Bonding Beginners Guide
NetWorth DAO is the next evolution of the investment DAO protocol. The DAO uses its protocol controlled value to reward token holders with exceptional yields via our staking and bonding mechanisms. At the same time, it uses its treasury reserves to invest in and incubate innovative projects. NetWorth DAO uses a portion of bond profits to invest in high-quality crypto assets, effectively turning the DAO into an on-chain venture fund. The DAO will also help incubate and build projects from the earliest stages. All tokens acquired by the DAO will be owned by the treasury, creating exponential value and unmatched upside for investors. In addition to the high risk start up ventures, the DAO will also invest in much more stable, low risk investments, such as stablecoin lending, in order to balance out the risk and ensure value for our DAO members.
In the old 'yield farming' paradigm, projects pay tokens out of their treasury over a set timeframe to rent liquidity and the attention of liquidity providers (LPs). Oftentimes when these rewards end LPs simply move on to the next farm, making the liquidity mining event a sunk cost with little to show for.
In the context of NetWorth DAO, bonding is the process of selling tokens or LP shares to a protocol or DAO in return for that project’s native token. The benefit for the bonder is that they have the opportunity to acquire a project’s token at a discount to market price — generating a yield for the duration of the bond.
The best way to learn about bonding is through an example, so let’s walk through the user flow. Upon navigating to the NetWorth DAO marketplace, you’ll be presented with a list of bonds:
Each bond tells you the type of LP shares (or other asset) you’ll need to pay with, the payout asset you’ll be receiving, and the return on investment (ROI) on that bond at that point in time. If a specific ROI seems appealing to you, click “Bond” to get the finer details.
After clicking “Bond”, you’ll be quoted a price and given a vesting period. The price is how the ROI is determined and the vesting period is the amount of time you’ll have to wait to realize the full ROI of that bond. Vesting periods can vary from project to project.
It’s important to note that the NetWorth DAO bond marketplace can and will be competitive, especially if you’re targeting specific bonds. When bonds are launched, the discount is set at a certain amount (e.g. 5%) and as soon as people bond, that discount starts to tick down (e.g. 5 to 4%), making it less profitable. If no one is bonding, then the discount ticks back up, making it more profitable.
The other important dynamic to remember is that the ROI is not given to bonders all at once and the bonds are vested linearly. As mentioned in the previous section, you’ll have to wait the full vesting period to realize the full ROI. This protects projects from unexpected sell pressure and means bonders can’t sell their tokens all at once. In traditional liquidity mining strategies this is not the case. Remember Each project sets their own vesting period, so you’ll want to double check this before buying.
As a user, interacting with the NetWorth DAO bond marketplace isn’t as straightforward as other liquidity mining or yield earning primitives, so it’s important to establish mental models for interacting with bonds.
One way to do this is to evaluate bonds relative to other yield opportunities for a token (e.g. pool2 or staking). If a bond’s ROI outperforms those opportunities in the timeframe you’re considering, then they may be a worthwhile strategy for you. Or if you feel more comfortable using bonds than the other options, then bonds may be the route to go. However, you’ll want to consider your ability to actively monitor the marketplace to produce consistent yield. Bonds shouldn’t be considered a passive strategy.
Another mental model could be using bonds for token accumulation. Since bonds offer a discount to market price, they could allow you to accumulate token(s) of your choice at a discount. This strategy can be a bit more passive than the ladder, requires less overhead, and may be a good way to get started with NetWorth DAO bonds.
That said, whichever strategy you choose isn’t important. What is important is that you have a gameplan before getting started so that you can reason about your success with bonds.