Liquity recently launched Chicken Bonds, a new product offering new yield opportunities on LUSD while enabling the protocol to capture POL in the LUSD/3crv pool. bLUSD is an auto-compounding, yield-amplified, LUSD-backed ERC20 token with a rising floor price.
The bLUSD/LUSD-3crv pool is critical to the system, which incentivizes it in LUSD. Within a few days, it grew to >$2M. To increase liquidity further on the bLUSD pool, we suggest adding the bLUSD/LUSD-3crv pool to the gauge controller to enable users to assign a gauge weight and mint CRV.
- Website – https://chickenbonds.org/
- Documentation – Table of content - LUSD Chicken Bonds
- Twitter – https://twitter.com/chickenbonds
- Discord – Liquity
- Dune Analytics – https://dune.com/nemoventures/chicken-bonds
- Security Audits – https://liquity.gitbook.io/chicken-bonds/documentation/technical-resources#security-audits
Chicken Bonds are a new experiment pioneering dynamic NFTs evolving based on the user’s interactions helping Liquity grow LUSD’s liquidity and reduce the stablecoin premium. Right now, it’s a layer built on top of LUSD and Liquity.
It translates into new and attractive yield-earning opportunities for LUSD holders. As they interact with the protocol, a permanent reserve of LUSD is captured and can be deployed into the LUSD/3crv pool if LUSD trades at a premium (shifting function).
The vision is to progressively generalize the model if successful, with first a second version accepting a volatile token as the entry (LQTY), followed by the Chicken Bonds Factory enabling any project in which tokens match the conditions to harness the solution.
Chicken Bonds are an engine made to capture and support liquidity over time. The LUSD Chicken Bonds instance was launched on Oct 04. It attracted >13M LUSD since then, spread over >700 bonds. On Oct 19, the first bonds were claimed, and the bLUSD LP started to be supplied. The ramping-up phase of the LUSD Chicken Bonds has two remaining steps:
- Nov 04 (30 days post-launch): redemption will become possible. With redemptions, bLUSD holders can burn their token to recoup a share (at pro-rata) of the LUSD balancer in the Reserve.
- Nov 19 (45 days post launch): the shifting function becomes triggerable, meaning that the Permanent Bucket balance can be deployed to the LUSD/3crv pool.
Liquity is deeply intertwined with Curve Finance, as the LUSD/3crv pool has been the main trading venue for most of LUSD’s existence. Besides, Liquity was the first protocol to ask for a whitelisting of its treasury for veCRV locking – a proposal that was accepted by governance and soon led to many other projects and DAOs following suit. So far, the Liquity treasury has acquired, and locked >900k veCRV used to support LUSD-related gauges.
The arrival of the Chicken Bonds marks another milestone in the two projects’ collaborations, as the bLUSD/LUSD-3crv LP is an essential component of the system — which has a built-in mechanism to incentivize the pool (3% Chicken In fee).
Suppose the LUSD Chicken Bonds prove successful over time in growing LUSD liquidity and improving its peg. In that case, many other projects will be happy to harness the Chicken Bonds model, starting with Liquity itself and the LQTY token. Each instance has its Curve pool with a native, built-in, and compelling incentivization model in the current design. Thus the bLUSD pool might be just the first of many.
Note: With Chicken Bonds, it’s also the first time in Curve’s history that veCRV holders can be NFT-bribed! Indeed, veCRV voters for the LUSD/3crv pool obtain a bonus attribute on their Chicken Bonds NFT: a Llama, of course! Check here to see what that looks like on the NFT.
Just like Liquity, Chicken Bonds have no governance. Similarly to Liquity too, they are built to maximize trustlessness and decentralization. Chicken Bonds rely on third-party protocols for yield (B.Protocol, Yearn, and Curve); thus they imply slightly more trust than the main Liquity protocol, on top of the added smart contract risks (audited).
There is an emergency shutdown function built in, triggerable by Yearn DAO. It makes all of the assets contained in the Chicken Bonds redeemable for the users allowing for a graceful unwind if needs to be.
Chicken Bonds do not require any oracle. The bLUSD Curve pool is the main market price source for bLUSD.
Multiple security audits were conducted by various auditors, as well as economic modeling. All relevant documents are available here: Technical Resources - LUSD Chicken Bonds
There is only one potential centralization vector here, the emergency shutdown function. However, it poses no risks to the users’ assets, as it simply pauses the system and allows every participant to withdraw their assets through Chicken Outs or redemptions.
Thanks to the Chicken In incentive, LPs currently earn ~70% APR in LUSD. bLUSD has been claimable since Oct 19, so its market history is relatively short. However, about $2.3M of assets have already been deposited into the bLUSD/LUSD-3CRV pool.
So far, bLUSD has been trading most of the time, over 1.25 LUSD. The redemption mechanism guarantees a rising floor price for bLUSD against LUSD thanks to the yield generated by the protocol. Thus bLUSD trades in a range over LUSD’s price, with fluctuations depending on the users’ decisions and timing.
As the LUSD Chicken Bonds mature, more bLUSD will exist, driving the need for more liquidity. About ~7M worth of bonds should reach their optimal rebond time by mid-November. Another ~6M will reach maturity around December, leading to a sustained increase in the volume and TVL of the pool.
Here are some articles to help you learn more about LUSD Chicken Bonds:
- High-level overview: how can Chicken Bonds help solve the DeFi’s liquidity challenge.
- Game of Chickens! The end of the bootstrap period and what it means for bLUSD — to better understand the dynamic of the bootstrap and the bLUSD pool structure.
- NFT x DeFi: Deep dive into LUSD Chicken Bonds’ Dynamic NFT — for more information on the Chicken Bonds NFTs.