UIP-03 Bonding Program Proposal

[VithuranK]

Title: UIP-03 Bonding Program Proposal
Scope: Protocol Improvements
Authors: Jas Singh, Sujith Sizon, Vithuran K.

Abstract:

This proposal outlines an approach for improving our current liquidity mining efforts and establishing a yield generating treasury in non-native assets, with a concerted effort to control our own liquidity via Bonding programs.

Token bonds are a concept where users can exchange certain crypto assets for native tokens at a discount. In exchange, users are emitted the discounted asset over a span of a few days.

Similarly, $UNO bonds will grow the Uno Re protocol’s POL and treasury by offering users a way to purchase $UNO at a discount. Only $USDC deposits will be supported initially, and initially only whitelisted participants would be allowed to take part in the bonding program.

This proposal also covers fund utilization areas, key program parameters, counterparty selection criteria, and community oversight. The proposal aims to engage the community, allocate funds strategically, set program parameters, select partners carefully, and elect a community overseer to drive the protocol’s long-term vision.

The Big Picture:

Currently Uno Re protocol is faced with the following challenges:

1. Spending a substantial amount of UNO in order to maintain our SSIP and SSRP liquidity mining program. And recent efforts to slash rewards has been heavily criticized by the community members - which causes a requirement to provided boosted rewards on existing mining programs which does not depend on utilization of the Insurance pool capacity.
2. Low liquidity on current DEX trading pair causing high slippage during buyback and burn events even with MEV routed trades. Arbitrage traders pickup profits by offramping to CEX pairs.
3. Initial Capital commitment and KYB requirements with our RWA partners [REDACTED] and [REDACTED]
4. Overexposure on native token $UNO which is mostly sitting idle - without generating any yield.

At the same time, the DAO is operating in an environment where various newer DeFi protocols have enabled protocol treasuries to hold their own liquidity. This new paradigm allows projects to enjoy the best of both worlds, ensuring that there’s sufficient liquidity while avoiding typical downsides that arise from liquidity mining–for instance, “mercenary” liquidity providers who quickly head for the exits and sell a token soon after they earn those rewards.

The two steps contained in this proposal would effectively allow the DAO to engage in both behaviors: continuing its liquidity mining rewards while also using its ample UNO reserves to begin purchasing its own liquidity via a bonding program.

In addition to deepening token liquidity, most protocols are over-exposed to their native governance token, with most treasuries having <10% diversification into protocol-owned liquidity or stablecoins. Issuing bonds secures funds for development and investment in strategic initiatives to increase protocol viability and longevity .

Description:

This proposal aims to launch a bonding program with the following motivations:

1. Bootstrapping Protocol Owned Liquidity:

2. Provide funding to bootstrap the Protocol Owned Insurance capital in non-native assets - paving the way for enhanced forms of underwriting capital for our insurance partners

3. LP Bonding - enhancing liquidity on our token trading pair in the form of either concentrated Uniswap v3 pools or Bancor 80/20 LP pools for $UNO/WETH

4. Sustainable Yield Generation: Allocate funds to establish a yield-generating treasury, ensuring a continuous income stream for protocol maintenance, upgrades, and community initiatives. Major potential candidates include frxETH which has implications ranging from crvUSD and llamas.

5. Seed Capital commitment required to meet Real-World Asset Integration: Seed funding for a KYB’ed RWA pool for UNO to bridge traditional and decentralized finance, enhancing protocol utility and attracting a broader user base.

The program needs to have governing rules to ensure a fair token distribution process by setting parameters and limits to prevent excessive dilution and maintain community ownership and liquidity.

Specification:

1. Max Discount on Payout Token $UNO: The maximum discount on tokens purchased through the bonding program will be set at 15%, ensuring a fair market value and preventing excessive dilution.
2. Max Total Limit of Tokens / Capacity: The bonding program will have a maximum limit of 10,000,000 $UNO tokens available for purchase. This limit will help manage the token distribution and maintain a healthy balance between community ownership and liquidity.
3. Quote Token or Payment Token: The bonding payments should be made in either USDC or USDT
4. Daily Limits: At any particular day, there shall only be a maximum of 7500 USD worth of $UNO tokens available for purchase via bonding program.
5. Flexibility to pause the bonding program under adverse market price conditions (will be determined by the UNO DAO community.)

Financial Implications:

As per the current tokenomics there are still around 25,000,000 excess / idle $UNO tokens which are releasable but not being used. The DAO should allocate up to 10,000,000 $UNO out of this towards program for the course of next 4-5 months.

Currently across the protocol is around 420k UNO per month, while expansion would require increasing it. Launching bonds would instead allow gradually reducing the emission even while we expand to multiple chains. In addition, it will increase our on-chain revenue by earning fees as the owning our own liquidity.

Counterparty Selection Criteria

Quality partners who meet strict selection criteria bring valuable resources and connections, attracting more participants and driving growth and adoption. The bonding program is whitelist-only, requiring partners to meet specific criteria:

1. Long-Term Vision: Partners must demonstrate understanding and commitment to the protocol’s long-term vision and goals to be whitelisted for the program
2. Good OpSec Practices: Partners should implement strong operational security measures, including multi-signature wallets, to protect assets and stakeholders’ interests.
3. (Optional) Token Lock Commitment: Partners must voluntarily lock 10% of their acquired tokens for a duration of least 4 years, showcasing long-term dedication to protocol stability.

