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Among the fourth-generation algorithmic stablecoins, bond tokens are designed to cushion the price fluctuations of stablecoins. In QIAN V2, we studied this design idea and introduced two bond tokens, which are the following tokens: one is the bond token KBT released in redemption and recollateralization and the other one is the special bond DBQ activated when the price of QSD significantly deviates from the target value.
The goal pursued by QIAN V2 is the continuous growth of QSD issuance and the intrinsic value of KUN. For this goal, the system will set up a mitigation mechanism for the KUN minted at the time of redemption and recollateralization in the early stage of the system to avoid large fluctuations in the price of KUN tokens. Specifically, when redeeming or recollateralizing, the value of KUN tokens in the algorithm part will be converted to KBT. When certain conditions are met, users can convert KBT to KUN one-to-one.
If no one provides collateral when recollateralization is needed, it will easily cause QSD to break into a "death cycling". In the fractional algorithmic synthetic asset system, when collateral needs to be added, it is often accompanied by a decline in the KUN price and the QSD price below the target price. The additional issuance of KUN tokens during the recollateralization process will undoubtedly intensify the decline in its price. It is very risky if all the stability recovery is pinned on the assumption that the KUN market price can sustain by market itself. Therefore, the QIAN development team proposes to release the buffering token KBT during the recollateralization process instead of directly releasing KUN.
The KBT minted in redemption and recollateralization cannot be redeemed to KUN immediately. Users can convert KBT tokens to KUN when the system has surplus, that is, in the state of buyback and QSD price exceeds the target. Through this mitigation mechanism, users' worries about the loss of their own equity caused by the short-term large-scale release and dumping of KUN are eliminated. KBT is actually the regulator of KUN token price.
When the market price of QSD is lower than $1 to an extent, to establish the price stability of QSD and obtain future profits when redeeming, users can buy QSD stable bond token DBQ with QSD at a discount. Each DBQ bond token can be exchanged back into 1 QSD when the exchange conditions are met in the future. When DBQ bonds are purchased, the QSD will be burned and exit from circulation, so as to reduce the circulation quantity of QSD and promote the price of QSD return to the target value.
DBQ bonds have no interest and no vanished time. Only if the price of QSD is greater than $1, they can be converted into QSD at a ratio of 1:1. This design can prevent bondholders from suffering losses in the process of redemption.
In order to encourage users to actively buy bonds when the QSD discount is large, the system will set a certain discount to encourage users to buy DBQ bonds. At the beginning of the launch of QIAN V2, the price of DBQ will be set to the third power of the QSD market price. After the market price of QSD exceeds $1.001/QSD, users can redeem QSD from DBQ bond tokens. The user's income in DBQ bond can be calculated as follows:
is the net return that users can get on DBQ bonds;
is the actual USD value of the user's investment in purchasing QSD bonds;
is the price for QSD.
The market price of QSD is $0.93/QSD, and the arbitrager buys DBQ in the market with the equivalent BUSD of $1000, then the net income is:
The actual net income was $243.47, yielding a return of 24.347%.