Liquidity Bonds
As a decentralized organization, one of your goals may be to increase the liquidity on your governance or utility token. You have a liquidity segment of tokens, but you want to limit the amount of buy side liquidity (USDC, SOL, etc.) your organization provides because you have operational expenses.
With liquidity bonds you can source the buy side liquidity from your community!
How it works
Organization issues a Liquidity Bond, stating the duration of the liquidity lock up.
Community member purchases the bond by putting up buy side liquidity like USDC.
The Liquidity Bond program matches that USDC with the same amount of $COIN. The USDC and $COIN are used to create a concentrated liquidity position on the underlying Orca whirlpool. The position straddles the current price.
After the lockup period has passed, the user can now claim that position. The position includes it's balance of $COIN and USDC as well as any $COIN and USDC trading fees it has made.
Why is this useful?
Teams with an existing token can distribute more supply and increase liquidity at around the current price.
What are the risks to the buyers?
If the value of $COIN drops, the value of their bond drops. The Position is collecting trading fees while the price of coin is within the range of the Position’s lower and upper price. The worst case scenario is the price of $COIN goes straight down, below the Position’s lower bound, and never recovers. In this case, the buyer owns a position that is in all $COIN and may have collected little to no USDC from trading fees.
Can a Liquidity Bond be bought with a token other than USDC?
Yes! It's up to the team issuing the bond to determine the token that is used for purchase and buy side liquidity. USDC makes for more simple examples.
Last updated