Success Metrics or KPIs

1. Minimal impact on UNO price
2. Permanent liquidity source via RWA pool with at least 4%+ APY in Stables
3. Increased treasury value from liquidity that also earns trading fees
4. Exposure to paired asset in liquidity pool (ETH)

Election of Community Overseer:

To ensure transparency and community governance, a single or multiple members from the Olympus Council will be selected to oversee the bonding program and its operations. Community members can propose and comment on potential overseers, following the established governance framework for a fair and inclusive election process.

[DWFLabs]

DWF Labs is interested in participating in the bonding program as a white listed partner🚀

Feel free to contact us anytime at [email protected]

[Nic]

Firstly, I would truly thank the team for being transparent and also putting in this proposal. From what I have read, the main intention of this proposal is to increase capital for the growth of the project, wihch I am definitely suportive of. However, me being a little new to how the bonding program works, there are a few questions I would like to seek clarification on.

@VithuranK

$UNO bonds will grow the Uno Re protocol’s POL and treasury by offering users a way to purchase $UNO at a discount.

How much discount are we talking about? 15% off from market price during time of investment?Meaning to say whitelisted investors could stake $USDC in return of $UNO tokens? Are the tokens vested? What APR are we expecting and is there any lock duration? How is this different compared to the current Zues(v2) and Aphrodite pools on dapp?

@VithuranK

Low liquidity on current DEX trading pair causing high slippage during buyback and burn events even with MEV routed trades. Arbitrage traders pickup profits by offramping to CEX pairs.

Given the DEX liquidity issue, why not buy back on CEX pairs instead? As long as the buy back tokens from CEX are transfered to the burn wallet, it shouldn’t be an issue.

@VithuranK

Currently across the protocol is around 420k UNO per month, while expansion would require increasing it. Launching bonds would instead allow gradually reducing the emission even while we expand to multiple chains. In addition, it will increase our on-chain revenue by earning fees as the owning our own liquidity.

How does this work? Do understand that emission currently is about 420k Uno per month, with the launch of the bonds, wouldn’t there be an increase of roughly 2m - 2.5m tokens per month (for 4 - 5 months) assuming if all the 10m $UNO allocation is taken up? How would the buy back and burn mechanism be able to cope with such new emission?

@VithuranK

Quality partners who meet strict selection criteria bring valuable resources and connections, attracting more participants and driving growth and adoption. The bonding program is whitelist-only, requiring partners to meet specific criteria:

Are we talking about traditional financial partners?

@VithuranK

(Optional) Token Lock Commitment: Partners must voluntarily lock 10% of their acquired tokens for a duration of least 4 years, showcasing long-term dedication to protocol stability.

Would be good if we could make this compulsory given it’s only a 10% and given the discount was 15%?

With some end note, I truly support the need of expansion (whether increasing the capital to onboard more clients, or to increase the team size etc). Being a two years old project, we definitely need to buckle up and go on the “attack mode” and get prepared for the bull market. Though being in the “attack mode” have its risk, with transparency on how profits and raised funds are being use, I am pretty sure Unore is going to make it into a top 100 project. Glad to have @jas and @sujith_sizon giving us this opportunity to become part of this amazing project.

[jas]

Thank you for your kind comments and great questions. Will be answering these over the next few days. Managing the inflow of new members atm.

[MarkoG]

I’m pretty new to bonding programs also, but if I understand correctly, with launching an Bonding program, UnoRe will be selling discounted $UNO tokens directly to its (whitelisted) users. The user must then lock 10% of those tokens for at least 4 years. The rest can than be staked in our pools (double win for UnoRE - earned USDC and increase of staked capital) or sold on CEX/DEX? The earned USDC will than be used by the UNO team for increasing insurance capital and other activities. Q: how would Bond reduce the emissions from staking pools?

[MarkoG]

Hi guys. Have a question. Given the judge in XRP lawsuit did label direct XRP sales to institutional clients as securities… Does our bonding programm falls in the same category or is this not the same?

[sujith_sizon]

Hey everyone, thanks a lot for your questions, we had tried out best to cover some of the key questions you had raised during our AMA (recording available on twitter), however I’m just dropping some notes below as well for reference for others.

Here is a quick primer on Bonding programs https://olympusdao.medium.com/introducing-olympus-pro-d8db3052fca5 and how protocols general conduct their token bonding rounds https://medium.com/@Bond_Protocol/introducing-bond-protocol-8476881f84e4

The current protocol token emissions are mainly due to LP staking rewards for underwriters as well as ve holders to incentivise long term alignment and governance participation.

Nic: “How much discount are we talking about? 15% off from market price during time of investment? Meaning to say whitelisted investors could stake $USDC in return of $UNO tokens? Are the tokens vested? What APR are we expecting and is there any lock duration? How is this different compared to the current Zues(v2) and Aphrodite pools on dapp?"

