1, 1 to 3, 3: The Reason to Bond
So you’re looking at OHM, right? You want in. The ohmies are lit, and you want to be one of them. But the price just looks too damn high. We get it, and maybe this will help.
Bond’s give you the opportunity to buy OHM from the protocol at a discount. In a lot of ways, they are similar to the sales platform we hope to roll out. There are just a few differences:
- You pay for the OHM with liquidity. This helps the protocol accumulate liquidity shares. Instead of using DAI to bond, you use OHM-DAI LP. But it is in effect the same as a regular trade; you give the protocol an asset (LP), and in return you get another asset (OHM).
- You don’t get the OHM up front. Instead, you vest into it over the course of roughly five days (33110 blocks). If it’s been two days, you can claim 40% the OHM promised. After 4 days, 80%. This is done to smooth out the market impact of the new supply.
- The demand for bonds dictates the discount you get. The market is still relevant because the LP share you pay with 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. Simple enough, right?
- Your committed LP is locked once you bond. This is a change from the original design, and it is important to note. When you make the trade, you have made the trade. Think of it as buying OHM and committing to stake for 5 days with a set reward rate.
So, why do you want to bond? The expectation is that bonds will give you some amount more OHM than you would get if you bought on the market and staked. How much more is determined by how many bonds there already are. But you, the ohmless individual, want more OHM. And so you like bonds!
Let’s do an example, just to make sure you get it:
The price of OHM is $500, and you have $1,000. With that money, you could go on the market and buy 2 OHM and stake. You know that staking will yield ~0.6% per epoch, and so over the course of a vesting term (15 epochs), your stack will increase from 2 OHM to 2.185 OHM.
On the other hand, the bond price is $450. Instead of buying outright, you could buy 1 OHM for $500, add 1 OHM and $500 to the pool, and bond the liquidity share you got back for a locked in 2.22 OHM. Over the course of the following five days, you’re able to claim those OHM as they vest, until the term is complete and you have the full amount.
This gets even cooler when you think about what you can do with the rewards from the bond. Before the end of each epoch, you could claim the accrued rewards and stake, effectively getting the discount and the staking rewards. This is the 1, 1 to 3, 3 strategy.
Alternatively, at the end of the term you could add the 2.22 OHM plus $1110 to the pool to get new LP and create another bond. This time your cost is even lower, since you already got your OHM at a discount and you’re now getting another discount on the next round. This is the 1, 1 to 1, 1 strategy.
You could even do both: claim rewards and stake before the end of each epoch, then when you’re done vesting, unstake everything and rebond. This is the 1, 1 to 3, 3 to 1, 1 strategy.
I’m excited to see what you ohmies do with this. If you can’t tell, there are a lot of strategies to run here. Some are simple and some are complex. Just focus on what you know, pay attention to what you’re getting, and decide for yourself what the best thing to do is. Please remember that bonds can be more expensive than the market price if there are already too many. Only do what makes sense.
We’re working on an analytic dashboard to make these decisions easier, but all you really need to do is this: figure out how many OHM you’d get from staking (what you can buy * (1 + epoch rebase) ^ 15) and compare it to what you’d get from bonding (what you have / bond price). Pick the one that gives you more. If you want to run strategies to maximize, by all means do so. At the end of the day, the important thing is that the treasury has an inflow and that everyone gets what they chose. I’m excited to see what those choices are.
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