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:
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.