ORIGIN sells two main types of bonds: liquidity and reserve.
1.Liquid bond sales
Purchasing liquidity bonds is the process in which ORIGIN users use LGNS-USDT LP to trade with the ORIGIN protocol. The protocol obtains ownership of LP, and users lose ownership of LP. Users will receive the transaction price to purchase more LGNS tokens as compensation.
If users want to purchase liquid bonds, they must first add liquidity to the LGNS-USDT trading pair, obtain LP tokens, and then use LP tokens to purchase liquid bonds.
The protocol obtains ownership of the LP, and at the same time, the protocol calculates the LP’s risk-free value (RFV). LP risk-free value is measured in LGNS quantities.
RFV=（LP/Total LP*2sqrt (Constant Product)
{Constant Product is the constant product of the LP}
The agreement then calculates the execution value (Executing Price) of the bond, and the execution price is measured in LGNS quantity.
Executing Price=RFV/Premium
{Premium≥1}
Premium is the bond premium, which is determined by the total debt of the system and a scaling variable that relates the bond price to the number of bonds outstanding (each bond has a 5-day vesting period).
Premium= 1+ (Debt Ratio*BCV)
Debt RAio=Bonds Outstanding/ LGNS Supply
{BCV is the protocol-adjustable inflation rate}
{Bonds Outstanding: Number of outstanding bonds}
Liquid bonds give users a discount (Discount); users have corresponding discounts when purchasing bonds.
Proportional rate of return ROI: the greater the discount, the higher the rate of return. The bond has a 5-day exercise period. After the exercise period, the user will receive LGNS tokens. This process is irreversible.
ROI= (LGNS transaction price*Executing Price) -1= (LGNS transaction price*RFV)-1
LP actual value LP actual value*Premium
The bond premium determines the number of bonds in the exercise period (Bonds Outstanding). The fewer bonds in the exercise period, the lower the bond premium and execution value (Executing).
The higher the price), the higher the return rate for users to buy bonds (the higher the discount), and the stronger the motivation for users to buy bonds.
** Benefits of large sales volume of liquid bonds to the agreement:
1) Permanently lock a large amount of liquidity in the LGNS-USDT trading pair;
2) LGNS-USDT liquidity is positively related to LGNS price;
3) The higher the premium of liquid bonds, the lower the bond discount;
4) Increase the treasury balance sheet by evaluating the risk-free value of LP. The equilibrium value is more significant than 1$ at any time, which means that LGNS has an internal support price of 1 USDT;
5) The exercise period of the liquidity bond is 5 days, ensuring that the protocol can distribute profits to LGNS-staked users.
** The “problems” with liquid bond sales:
Users use LGNS-USDT LP to purchase liquid bonds. The treasury owns LP. The treasury believes that the value of LP is significantly different from its market price. The treasury mints LGNS for the LP obtained while ensuring that it has sufficient funds to support LGNS. Therefore, the treasury evaluates LP to its minimum value, which is the risk-free value (RFV), as explained above.
The higher the premium, the greater the gap between market value and risk-free value. For example, a certain LP consists of 10 LGNS and 1000 USDT (market value $2000), the LP ratio is 100%, and the risk-free value of the LP is 200 LGNS. (2sqrt (10*1000)).
The existence of risk-free value brings about the issue of LGNS minting volume. In the example above, the protocol costs $5 to mint one LGNS (the treasury receives 1000 USDT and mints 200 LGNS) rather than minting at the support price of $1. If the protocol needs to lock in more liquidity, this LGNS minting method is feasible, but its efficiency in minting LGNS is relatively low and cannot meet the market’s rapidly growing demand for supply. So, the agreement would be to sell reserve bonds to solve the “problem.”
2.Reserve bond sales
Users purchase reserve bonds using USDT, which is owned by the protocol, and as compensation, the user will receive more LGNS tokens than the market purchase. Reserve bonds give users corresponding proportional discounts. The bonds have a 5-day exercise period. After the exercise period, users receive LGNS tokens. This process is also irreversible. The above mechanism is the same as LP bonds.
When a user uses USDT to purchase a reserve bond, the protocol does not need to evaluate its risk-free value. The protocol mints 100% of LGNS based on the funds it receives. Returning to the previous example, $2,000 worth of LP purchasing liquid bonds minted 200 LGNS, while $2,000 worth of USDT purchasing reserve bonds minted 2,000 LGNS (LGNS support price $1).
The protocol supplements LP bonds through USDT bonds, capturing the total value of USDT bonds to significantly increase the minting volume of LGNS and meet market development needs.
3.Bond summary
1) Bonds do not rely on market data. The bond market is automated; the number of bonds outstanding determines bond prices. When the number of bonds in the exercise period is small, the exercise value of the bond is high, and the unit price of the bond is low; on the contrary, the exercise value is low, and the unit price of the bond is high. Market participants buy bonds at prices they believe are fair, thus keeping bond prices in a constantly changing dynamic.
2) Bonds delay the impact of new LGNS supply on the market. LGNS changes from a bond attribute to a disposable asset of users after 5 days, expanding the scope of new LGNS supply distribution. The sale of the bonds creates a quick arbitrage opportunity (buying at a discount and then selling into a pool), increasing the volatility of the LGNS price.
3) Bonds require less management. Bond sales are designed to have a discount rate controlled by the agreement. This discount rate needs to be high enough to attract buyers. The premium also affects the discount rate, so the inflation rate (BCV) is a parameter that needs to be micromanaged. However, the discount on USDT bonds is more market-determined and requires less intervention.
4) Bonds are a more market-driven way to achieve the protocol’s goals. USDT is exchanged into the treasury, and the protocol mints new LGNS. Trading volume increases as the trading price increases.