What is GOLD?
GOLD tokens are the "Bond" tokens of the Loot Finance protocol. They are a way to reduce the supply and for users to profit from this when LOOTDOLLAR trades at a TWAP below 1 $CRO.
When, How and why should a user buy GOLD?
When LOOTDOLLAR trades below a TWAP of 1 $CRO for an epoch, bonds will be issued on the Deck. GOLD is issued at a rate of 3% of total supply per epoch, until a maximum of 35% of supply. This means that if emitted bonds reach 35% of total supply of LOOTDOLLAR, bonds stop being issued. This is known as max debt.
To purchase GOLD when it is available, users can exchange 1 LOOTDOLLAR for 1 GOLD. This burns the LOOTDOLLAR, reducing the supply below peg in an effort to bring the price back to 1 $CRO. GOLD will only be issued in the following epoch of a TWAP below 1, meaning if Epoch 1 ends below 1 $CRO, epoch 2 GOLD will become available on the Deck.
The Why in this equation is to profit from bonds when LOOTDOLLAR regains peg and ideally when it trades above 1.1 $CRO. When users redeem GOLD above 1.1 $CRO, there is a large premium returned to them in LOOTDOLLAR. Redeeming GOLD the moment LOOTDOLLAR trades above 1 $CRO is not reccommended as this then puts downward pressure on the peg, and results in little to no bonus.
The GOLD bonus for example, at a LOOTDOLLAR price of 1.15 CRO, is 1.105*1.15= 1.27 LOOTDOLLAR upon redeeming your GOLD. If you had simply bought LOOTDOLLAR at 0.9, and held it, you would only receive the 0.25 LOOTDOLLAR upon sale. If you had burned the LOOTDOLLAR for bonds, upon redemption at 1.15 you would receive 1.27 LOOTDOLLAR. The exact formula is below.
Where coeff = 0.7
Why is it taking so long to get to 1.1? Should I redeem earlier?
That of course is up to you. As we have opted for a six month release of TREASURE, we need new incentives for Liquidity Providers in the medium term. This led to our team brainstorming new and exciting ways to update the Basis Cash/ Tomb model, including tweaks and incentives to bondholders. In the interest of competition, we will reveal these closer to the date. Redeeming bonds with less or no bonus is ok, we just discourage it very close to 1 as this hurts the peg.