Karma Bond

Frequently asked questions

Why would I want to use Karma Bond?

It allows users to buy their preferred DeFi governance tokens at a market discount and protocols to accumulate their own liquidity. This is beneficial for both parties.

What is the relationship between Karma Bond and Karma Finance?

Karma Bond is a service offered by Karma Finance. Karma Bond provides infrastructure, expertise, and exposure to other protocols via the bond marketplace in exchange for a fee. All the fees will accrue in the Karma Finance treasury which will be used to back the KARMA token.

Will I receive the bKARMA token from Karma Bond?

Yes, you will receive the Karma Bond token, bKARMA. This token will be distributed to the LP token provider in addition to the native governance token offered by the bond. For example, protocol X would reward the LP token provider in token X at a market discount and Karma Bond would reward the buyer with bKARMA.

Why is the Bond ROI negative?

At times, you’ll see that the bond discount turns negative, meaning you’d pay a premium from the market in order to bond. You should not bond during this time, as you can buy the same tokens but at a cheaper price from the market.
As time goes on, the discount will slowly increase, until it reaches a positive discount again. The negative discount can be caused by different factors:
  1. 1.
    High demands for bonds: Bonds offer users the ability to purchase tokens at a market discount. However, this price is dependent on the demands of bonds. When there is a high demand, the bond price goes up, and vice versa. The demand may be so high that it may cause the bond price to inflate above the market price.
  2. 2.
    Sharp decreases in price: At times, when a token experiences a sharp decrease in price, it takes time for the bond price to decrease to match the new token price. This causes a temporary negative discount, until the bond price matches the market value again.

How is the bond price/discount determined?

The bond discount is determined by the following formula:
bondDiscount=(marketPricebondPrice) / marketPricebondDiscount = (marketPrice - bondPrice)\ /\ marketPrice
The bond price is determined by the debt ratio of the system and a scaling variable called the Bond Control Variable (BCV). This allows Karma Finance to control the rate at which the bond price increases. Note that the bond price is independent of the market price, as no data from price oracles are used when determining the bond price.
bondPrice=debtRatioBCVbondPrice = debtRatio * BCV
What is the debt ratio? The debt ratio is the amount of reward tokens owed to the bonders by the protocol, divided by the total supply of the reward tokens. A higher debt ratio implies a huge demand for bonds, resulting in a higher bond price, and vice versa.
debtRatio=tokenOwed / tokenSupplydebtRatio = tokenOwed\ /\ tokenSupply
Note that the calculations or naming of the functions may change in the future.

What is the catch? Buying tokens at a discount sounds too good to be true.

Tokens purchased through a bond are not released to the bonder all at once. Instead, they vest linearly over time. This prevents the bonder from selling their tokens all at once for a quick profit. The protocol who proposes the bond is sacrificing some of their own tokens for indefinite liquidity which is needed to run it.

What parameters can be adjusted?

Bond Control Variable (BCV)

BCV directly affects the bond price — the higher the BCV, the higher the bond price. As a higher bond price makes bonds less attractive, the protocol can adjust this value to tune the bond capacity.

Maximum Bond Size

This controls the maximum amount of reward tokens a user can purchase through a bond. It is set as a percentage of the total supply and typically ranges between 0.03% — 0.05% of the total supply.

Bond Vesting Term

A bond vests linearly to the bonder over a length of time, called the bond vesting term. This means the bonder can claim a portion of the reward tokens each day, with all rewards being claimable at the end of the term.