ZBonds are tokens that can be utilized to help stabilize the SUB price around peg (0.01 AVAX) by reducing circulating supply of SUB if the TWAP (time-weighted-average-price) goes below peg (0.01 AVAX).
Every new epoch on contraction periods, ZBONDs are available in the amount of 3% of the current SUB circulating supply, with a max debt amount of 35%. This means that if bonds reach 35% of circulating supply of SUB, no more ZBONDs will be issued.
Note: ZBOND TWAP (time-weighted average price) is based on SUB price TWAP from the previous epoch as it ends. This mean that SUB TWAP is real-time and ZBOND TWAP is not.
There is a limit amount (3% of SUBZERO current circulating supply) of available ZBONDs per epoch while in contraction periods (below peg), and are sold as first come first serve.
ZBONDs don't have a expiration date, so you can view them as a investment on the protocol, because you get long-term benefits from holding bonds.
The idea is to reward ZBOND buyers for helping the protocol, while also protecting the protocol from being manipulated from big players.
So after you buy ZBOND using SUB, you get 2 possible ways to get your SUB back:
- 1.Sell back your ZBOND for SUB while peg is between 1 - 1.1 (TWAP) with no redemption bonus. This to prevent an instant dump after peg is recovered.
- 2.Sell back your ZBOND for SUB while peg is above 1.1 (TWAP) with a bonus redemption rate.
The further price goes above peg, the more both the protocol and you benefit from ZBONDs. For example:
- 1.When SUB TWAP = 0.8, burn 1 SUB to get 1 ZBOND (ZBOND price = 0.8)
- 2.When SUB TWAP = 1.15 (0.0115 AVAX), redeem 1 ZBOND to get 1.1105 SUB (0.01277 AVAX)
If you buy SUB at 0.8, and hold it until 1.15 and then sell, you are receiving +0.35 AVAX.
But what if getting back to peg is taking too long ?
We are going to adjust our use cases, to have different behaviors on contraction and expansion periods to benefit SUB and ZBOND holders when needed.
ZBOND TWAP is based on the SUB price TWAP from the previous epoch as it ends. This mean that SUB TWAP is shown in real-time, but the ZBOND TWAP is not. In other words, you can redeem ZBOND for a bonus when the previous epoch's TWAP > 0.011.