Bond and Bond Payout Pool
On extreme market conditions, it is possible that the insurance pool is unable to fully cover all cash-out applications, the so-called "risk spill".
Since the insurance pool experiences net inflow in the long-term, Derify protocol will securitize the spilled risk and turn it into bonds.
Rules are as follows:
1. 1.
If the insurance pool can only cover less than 100% of the cash-out demands, the rest of profits will be paid in our bond token - bDRF.
2. 2.
Balance in the insurance pool that are not bonds consists of the bond payout pool.
3. 3.
As long as the balance of bond payout pool is not zero, all bond holders[1] can exchange their bonds for stable coins (e.g. USDT) on 1:1 rate.
4. 4.
If the balance of bond payout pool is zero, the exchange is frozen.
5. 5.
Stake bonds can receive annual interest of
$i$
%.
6. 6.
Interest are distributed periodically, in the form of more bDRF tokens.
7. 7.
bDRF can be freely traded on the market.
Because of the existence of annual interest, bDRF's fair price shall worth a little more than 1 USD per stable coin. As long as the interest rate
$i$
% is reasonable, the bond mechanism is safe and stable.
The interest rate
$i$
is also a changeable constant and can be adjusted via DAO community voting.
Bond is the final risk compensation mechanism for Derify protocol.
[1] First-come-first-served basis.