Karma Bond

What are the benefits of Karma Bond?

Benefits of Karma Bond for DeFi protocols

  1. 1.
    Protocols would own their liquidity, rather than relying on LPs. This creates permanent liquidity which in turn secures the protocol and creates confidence for its users and token holders.
  2. 2.
    With more liquidity, the different liquidity pools can support much larger trades, guarantee price stability as well as protect themselves from large liquidity exits. This in turn creates a healthy price action for the native token (less volatility), attracting long-term holders.
  3. 3.
    Since protocols own their liquidity, they also capture most of the liquidity fees. This means protocols will transform liquidity from a liability to a revenue source.
  4. 4.
    Protocols through Karma Bond would gain exposure as their bonds will be featured on the Karma Bond market.

Benefits of Karma Bond for users

  1. 1.
    Opportunities to buy discounted DeFi governance tokens. Through bonds, users can supply LP tokens (e.g. Token X/stablecoin) to the protocol of their choice in exchange for its native token (e.g. Token X) at a market discount.
  2. 2.
    No exposure to impermanent loss. Long-term holders aren’t incentivized to provide liquidity because of impermanent loss. This impermanent loss is shifted to the protocol, allowing better alignment between the token holder and the protocol.
  3. 3.
    Confidence in the liquidity pools. The token holders can be assured that the liquidity will reside within the protocol and not at the hands of LPs. This ensures that there will always be enough liquidity for users to trade their tokens.