Bonds
Detailed description of Collateral Redemptions.
Last updated
Detailed description of Collateral Redemptions.
Last updated
Shade Bonds are a privacy-preserving DeFi instrument where users can purchase digital assets from the ShadeDAO by depositing protocol desired cryptocurrencies into a smart contract. The rate at which users deposits assets into the bond smart contract is at a fixed spot price determined by Shade Protocol governance. The rate issued is typically at a discount compared to the market. This discount is given to incentivize users to deposit and acquire assets at a discount.
Bonds are a more cost efficient way of acquiring or issuing a desired asset compared to the secondary market (DEX, CEX). This is because the spot price is fixed and completely avoids slippage which is advantageous for both the user and the protocol assuming both counterparties are satisfied with the given spot price of the issued bond.
If SILK is trading overpeg for an extended period of time, the ShadeDAO could issue a SILK bond at a discount in exchange for a desired yield bearing asset. This is not necessarily optimal as the discount rate is in essence an asset to liability mismatch that has to be accounted for at a later date, but if SILK is trading overpeg and other arbitrage mechanisms are not impacting the supply and demand disparity quick enough, the issuance of a SILK bond can help rapidly expand supply.
A user story for this would be as follows:
ShadeDAO offers to sell $1,000 worth of SILK for $990 worth of SHD with 3 days of vesting
User deposits $990 worth of SHD into ShadeDAO
User claims $1000 worth of SILK 3 days later (increases SILK supply)
The more useful stability mechanism with Shade Bonds is the ability to pull SILK out of the open market by selling treasury assets (specifically assets that are uncorrelated to SHD). With the discounted bond mechanism, SILK supply in active circulation can rapidly be reduced as users would take advantage of selling their SILK for another asset at a discounted rate. The less aggressive the vesting period and the greater the discount, the stronger this mechanism is for pulling SILK out of circulation.
A user story for this would be as follows:
ShadeDAO offers to sell $1,000 worth of $ATOM for $990 worth of SILK with 14 days of vesting
User deposits $990 worth of SILK ShadeDAO burns the SILK (reducing supply and debt in the system)
User claims $1,000 worth of $ATOM 14 days later from the ShadeBond
To learn more about Bonds, please read the full subsection of information on Shade Bonds as a DeFi primitive.
