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Bonds give you the opportunity to receive sLDN from the protocol at a discount.
- 1.You pay for the sLDN with liquidity. This helps the protocol accumulate liquidity shares. Instead of using USDA to bond, you use wLDN-USDA LP (first bonds) or other accepted assets in the future. But it is in fact the same as any regular trade; you give the protocol an asset (token or LP), and in return you get another asset (sLDN).
- 2.The demand for bonds dictates the discount you get. The market is still relevant because the LP share or token you provde in exchange for the bonds gets more or less valuable, but it’s not what actually drives what you get. Instead, the bond discount goes up when there are more bonds, and goes down when there are less bonds.
- 3.Your committed LP or token is locked once you bond. This is important to note. When you make the trade, you have made the trade. Think of it as exchanging your token or LP token in exchange for sLDN.
Bonding is the secondary value accrual strategy of Lydian. It allows Lydian to acquire its own liquidity and other reserve assets such as USDA by selling sLDN at a discount in exchange for these assets. The protocol quotes the bonder with terms such as the bond price, the amount of sLDN tokens entitled to the bonder, and the vesting term. The bonder can claim some of the rewards (sLDN tokens) as they vest, and at the end of the vesting term, the full amount will be claimable.
Note: this is an example for the first bonds (March 22nd, 2022)
Bonding is an active, short-term strategy. The price discovery mechanism of the secondary bond market renders bond discounts more or less unpredictable. Therefore bonding is considered a more active investment strategy that has to be monitored frequently in order to be more profitable as compared to staking.
Bonding allows Lydian to accumulate its own liquidity. We call our own liquidity POL. More POL ensures there is always locked exit liquidity in our trading pools to facilitate market operations and protect token holders. Since Lydian becomes its own market, on top of additional certainty for LDN investors, the protocol accrues more and more revenue from LP rewards bolstering our treasury.