Bonds Mechanism
What are CPBONDS(Bonds)?
Bonds are unique tokens that can be utilized to help stabilize CPM price around peg (1 USDC) by reducing circulating supply of CPM if the TWAP (time-weighted-average-price) goes below peg (1 USDC).
When can I buy CPBOND(Bonds)?
CPBOND can be purchased only on contraction periods, when TWAP of CPM is below 1.
Every new epoch on contraction periods, CPBONDs are issued in the amount of 3% of current CPM circulating supply, with a max debt amount of 35%. This means that if bonds reach 35% of circulating supply of CPM, no more bonds will be issued.
Note: CPBOND TWAP (time-weighted average price) is based on CPM price TWAP from the previous epoch as it ends. This mean that CPM TWAP is real-time and CPBOND TWAP is not.
Where can I buy CPBOND(Bonds)?
You can buy CPBONDs if any are available, through the BOND on cp.finance, anyone can buy as many CPBONDs as they want as long as they have enough CPM to pay for them.
There is a limit amount (3% of CPM current circulating supply) of available CPBONDs per epoch while on contraction periods, and are sold as first come first serve.
Why should I buy CPBOND (Bonds)?
First and most important reason is Bonds help maintain the peg, but will not be the only measure use to keep the protocol on track, more on that on DAO Fund section here.
CPBONDs 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 CPBOND
The idea is to reward CPBOND buyers for helping the protocol, while also protecting the protocol from being manipulated from big players.
So after you buy CPBOND using CPM, you get 2 possible ways to get your CPM back:
Sell back your CPBOND for CPM while peg is between 1 - 1.1 (1 USDC) with no redemption bonus. This to prevent instant dump after peg is recovered
Sell back your CPBOND for CPM while peg is above 1.1 (1USDC) with a bonus redemption rate
The longer you hold, the more both the protocol and you benefit from CPBONDs.
Example:
When CPM = 0.8, burn 1 CPM to get 1 CPBOND (CPBOND price = 0.8)
When CPM= 1.15, redeem 1 CPBOND to get 1.105 CPM (CPBOND price = 1.27)
So, which one is better?
If I buy CPM at 0.8, and hold it until 1.15 and then sell, I'm getting +0.35$ per CPM
But, if I buy CPM at 0.8, burn it for CPBOND, and redeem it at 1.15, I'm getting 1.105 CPM* 1.15 (CPM current price) = 1,271 (+0.47$) per CPBOND 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 CPM and CPBOND holders when needed.
When can I swap CPBOND for a bonus?
CPBOND TWAP (time-weighted average price) is based on CPM price TWAP from the previous epoch as it ends. This mean that CPM TWAP is real-time and CPBOND TWAP is not. In other words, you can redeem CPBOND for a bonus when the previous epoch's TWAP > 1.1.
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