Configuring Bond Market Deployment (2/3)
Note: If you haven’t yet, please read Part One — Preparing for Bond Market Deployment prior to this blog post as it covers the elements of creating a successful bond market strategy.
When setting up a bond market on Bond Protocol, it’s essential to configure it according to your specific needs and goals. Each option you choose will have an impact on the functionality and outcomes of your bond market. In this guide, we walk you through the key configuration choices and provide insights on when and why you should select certain features.
Payout Token and Quote Token Selection
When selecting the payout token and the quote token for your bond market, which represent the tokens received and provided by bonders respectively, it’s essential to align them with your end goal. For example, most protocols choose to payout their native token and receive another token such USDC, ETH, or CVX when aiming to diversify their treasury, fund future operations, or acquire strategic assets. If you’re still undecided or seeking additional guidance, this case study and list of strategies can provide valuable insights.
Vesting Type and Duration Selection
Bond Protocol offers two vesting types:
Fixed-Term (Instant, 7d, 14d, 28d, Custom Length)
With Fixed-Term Bonds, bonders receive an ERC1155 token that represents their position, and the underlying token is claimed after the selected duration. In other words, fixed-term bonds spread out emissions over time. If you require a different or longer duration, you can choose “Custom” and then “Length” to input any amount up to 270 days.
Fixed-Expiry (Custom Date)
Fixed-Expiry Bonds vest at a specific date/timestamp and bonders receive an ERC20 token to represent their position. In other words, fixed-expiry bonds can be seen as cliff-style vesting. When using the Bond Protocol frontend, fixed-expiry bonds must have a minimum of 3 days vesting to a maximum of 270 days vesting.
Short-Term vs Long-Term
When deciding on the vesting duration for your bond program, it can be difficult to decide between short-term or long-term bonds. Below are a few points that you can use to make an informed decision that aligns with your project’s goals:
- Short-term bonds typically have a duration of less than one month, such as 7 days, 14 days, or 28 days.
- They allow DAOs to acquire assets quickly, often at a smaller discount compared to longer-term bonds.
- Bonders receive their vested payout asset within a relatively short time frame.
- Short-term bonds are well-suited for projects with active liquidity mining programs, as they provide a way for LPs to quickly exit their positions with short vesting periods.
- They help manage emissions by gradually allocating rewards to the bond program, preventing abrupt declines in liquidity.
- Long-term bonds typically have a duration of more than two months, such as 3 months, 6 months, or 9 months.
- These bonds defer vesting to longer time horizons, and bonders may initially demand higher discounts compared to short-term bonds.
- They can be appealing to token holders and community members with long-term alignment, providing an opportunity to acquire their favorite governance token at a discounted price.
- Long-term bonds are effective for treasury diversification, as they provide stable assets upfront to cover operational expenses or fund growth initiatives.
- However, issuing long-term bonds requires careful consideration of future token claims and the potential for higher initial discounts.
Capacity Selection
When configuring your bond market, you have the flexibility to choose the total amount of payout tokens to emit or the amount of quote tokens to receive. For first-time issuers, it’s generally recommended to start with a small capacity. This allows you to assess the performance of the program, gather valuable insights, and make informed adjustments before scaling up. Remember, bond markets can always be canceled, adjusted, or redeployed to better suit your needs and goals.
Auction Type Selection (Dynamic vs. Static)
Dynamic (Sequential Dutch Auctions)
Dynamic auctions are recommended for short-term bonds and use a Sequential Dutch Auction mechanism. This allows protocols to issue tokens over time while controlling the price and discount speed. It provides flexibility and is suitable for gauging demand.
When opting for dynamic auctions, issuers must set the initial price (a.k.a. the initial discount), which determines the starting exchange rate for the bond market. Additionally, they must select a minimum price as an absolute hard floor, ideally with at least a 30% discount to the initial price to prevent the auction from becoming stuck.
Static (Fixed-Price Bonds)
On the other hand, static auctions involve setting a fixed price that bonders must pay to receive the payout tokens. It’s useful for trial runs with a limited quantity of vested tokens, making it easier to assess demand for different vesting lengths.
To learn more about SDAs and Fixed-Price Bonds, read here.
Closing Thoughts
By carefully configuring your bond market using these options, you can align it with your goals, liquidity needs, and market dynamics, ultimately tailoring it to your specific requirements and optimizing its effectiveness.
Keep in mind that the configuration choices you make will have a significant impact on the outcomes of your bond market. Therefore, it’s crucial to take the time to carefully consider your options and understand their implications.
If you need any assistance or have further questions, don’t hesitate to join our community!
Bond Protocol is the permissionless on-chain bond marketplace. Our mission is to power sustainable treasury growth and support protocols to acquire strategic assets, including their own liquidity.
