Bonds are unique tokens that can be utilized to help stabilize TULIP price around peg (1 ROSE) by reducing circulating supply of TULIP if the TWAP (time-weighted-average-price) goes below peg (1 ROSE).
When can I buy BUD (Bonds)?
BUD can be purchased only on contraction periods, when TWAP of TULIP is below 1.
Every new epoch on contraction periods, BUDs are issued in the amount of 3% of current TULIP circulating supply, with a max debt amount of 35%. This means that if bonds reach 35% of circulating supply of TULIP, no more bonds will be issued.
Note: BUD TWAP (time-weighted average price) is based on TULIP price TWAP from the previous epoch as it ends. This mean that TULIP TWAP is real-time and BUD TWAP is not.
Where can I buy BUD (Bonds)?
You can buy BUDs if any are available, through the Bonds on Tulip.money, anyone can buy as many BUDs as they want as long as they have enough TULIP to pay for them.
There is a limit amount (3% of TULIP current circulating supply) of available BUDs per epoch while on contraction periods, and are sold as first come first serve.
Why should I buy BUD (Bonds)?
First and most important reason is Bonds help maintain the peg, but will not be the only measure use to keep the protocol on track, more on that on DAO Fund section here.
BUDs don't have an expiration date, so you can view them as an investment on the protocol, because long-term you get benefits from holding bonds.
Incentives for holding BUD
The idea is to reward BUD buyers for helping the protocol, while also protecting the protocol from being manipulated from big players.
So after you buy BUD using TULIP, you get 2 possible ways to get your TULIP back:
Sell back your BUD for TULIP while peg is between 1 - 1.1 (1 ROSE) with no redemption bonus. This to prevent instant dump after peg is recovered
Sell back your BUD for TULIP while peg is above 1.1 (ROSE) with a bonus redemption rate
The longer you hold, the more both the protocol and you benefit from BUDs.
When TULIP = 0.8, burn 1 TULIP to get 1 BUD (BUD price = 0.8)
When TULIP = 1.15, redeem 1 BUD to get 1.105 TULIP (BUD price = 1.27)
So, which one is better?
If I buy TULIP at 0.8, and hold it until 1.15 and then sell, I'm getting +0.35$ per TULIP
But, if I buy TULIP at 0.8, burn it for BUD, and redeem it at 1.15, I'm getting 1.105 TULIP * 1.15 (TULIP current price) = 1,271 (+0.47$) per BUD redeemed.
But what if getting back to peg is taking too long ?
We are going to adjust our use cases, to have different behaviors on contraction and expansion periods to benefit TULIP and BUD holders when needed.
When can I swap BUD for a bonus?
BUD TWAP (time-weighted average price) is based on TULIP price TWAP from the previous epoch as it ends. This mean that TULIP TWAP is real-time and BUD TWAP is not. In other words, you can redeem BUD for a bonus when the previous epoch's TWAP > 1.1.