What is an IBCO and How to Profit From It?
Stablecoins are growing in popularity because more people inside and outside the DeFi space are adopting them daily. However, many decentralized stablecoin projects have struggled to gain sufficient liquidity early on, which made them vulnerable to price volatility and market manipulation.
When evaluating the data on why other decentralized stablecoins failed, most suffered from a lack of liquidity. Not only does low liquidity inhibit trading and confidence, but it also significantly impacts the stability of the peg. The problem is simple: Stablecoin prices will shift if there is insufficient liquidity, regardless of the pegging mechanism.
Considering these challenges, we at TheStandard.io propose an Initial Bonding Curve Offering. Here is what that means.
What is an IBCO, and why is it worth your attention?
An Initial Bonding Curve Offering (IBCO) is a way to raise capital for blockchain projects. It’s like an Initial Coin Offering (ICO), but IBCOs introduce improvements to this dated method. The main problems they address are:
- Lack of liquidity;
- The arbitrary pricing of the initial tokens.
Financing a project in its initial phase comes with a number of risks. That’s why only a few ICOs end up being successful. Their token price is decided by the project promoters. Users are unaware of the actual value of the token until the time of listing on exchanges. Not everyone who has raised an ICO has also spent funds to finance the proposed project.
IBCOs are created to solve these problems using bonding curves of Decentralized Exchanges (DEXs). Nowadays, a project can issue its token directly on a DEX, creating a market by providing collateral to a pool of bonding curves. It is sufficient to award the token by creating an exchange pair on a DEX or implementing a custom bonding curve.
These are, in fact, IDOs (Initial DEX Offerings), or IBCOs, and have already been used several times by projects based on DAOs, decentralized autonomous organizations effectively controlled by token holders.
The tokens are not all minted before releasing onto the market (as in an ICO). They are minted and burned according to a bonding curve. The tokens are created if someone buys them at market prices, and they are burned when they are resold to the bonding curve itself, decreasing the supply and price.
This way, the price is not arbitrarily established at the beginning. Instead, it is determined by the market. There is a starting price, but it only serves to kick off trading.
Why is IBCO a better model than other funding models?
Any new stablecoin project entering the market usually faces three challenges:
- The new stablecoins are generally not accepted as a form of payment as they lack the first market validation.
- There are no options on how users can generate a yield on new stablecoins.
- New stablecoins suffer from long acceptance curves of approximately 1–2 years until deep liquidity has been built up.
To solve the abovementioned problems, TheStandard.io provides an Initial Bonding Curve Offering. The main goals of TheStandard.io IBCO are:
- Set solid incentives for early adopters to mint sEURO.
- Set strong incentives to build deep liquidity to the first stablecoin sEURO and the governance token TST.
- Keep sEURO stable and pegged to the fiat EURO at the end of the IBCO.
- Incentives to onboard sEURO in as many projects as possible.
How does TheStandard.io’s operation deep liquidity (IBCO) work?
The objectives mentioned above are to be achieved in three stages. The stages are released simultaneously to facilitate the launch of the first stablecoin issued by TheStandard.io and reward those that help the protocol early on.
1. Initial Bonding Curve Offering.
An Initial Bonding Curve Offering (IBCO) is being used to grow the Protocol Controlled Value (PCV) that will form part of the stability pool quickly by incentivizing users to acquire sEURO at a discount. As more people put liquidity into the IBCO the discount will become less until we reach a 1:1 price. The discount will start at 80 Euro cents to the sEuro.
The discount curve will decrease as volume comes into the protocol.
2. DEX Liquidity Bonding.
The next step will reward people with a strong yield for purchasing liquidity bonds with their sEURO and USDT. How this works is that they place sEURO and USDT into liquidity pools using our interface, and the protocol buys the liquidity off them for a high-yielding bond.
There are different maturity dates for the bonds. One week, 1, 3, 6, or 12 months. The longer the bond maturity is, the higher the yield.
3. TST Staking Rewards.
Once people have TST (TheStandard DAO’s coveted membership and governance token), holders can stake TST to receive rewards derived from the DAO’s deployment of the PCV funds into liquidity pools. These yields will be paid out in sEURO, and people can pull their TST out at any time.
The IBCO is the first mechanism to mint sEURO. Participants of this offering will enjoy a discount of up to 20% on the sEURO stablecoin which shall encourage a quick build-up of the Protocol Controlled Value (PCV). The goal is to distribute an amount of 85 million sEURO backed by the PCV.
This mechanism has proven to be an effective way to build up liquidity quickly when launching a new stablecoin. The initial bonding curve can also be seen as the first smart vault operated by TheStandard.io protocol.
The concept of a bonding curve enables the build-up of reserve assets in exchange for a large discount on the minting of sEURO. Tokens that can be initially converted into sEURO are Ethereum. The minting of sEURO follows a mathematical formula represented by a discount curve that finally matches a swap of 1:1.
The IBCO and the build-up of the PCV shall connect the total supply of sEURO minted during the IBCO with the full value of the reserve assets inside the PCV backing.
Furthermore, it shall enable sEURO holders to liquidate their positions as the PCV will be deployed in liquidity pools to create fully-liquid secondary markets for sEURO.
In a Nutshell
With The Standard, the first stablecoins are minted via an Initial Bonding Curve Offering (IBCO).
To build up the DAO’s protocol-controlled value (PCV) and bring deeper liquidity to the stability pool, early participants will be able to buy sEURO at a discount. The discount will decrease with every sEURO purchased until we reach a 1:1 price. This discount curve will start at 80 cents for one sEURO.
The second stage of the IBCO will be a bond, offering a stronger return.
The PCV (liquidity) will be used to peg the stablecoins but also earn a yield for TST (The Standard Utility Token) stakers.
