Liquidity Bond Sales

When ORIZON users trade ORI-USDT LP with the ORIZON protocol, this process is called purchasing liquidity bonds. The protocol gains ownership of the LP, and the user loses LP ownership. As compensation, the user purchases more ORI tokens at the transaction price. To purchase liquidity bonds, users must first add liquidity to the ORI-USDT trading pair to obtain LP tokens, then use these LP tokens to buy liquidity bonds. The protocol gains LP ownership and calculates the Risk-Free Value (RFV) of the LP, measured in ORI quantity.

RFV = (LP/Total LP)² √(Constant Product)

{Constant Product refers to the invariant product of the LP}

The protocol then calculates the Executing Price of the bond, measured in ORI quantity.

Executing Price = RFV / Premium

{Premium ≥ 1}

Premium is the bond premium determined by the system's total debt and a scaling variable, linking the bond price to the number of outstanding bonds (each bond has a 5-day vesting period).

Premium = 1 + (Debt Ratio*BCV)

Debt Ratio = Bonds Outstanding / ORI Supply

{BCV is the inflation rate adjustable by the protocol}

{Bonds Outstanding: Number of bonds not yet vested}

Liquidity bonds offer users a corresponding discount (ROI). The greater the discount, the higher the return rate, incentivizing users to purchase bonds. Bonds have a 5-day vesting period, after which users receive ORI tokens. This process is irreversible.

ROI = (ORI Trading Price * Executing Price)/(LP Actual Value) - 1

= (ORI Trading Price * RFV)/(LP Actual Value) - 1

The number of bonds currently in the vesting period (Bonds Outstanding) determines the bond premium (Premium). Fewer bonds in the vesting period leads to a lower premium, higher Executing Price, higher ROI (greater discount), and stronger incentive for users to purchase bonds。

Benefits of High Liquidity Bond Sales to the Protocol:

1. Permanently lock a large amount of liquidity in the ORI-USDT trading pair.

2. ORI-USDT liquidity is positively correlated with ORI price.

3. Higher liquidity bond premium results in lower bond discount.

4. Increase the treasury's balance sheet by evaluating the RFV of LP, which is always greater than $1, meaning ORI has an intrinsic backing price of 1 USDT.

5. The 5-day vesting period of liquidity bonds ensures the protocol can distribute profits to ORI stakers.

"Issues" with Liquidity Bond Sales:

When users purchase liquidity bonds using ORI-USDT LP, the LP becomes the treasury's asset. The treasury believes there's a significant difference between the LP's value and its market price. The treasury mints ORI based on the acquired LP while ensuring sufficient funds to back ORI. Therefore, the treasury evaluates LP at its minimum value—the Risk-Free Value (RFV).

Higher premiums increase the gap between market value and RFV. For example, an LP consisting of 10 ORI and 1,000 USDT (market value $2,000) with a 100% LP share has an RFV of 200 ORI (2√(10*1,000)).

The existence of RFV raises the issue of ORI minting quantity. In the above example, the protocol mints one ORI for $5 (treasury receives 1,000 USDT and mints 200 ORI), instead of minting at the backing price of $1. If the protocol needs to lock more liquidity, this ORI minting method is feasible but relatively inefficient and cannot meet the market's demand for rapid supply growth. Therefore, the protocol sells reserve bonds to address this "issue."