy as many Bonds as they want as long as they have enough aUSD to pay for them.
There is a limit amount (3% of aUSD current circulating supply) of available Bonds per epoch while on contraction periods, and are sold on a first-come, first-served basis.
The main objective of Bond is to help maintain the peg, but will not be the only measure used to keep the protocol on track, more on that in the DAO Fund section here.
Bonds don't have an expiration date, so you can view them as an investment on the protocol or as an arbitrage tool, ultimately, benefiting from price fluctuations.
The idea is to reward bond buyers for helping the protocol, while also protecting the protocol from being manipulated by big players.
So after you buy bonds using aUSD, you get 2 possible ways to get your aUSD back:
Sell back your bonds for aUSD while the peg is between 1 - 1.1 (1 BUSD) with no redemption bonus. This is to prevent instant selling after the peg is recovered.
Sell back your bonds for aUSD while the peg is above 1.1 (BUSD) with a bonus redemption rate
The longer you hold, the more both the protocol and you benefit from Airbrick 2.0 Bonds.
Example:
When aUSD = 0.8, burn 1 aUSD to get 1 Bond (Bond price = 0.8)
When aUSD = 1.15, redeem 1 Bond to get 1.105 aUSD (Bond price = 1.27)
So, which one is better?
If I buy aUSD at 0.8, hold it until 1.15 and then sell, I'm getting +0.35$ per aUSD
But, if I buy aUSD at 0.8, burn it for Bond, and redeem it at 1.15, I'm getting 1.105 aUSD * 1.15 (aUSD current price) = 1,271 (+0.47$) per Bond redeemed.
But what if getting back to peg is taking too long ?
We are going to adjust our use cases, to have different behaviours on contraction and expansion periods to benefit aUSD and Bond holders when needed.
aBOND TWAP (time-weighted average price) is based on aUSD price TWAP from the previous epoch as it ends. This means that aUSD TWAP is real-time and aBOND TWAP is not. In other words, you can redeem Bonds for a bonus when the previous epoch's TWAP > 1.1.
