Liquidity Bonds offer users the opportunity to sell their liquidity provider (LP) tokens in exchange for an NFT that represents access to other tokens at a discount relative to the current market price. These tokens vest over a certain amount of time, becoming available to the holder of the Liquidity Bond NFT incrementally.
Liquidity Bonds History
In January 2022, ApeSwap DAO voters passed Governance Proposal 15, allowing the ApeSwap protocol to allocate 1 of the 11 BANANA minted per block to help create protocol-owned liquidity.
The 1 BANANA per block dedicated to protocol-owned liquidity funds the BANANA incentives paid to users for purchasing Liquidity Bonds with their LP tokens. Users receive discounted BANANA, and the protocol receives liquidity that it controls and can use to generate sustainable revenue through trading fees.
Leveraging one BANANA per block theoretically provides an approximate 90% Return on Emissions (ROE) from the sale of Liquidity Bonds alone. When combined with the accumulating trading fees earned on the LPs that ApeSwap receives from selling Liquidity Bonds, the ROE of the Bonds program as a whole can be well over 100% over time, which represents sustainable growth for the ApeSwap ecosystem.
Behind the scenes, a bonding curve combines with supply and demand to determine the initial price point for the Bonds. The discount amount varies based on a combination of market forces.
After the successful launch of Liquidity Bonds that vest BANANA, ApeSwap decided to extend the ability to create sustainability liquidity out to our partner projects. The core mechanics of the Liquidity Bond product remain the same - users sell LPs to receive discounted tokens that vest over time. However, instead of receiving BANANA as the output token, users that purchase a partner's Liquidity Bond receive tokens that are provided by an external project that has partnered with ApeSwap to incentivize liquidity for a particular token pair (between the project's token and another token, typically BNB or BUSD).
The ApeSwap business development team worked with five of the Jungle's most dedicated partners to launch the first set of partner Liquidity Bonds in June 2022: CEEK, NFTY Labs, Telos Foundation, Mogul, and HotCross.
For more on how the discount amount is determined, visit the Bond Pricing page.
To buy a Bond, a user must first create an LP token by adding liquidity to the DEX for the trading pair that corresponds to that type of Bond. For example, BANANA-BNB LP tokens are used to purchase BANANA-BNB Liquidity Bonds, which yield BANANA tokens.
From there, users can visit the Bonds page on ApeSwap, and select the Liquidity Bond they would like to purchase.
Or, the user can instead use the Zap feature to buy a Bond with a single token.
Bonds on Polygon work just like the Bonds that ApeSwap has created on BNB Chain. Users spend their liquidity provider (LP) tokens, and in return, they receive a Bond NFT that represents partner tokens that vest over a certain time.
In September 2022, ApeSwap launched Liquidity Bonds on Polygon with Dogira and TokenTraxx, allowing users to spend their LP tokens to receive $DOGIRA or $TRAXX (respectively) at a discount relative to current market prices.