How protocols/DAOs can benefit from Chicken Bonds
July 8, 2022
Chicken Bonds are versatile as a concept and can be used to bootstrap protocol-owned liquidity (POL) at no cost for various purposes.
For example, the liquidity can be deposited in a DEX or other DeFi applications (e.g. lending protocols) as long as it earns yield. This can be e.g. interesting for stablecoins which are paired with a Curve 3pool token. The protocol only needs to provide single-sided liquidity. The yield on the stablecoin Curve pool can then be amplified through Chicken Bonds to attract more liquidity. It’s also possible to run more sophisticated liquidity management strategies or algorithmic market operators (AMOs) fulfilling monetary policies.
Depending on the underlying yield source, the protocol could in theory run autonomously without needing any form of governance. However, in certain situations, it might be beneficial to actively manage funds in the treasury or at least have migration facilities. To ensure that people can always cancel their bond and fully withdraw their deposits, it seems reasonable to exclude the Pending Bucket from governance though and invest it as securely as possible.
Although Chicken Bonds is designed to be a cost-free option for liquidity acquisition, there are several ways protocols (or any interested parties) can incentivize the system and let it be more successful:
- Create an initial bond without ever claiming it. This essentially amounts to giving away the yield as a bootstrapping incentive.
- Provide liquidity to the bToken / underlying token DEX pair. This not only raises confidence among users, but helps bondholders to sell their bTokens and potentially rebond the proceeds.
- Buy a significant amount of bTokens to raise its market price, making bonding more attractive and the Permanent Bucket larger (as users would tend to Chicken In earlier due to a shorter optimum rebond time).
To obviate the complexities of acquiring the counter-token of the DEX pair when people Chicken In (e.g. sandwich attacks against single-sided deposits), the protocol can let users bond LP tokens in the first place.
We’re very interested in hearing your thoughts on how Chicken Bonds could be useful to your protocol token or DAO. Do reach out to us if you have any questions or suggestions.