The way the bonding program would be conducted is that there would a token bonding smart contract where users send USDC in return for $UNO tokens at a 15% discount. (Note that we are working with a tech partner who is currently doing the final audits for this platform). The topic of mandatorily vesting the token will be delegated to our Olympus Council members (we will be chairing a discussion for dao members to review the existing RfPs from interested parties).

Nic: ”Given the DEX liquidity issue, why not buy back on CEX pairs instead? As long as the buy back tokens from CEX are transfered to the burn wallet, it shouldn’t be an issue.”

The liquidity on CEX pairs are equally illiquid and will result in high amount of slippage as well. Improving the liquidity on CEX pair would require the involvement of institutional Market Makers who work based on retainers($$), requiring provisioning of a huge part of our treasury assets towards adding liquidity and market making ourselves on CEX usually means collecting the spread and preventing ourselves from trying to lose it in highly volatile markets. Contrary to this - Moving to concentrated liquidity pools, would greatly enhance liquidity parameters exceeding what could be provided on CEX pairs currently.

Nic: “How does this work? Do understand that emission currently is about 420k Uno per month, with the launch of the bonds, wouldn’t there be an increase of roughly 2m - 2.5m tokens per month (for 4 - 5 months) assuming if all the 10m $UNO allocation is taken up? How would the buy back and burn mechanism be able to cope with such new emission?”

Currently the emission across the protocol is around 420k UNO per month, however this doesnt quite meet our protocols TVL/Underwriting capacity requirements (120% MoM growth on Watchdog policy activiations) hence we would significantly need to ramp up our TVL by providing higher rewards on the pools. As per our current state of protocol the emission needs to be increased around 950k $UNO per month to incentivize attraction of non native stable capital. Which would approximate to around 60% apr on all pools which has been historically correlated to a steady significant increase in non native TVL previously for our protocol.

	emissions as per current bonding program	current emissions without bonding program
		880,000.00
Month 1	3,400,000.00	1,731,000.00
Month 2	3,400,000.00	1,731,000.00
Month 3	3,400,000.00	1,731,000.00
Month 4	3,400,000.00	1,731,000.00
Month 5	990,000.00	1,731,000.00
Month 6	990,000.00	1,731,000.00
Month 7	990,000.00	1,731,000.00
Month 8	990,000.00	1,731,000.00
Month 9	990,000.00	1,731,000.00
Month 10	990,000.00	1,731,000.00
Month 11	990,000.00	1,731,000.00
Month 12	990,000.00	1,731,000.00
	21,520,000.00	20,772,000.00

source UNO Bonding numbers crucnh

While expansion of TVL would require us to increasing emissions, launching bonds would allow us to gradually reduce this emission even while we expand to multiple chains. In addition, it will increase our on-chain revenue by earning fees as the owning our own liquidity.

Instead of allowing mercenary farming of liquidity rewards, the protocol intends to explore alternate solution which would prevent a lot of farm and dump behavior => we are focusing on increasing the protocol revenue which can be used for more long term holder oriented incentiivization mechanicsm like vote locking for longer duration for higher share of fees, Locking tokens and taking on underwriting risk etc.

Here are some examples for protocols with a diversified treasury acquired via POL which allows growth in treasury size over time:

Jpegd’ protocol treasury grew from 37M USD to 60M USD a whopping 62% increase in size of treasury in just over the course of 6 months. Major compositions of the treasury growth comes from WETH price movement along with the yield compounding affects of CVX and STETH. Src: https://defillama.com/protocol/jpegd

Bitdao - 770M USD in Feb 2023 to 811M USD in Aug 2023.

Nic: “Are we talking about traditional financial partners?”

Yes, we are working with a vendor which is using a TradFi custodian for the RWAs, and institutional grade on-ramp and off-ramp. Additionally, we are also in touch with a couple of institutional partners for participating in the bonding program as well.

Nic: “Would be good if we could make this compulsory given it’s only a 10% and given the discount was 15%?”

The decision will be delegated to Olympus Council members after providing necessary information about our existing participants

MarkoG: “I’m pretty new to bonding programs also, but if I understand correctly, with launching an Bonding program, UnoRe will be selling discounted $UNO tokens directly to its (whitelisted) users. The user must then lock 10% of those tokens for at least 4 years. The rest can than be staked in our pools (double win for Uno Re - earned USDC and increase of staked capital) or sold on CEX/DEX? The earned USDC will than be used by the UNO team for increasing insurance capital and other activities. Q: how would Bond reduce the emissions from staking pools?”

Already answered above in the earlier question.

MarkoG: “Hi guys. Have a question. Given the judge in XRP lawsuit did label direct XRP sales to institutional clients as securities… Does our bonding programm falls in the same category or is this not the same?”

The XRP case includes secondary sales to institutions are being securities, whereas XRP sold by exchanges to retail were not considered securities. Our bonding program would not fall under this category as the exchange of tokens are adjudicated using a smart contract. However, it is important to note, that the judge’s decision on XRP is not final and is subject to an appeal. The final decision is unclear.

[Dedon]

This is such a nice write-up.