How Bonds Work

Detailed technical documentation on bond purchase flow, Sequential Dutch Auction pricing, vesting, and integration with Range-Bound Stability.

How Bonds Work

This document provides detailed technical information about bond mechanics in Pars Protocol.

Bond Purchase Flow

Step 1: Select Market

Choose a bond market based on:

Available discount
Asset you want to bond
Vesting duration

Step 2: Approve Assets

Approve the bond contract to spend your assets:

// Example: Approve USDC for bonding
USDC.approve(bondDepository, amount);

Step 3: Purchase Bond

Execute the bond purchase:

interface IBondDepository {
    /// @notice Purchase a bond
    /// @param id Bond market ID
    /// @param amount Amount of asset to bond
    /// @param maxPrice Maximum acceptable price (slippage protection)
    /// @return payout PARS to be received
    /// @return expiry Timestamp when bond fully vests
    function deposit(
        uint256 id,
        uint256 amount,
        uint256 maxPrice
    ) external returns (uint256 payout, uint256 expiry);
}

Step 4: Wait for Vesting

PARS vests linearly over the vesting period:

┌─────────────────────────────────────────────────────────────────┐
│                    VESTING CURVE                                 │
├─────────────────────────────────────────────────────────────────┤
│                                                                  │
│  % Vested                                                       │
│    ▲                                                            │
│ 100│                              ────────────────              │
│    │                         ─────                              │
│    │                    ─────                                   │
│ 50 │               ─────                                        │
│    │          ─────                                             │
│    │     ─────                                                  │
│   0│─────────────────────────────────────────────────► Time     │
│    │    Day 1    Day 2    Day 3    Day 4    Day 5              │
│    │                                (fully vested)              │
│                                                                  │
└─────────────────────────────────────────────────────────────────┘

Step 5: Claim

Claim vested PARS at any time:

interface IBondDepository {
    /// @notice Claim vested PARS
    /// @param indexes Array of bond indexes to claim
    function redeem(uint256[] memory indexes) external;
}

Sequential Dutch Auction (SDA)

Mechanism

The SDA automatically adjusts bond prices based on demand:

Target: Sell X PARS over Y hours
If demand high: Price increases (discount decreases)
If demand low: Price decreases (discount increases)
Goal: Sell capacity evenly over the period

Control Variable

The control variable determines price adjustment speed:

price_change = control_variable × time_elapsed × debt_ratio

Control Variable	Effect
Higher	Faster price adjustment
Lower	Slower price adjustment

Debt Ratio

Tracks how much capacity has been used:

debt_ratio = current_debt / total_supply

Higher debt ratio = higher prices = lower discounts

Bond Profitability

When Bonds Are Profitable

Bonds are profitable when:

bond_price < market_price × (1 + staking_yield × vesting_days)

Consider:

Current discount percentage
Vesting period opportunity cost
Alternative yield (staking)

Example Calculation

Parameter	Value
Market price	$100
Bond discount	5%
Bond price	$95
Vesting	5 days
Daily staking yield	0.02%

Opportunity cost: $100 × 0.02% × 5 = $0.10

Bond profit: $100 - $95 = $5.00

Net benefit: $5.00 - $0.10 = $4.90 ✓ Profitable

Bond Market Parameters

Capacity

Maximum PARS available in the market:

Type	Description
Total capacity	Maximum PARS for entire market
Per-block capacity	Maximum PARS per block (rate limit)

Price Bounds

Governance sets min/max prices:

Bound	Purpose
Min price	Floor price for PARS
Max price	Ceiling price for PARS

Conclusion

Market closes when:

Capacity exhausted
Governance deactivates market
Price hits bounds

Reserve Bond Details

Flow

User provides reserve asset (USDC/DAI/ETH)
    │
    ▼
Asset transferred to Treasury
    │
    ▼
Treasury backs new PARS
    │
    ▼
PARS minted to Depository
    │
    ▼
Bond created for user (vesting)

Treasury Impact

Each reserve bond:

Increases treasury reserves
Increases PARS supply
Maintains/increases backing ratio

Inverse Bond Details

Flow

User provides PARS
    │
    ▼
PARS burned (supply decreases)
    │
    ▼
Treasury withdraws reserves
    │
    ▼
Reserve asset transferred to user (instant)

Treasury Impact

Each inverse bond:

Decreases treasury reserves
Decreases PARS supply
Maintains backing ratio

Price Support

Inverse bonds activate when PARS trades below target range:

Protocol buys PARS with reserves
Burns purchased PARS
Supports price floor

Liquidity Bond Details

Flow

User provides LP tokens (e.g., PARS/ETH)
    │
    ▼
LP tokens transferred to Treasury
    │
    ▼
Treasury gains Protocol-Owned Liquidity
    │
    ▼
PARS minted for bond (vesting)

Why LP Bonds?

Protocol-Owned Liquidity (POL) provides:

Permanent liquidity (not rented)
No liquidity mining costs
Trading fees to treasury
Price stability through deep liquidity

PARS Bonds

Mechanism

Exchange PARS today for more PARS later:

User locks PARS
    │
    ▼
Bond created with future PARS payout
    │
    ▼
PARS vests over chosen duration
    │
    ▼
User receives more PARS than locked

Use Case

Convert liquid PARS to time-locked position with bonus:

Longer lock = larger bonus
Alternative to vePARS
Predictable yield

Integration with RBS

Range-Bound Stability

Bonds integrate with price stabilization:

┌─────────────────────────────────────────────────────────────────┐
│                    RBS + BONDS                                   │
├─────────────────────────────────────────────────────────────────┤
│                                                                  │
│  Price                                                          │
│    ▲                                                            │
│    │  ┌───────────────────────────────┐  Reserve Bonds          │
│    │  │      Upper Wall               │  (sell PARS)            │
│    │  ├───────────────────────────────┤                         │
│    │  │      Upper Cushion            │                         │
│    │  ├───────────────────────────────┤                         │
│    │  │                               │                         │
│    │  │      Target Range             │  No bonds active        │
│    │  │                               │                         │
│    │  ├───────────────────────────────┤                         │
│    │  │      Lower Cushion            │                         │
│    │  ├───────────────────────────────┤                         │
│    │  │      Lower Wall               │  Inverse Bonds          │
│    │  └───────────────────────────────┘  (buy PARS)             │
│    │                                                            │
│    └───────────────────────────────────────────────► Time       │
│                                                                  │
└─────────────────────────────────────────────────────────────────┘

Best Practices

For Bonders

Compare discount to opportunity cost (staking yield × vesting)
Set appropriate max price for slippage protection
Monitor market capacity before large bonds
Consider vesting timing for liquidity needs

For Governance

Calibrate control variable for market conditions
Set appropriate capacity based on treasury needs
Monitor backing ratio impact
Coordinate with RBS parameters

Contract Addresses

Contract	Address
Bond Depository	`0x...` (TBD)
Bond Teller	`0x...` (TBD)
Treasury	`0x...` (TBD)

Bonds Overview – Bond types and concepts
Treasury – Where assets go
PARS Token – Token mechanics

How Bonds Work

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