Liquidity Bond Sales
In the RWA Ecosystem, the process where users trade RWA-USDT LP with the RWA Ecosystem protocol is called purchasing liquidity bonds. The protocol acquires ownership of the LP tokens, while users lose ownership of the LP tokens. As compensation, users will receive more RWA tokens at the transaction price.
To purchase liquidity bonds, users must first add liquidity to the RWA-USDT trading pair to receive LP tokens. Then, they can use these LP tokens to buy liquidity bonds.
The protocol acquires ownership of the LP tokens and simultaneously calculates the Risk-Free Value (RFV) of the LP. The RFV of the LP is measured in terms of the quantity of RWA tokens.
The protocol then calculates the executing price of the bond, with the executing price measured in terms of the RWA quantity.
Premium is the bond premium, which is determined by the system's total debt and a scaling variable. It links the bond price to the quantity of outstanding bonds (each bond has a 5-day exercise period).
Dynamic bonds provide users with a corresponding discount (Discount) at a proportional rate, meaning the greater the discount, the higher the return on investment (ROI). The bonds have a 5-day exercise period, and after the exercise period ends, users receive RWA tokens. This process is irreversible.
The number of bonds currently in the exercise period (Bonds Outstanding) determines the bond premium (Premium). The fewer the number of bonds in the exercise period, the lower the bond premium, and the higher the execution price (ExecutingPrice). As a result, the higher the return on investment (ROI) for users purchasing the bonds (greater discount), which in turn increases the incentive for users to purchase the bonds.
The benefits of a large volume of liquidity bond sales for the protocol are:
Permanent locking of a large amount of RWA-USDT trading pair liquidity;
The liquidity of the RWA-USDT pair is positively correlated with the RWA price;
The higher the liquidity bond premium, the lower the bond discount.
Increase the treasury’s asset-liability balance by evaluating the risk-free value of LPs, ensuring that the equilibrium value is always greater than $1, meaning RWA has an intrinsic support price of 1 USDT;
Liquidity bond exercise period is 5 days, ensuring that the protocol can distribute profits to users who have staked RWA.
The "problem" of liquidity bond sales:
Users purchasing liquidity bonds with RWA-USDT LP tokens, where the LP is owned by the treasury, will cause the treasury to recognize a significant difference between the LP's market value and its intrinsic value. The treasury will mint RWA based on the LP it acquires, ensuring it has enough funds to support the RWA. Therefore, the treasury will evaluate the LP at its minimum value, which is the previously discussed risk-free value (RFV).
The higher the premium, the greater the gap between the market value and the risk-free value. For example, an LP consisting of 10 RWA and 1000 USDT (market value of $2000) and having 100% share, would have an RFV of 200 RWA (2√(101000)).
The existence of RFV introduces the issue of RWA minting volume. In the example above, the protocol mints one RWA for $5 (the treasury receives 1000 USDT and mints 200 RWA), rather than minting at the support price of $1. While this RWA minting method is feasible when the protocol needs to lock in more liquidity, its efficiency in minting RWA is relatively low and cannot meet the market's demand for rapid supply growth. Therefore, the protocol will sell reserve bonds to address this "issue."
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