How you and the protocol benefit from TheStandard.io’s Operation Deep Liquidity (AKA IBCO)
To help launch the sEURO and subsequent stablecoins in the future, TheStandard.io is using a distribution model called an Initial Bond Curve Offering (IBCO) alongside liquidity bonding in exchange for TheStandard.io’s governance token, TST. Using bonding curves helps to solve some of the main problems protocols face at launch: lack of liquidity and the arbitrary pricing of tokens in the initial distribution.
It creates strong financial incentives for early adopters to mint the sEURO, while concurrently building deep liquidity for the sEURO. This will ensure that the sEURO will be pegged to the EURO once the IBCO is finished, which will lead to the onboarding of the sEURO in other projects and support the case for subsequent ‘standard’ stablecoins.
How do Yields APY work and how to benefit from TheStandard.io’s IBCO?
Often with token launches, when trying to create liquidity, the token creators will “rent liquidity”. This is done by scaling the Annual Percentage Yield (APY) at launch, meaning there is an initial high APY (i.e., a ‘100% annual return’ on deposits). This will often provide a sudden rush of liquidity at the beginning.
In the long run, the problem is that as the APY drops because protocols start to run out of their governance tokens, farmers will pull their liquidity and sell their total holdings (initial amount plus earnings) to take a profit and move on to the next high APY project. This mass sell-off destroys the liquidity and token value, which happens fast (within days).
Instead, The Standard is taking inspiration from Olympus DAO, with the idea to buy liquidity instead of renting it. Offering a bond to buy liquidity that pays out in the native token prevents the liquidity from being removed to protect the protocol while generously rewarding farmers.
The biggest issue with this tactic is the potential selling pressure on the native token. TheStandard.io mitigates this by offering various bond maturity lengths to encourage users to stake longer and spread out any selling pressure. There is also a staking mechanism where anyone holding TST can stake it and earn more yield, derived from deploying the pooled protocol-controlled value (collected in stages one and two) into liquidity pools and later any fees earned by the lending and minting part of TheStandard.io. These are very strong financial incentives so that rational actors will want to hodl the TST collected rather than sell them.
After the IBCO is complete, TheStandard DAO will release Private Smart Vaults, in which anyone can lock in crypto and tokenized physical assets such as tokenized vaulted gold and then mint or borrow stablecoins against that locked-up value. Unlike other protocols, these loans will be offered at a fixed zero percent interest with no time limit to pay them back, and the users always control their private keys. People taking advantage of TheStandard.io’s 0% interest loans will pay a small minting fee, which will make up part of the yield distributed to TST stakers. This is the ultimate DeFi stablecoin protocol, The Standard in stablecoins.
How each stage of the IBCO benefits you and the protocol
Stage 1 — Initial Bond Curve Offering
The IBCO gives higher returns to those that get in early. Through the IBCO, an initial discount is given on the sEURO, starting at 20%, which means investors can mint sEURO at a rate of 80 euro cents worth of digital assets to 1 sEURO. This discount will taper off as volume comes into the stability pool until a 1:1 peg has been reached. This incentive is designed to grow the Protocol Controlled Value (PCV) which will form part of the stability pool for the sEURO. By getting in early, users not only help create the stability pool, but can instantly lock in a 20% potential return. sEURO can be minted during the IBCO using Ethereum (ETH), Bitcoin (WBTC), USDC, USDT, or DAI, through the user interface.
Stage 2 — Decentralized (DEX) Liquidity Bonding
TheStandard.io offers users the opportunity further to generate strong returns through the purchase of liquidity bonds. These bonds are purchased using your newly minted sEURO paired with USDT and pay out the initial value, plus returns, in the native governance token, The Standard Token (TST). These unique high-yielding bonds are easily acquired and redeemed through TheStandard.io’s user interface or by interacting directly with the smart contracts on the blockchain.
Users can choose from various maturity dates; a longer maturity term means a higher yield earned for the user. The planned bond maturity options are one week, 30 days, three, six, or twelve months. This allows users to choose their bonding reward based on time to meet their individual needs.
By offering a bond settlement in TST, the PCV is ensured to maintain the liquidity to stabilize the value and peg of the sEURO, which is a key stepping stone for the project. The selling of bonds, as opposed to offering direct yields for liquidity providers, is designed to incentivize yield farmers to still earn a high yield without pulling liquidity from the pool.
The Bonds that will be initially offered will be.
7 Day maturity bond at 1.09% ROI
30 Day maturity bond at 4.19% ROI
91 Day maturity bond at 11.22% ROI
182 Day maturity bond at 19.45% ROI
365 Day maturity bond at 33.09% ROI
As a comparison, here are some other 30-day yields in DeFi.
Aave 0.75%*
Compound 0.90%*
*Rates are taken from https://defiprime.com/defi-rates
Stage 3 — TST Staking Rewards
This final stage brings value to users in the medium to long term. People who stake TST during the IBCO earn yields from the deployment of assets collected in stages one and two into liquidity pools. These liquidity pools collect fees as people use them to swap assets, and this revenue is split between DAO and stakers and is paid out in sEURO.
Once private Smart Vaults are launched, staked TST will collect a portion of the vaulting fees and allow you to participate in liquidations, enabling you to acquire collateralized assets below market value. So not only do those who stake TST get voting rights in the execution of TheStandard DAO, but they also generate earnings in the sEURO stablecoin, which can be cashed out at any time.
Example
To gain some perspective on how it works, we have included a hypothetical example below (values are illustrative and not binding):
- We will say you have $185 in USDT.
- You start by putting 8,500 € of ETH into the IBCO, and since you are early, you receive 10,000 sEURO from the bonding curve’s rate discount, meaning you receive a total of 1500 sEURO as an instant yield.
Due to the ongoing discounted minting event, it is unlikely that one sEURO will trade for one euro anywhere except our stage 2 liquidity bonding event.
- You then wish to earn more yield by participating in the liquidity bonding (Stage 2), so you take the 10,000 sEURO and $10,000 USDT and select a bonding period with a return of 19.45%. After the bond matures, you redeem the bond and receive the equivalent of the €20,000 worth of assets you bonded plus 19.45% interest for a return of 341,285 TST.
The price of TST is locked in at 7 cents, but could be worth much more by maturity. If the price of TST is 12 cents at the time of maturity, you are sitting on a cool €40,954.
- You can then take your 341,285 TST and stake it in stage 3 to earn a yield from all the protocol-controlled value deployed in liquidity pools. This means that you benefit from the deployment of liquidity that you and others have provided in Stage 1 and Stage 2.
Note: the returns on staking are subject to price volatility and actual bonding rates, among other factors.
Summary
The IBCO method is the perfect way to launch sEURO and other decentralized stablecoins because it allows the DAO to create a safe and stable protocol for users. Choosing a system that has been successful in the past should give everyone confidence while being a part of creating a strong foundation and part of a project with a real-world use case to get mass adoption by rolling out sUSD, sINR, sAUD, sGBP, and so on.
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