How Bonds Fit into Growth DeFi’s Ecosystem
Bonds have become popular in the past few months as they can be a very useful tool to add value when used properly. The purpose of this post is to examine how bonds of GRO and WHEAT will work and how they will greatly benefit both tokens.
What Are Bonds?
To understand how bonds will benefit GRO and WHEAT it is important to understand what bonds are.
Bonds connect two parties; the buyer and the protocol.
The protocol is interested in acquiring a specific asset, such as Liquidity Provider tokens (LPs).
The bond buyer is interested in acquiring the protocol’s token (GRO or WHEAT) at a slight discount compared to the market price, thereby improving their cost basis on a long term position.
If the protocol were to sell its tokens directly into the market it would harm the price. In a similar way if the bond buyer could instantly arbitrage the discount there would be a similar impact on the token’s price.
This is why bonds introduce vesting/lockup. In exchange for getting a discount to market price, the buyer can’t arbitrage the price. This enables the protocol to obtain liquidity tokens and the buyer to get their tokens at a discount, all while not affecting the market price of the token.
The purpose of bonds is to replace constant emissions to incentivize LPs that dilute token holders and completely own the token’s liquidity.
- Bond buyer improves their cost basis vs. market buying
- Protocol acquires liquidity without affecting market prices
- Small vesting/lockup period prevents pure arbitrages from happening
- Both parties get what they want (this creates a ‘win-win’ situation)
- Bonds replace renting liquidity with owning liquidity
GRO and WHEAT Bonds
The time has come for Growth DeFi to start owning its own liquidity instead of having to rent it by paying continuous incentives to external LPs to not leave the pool. This provides many benefits including:
- More liquidity depth for buying and selling GRO and WHEAT
- Reduced sell pressure from LP farms
- Increased MOR in circulation
- Extra profits from swap fees
- Reliable liquidity regardless of market conditions
The GRO DAO currently has a treasury holding of approximately 150,000 GRO. The aim of bonding is to create as much liquidity depth for GRO as possible.
Since GRO doesn’t have any emissions (it’s a purely deflationary and value-accruing token), this treasury can be used for many purposes. The main purpose is to acquire GRO/MOR LPs, starting with GRO/MOR TraderJoe LP tokens on Avalanche.
Bond buyers will be able to buy GRO with their GRO/MOR JLPs.
Throughout the coming months and years the majority of the 150,000 GRO will be converted into liquidity across different chains starting with 20,000 GRO for the first month to acquire GRO/MOR liquidity in TraderJoe (Avalanche).
As the DAO-owned liquidity increases, the need to incentivize pairs such as GRO/AVAX will disappear. This means emissions can be redirected towards increasing the staking rewards of WHEAT AutoCompounding and govGRO staking, thus creating a ‘win-win’ situation for both.
Swap Fees from these LPs held by the protocol will also increase GRO’s revenues.
WHEAT is in a very unique position to really capture the most value by combining bonds with its EBCs (Exponential Buyback Collectors). Bonds will enable WHEAT to acquire any asset, put the asset into an EBC with a customized strategy, and then use its yield to buyback WHEAT.
WHEAT bonds will start simply on Avalanche and will then evolve into much more over time.
For the first month of bonds being live, bond buyers will be able to provide either WHEAT/MOR JLPs or MOR/AVAX JLPs. The majority of the WHEAT allocated to bonds for the first round will go towards accumulating WHEAT/MOR liquidity.
Once enough WHEAT/MOR liquidity has been acquired the WHEAT/AVAX incentives will be completely removed. These incentives will then be carried over to WHEAT’s AutoCompound pool; almost doubling its staking rewards.
Having a huge WHEAT/MOR liquidity position will allow the protocol to eat up any dips with its own liquidity and even profit from them through swap fees.
The future of WHEAT bonds doesn’t just stop at acquiring WHEAT/MOR and MOR/AVAX liquidity though.
WHEAT has most of its emissions allocated towards bonds. This continuous stream of emissions will enable the protocol to substantially boost its existing EBC holdings and promptly increase the burn rate of WHEAT.
As an example, in future rounds, WHEAT bonds can include the accumulation of AVAX as a long term holding which can be maximized through yield farming with the EBC contracts.
Bonds won’t just be for Avalanche either. We are proposing to start reserving 1000 WHEAT BSC per day (slightly over 1/3 of emissions on BSC) towards creating a large bond reserve by the time they come live.
In future chain deployments, such as Fantom, the WHEAT of each chain will also have at least 2/3 of its emissions dedicated towards bonds.
WHEAT EBCs (Exponential Buyback Collectors)
Combining WHEAT’s existing strategy of reinvesting performance fees collected from collateral in MOR vaults towards EBCs and bonds will further boost WHEAT’s POV (Protocol Owned Value) and strengthen buybacks and burns going forward.
The Effects of Bonds on MOR
Both tokens can be paired with MOR to create very liquid trading pairs. Every single MOR in circulation is either backed by an open vault with a lot more collateral than debt, or by stablecoins held in the PSM (Peg-Stability Module) which are earning yield.
In either case, having more MOR in circulation generates revenue for both GRO and WHEAT. As part of permanently acquiring GRO/MOR, WHEAT/MOR and MOR/AVAX JLPs, the amount of protocol-owned MOR will be ever increasing, which will lead to higher revenues from MOR alone.
Given our multi-chain vision, there will be bonds for each major trading pair, making MOR just as liquid, if not more so, than other alternative stablecoins.
Some of these pairs include: MOR/AVAX, MOR/FTM, MOR/ETH, MOR/WBTC, MOR/BNB, MOR/MATIC, and more.
The Role of MOR’s System Surplus in the Ecosystem
MOR’s System Surplus is the accumulation of profits from MOR.
govGRO holders decide what to do with this surplus, with the main purposes of it being:
- Buying back and burning GRO
- Pairing it with either GRO or WHEAT to add more permanent liquidity to GRO/MOR and WHEAT/MOR EBCs
- Allocating it towards increasing WHEAT EBCs holdings
GRO and WHEAT’s success are connected. As such it is in the best interest of both token holders to work together; sharing revenues, improving the ecosystem, and continuing to make Growth DeFi one of the premiere cross-chain ecosystems in terms of capital efficiency.
GRO holders can stake their tokens and receive WHEAT in any chain.
We are approaching a new era for Growth DeFi. Now that we have established the core infrastructure of MOR as the main product, combined with WHEAT, it’s time to jump into the era of liquidity to assist investors in taking advantage of our comprehensive ecosystem.