Yah, scary title. Probably there is a better word than Collateralized Convertible Bonds (CCB). But you get the gist. On the face of it, for a bond buyer, a CCB behaves exactly the same as a V2 bond.
Whats different is what happens at maturity/expiration. Instead of only being able to redeem gOHM, the bond buyer has the option to instead redeem for an underlying token.
Example:
A collateralized convertible bond (always paid for with OHM) is currently priced at 50% premium over buying ETH on the market. The bond will give the buyer an option at maturity to convert to ETH, at the current price of 3,000 USD. The buyer knows that the OHM used to pay for the bond will rebase and gain about 40% until maturity and the premium for the call option on the ETH is thus 10%. The buyer likes that deal, and purchases 4,500 USD worth of convertible using OHM. Upon maturity, the price of ETH has only increased to 4,000 USD and the bond holder choses to redeem the gOHM (now worth 4,200 USD) and not exercise the option. Had the ETH price instead increased to 4,201 USD or more, the bond holder would of course exercise the option and receive ETH while forfeiting the gOHM.
(Pricing of ETH would be done not in USD but in OHM me thinks, but USD used for purpose of illustration)
A bond issuer on the other hand, is essentially a one sided liquidity provider. The bond issuer would deposit ETH into (or create) the bond pool. Assume the issuer deposits 1,000 ETH. As long as nobody has purchased a convertible, the issuer may withdraw the entire liquidity. As more issuers joins the pool, each issuer will own a fraction of the same pool (think uniswap v2). But once somebody buys a convertible from that pool, then that amount of ETH becomes reserved and the corresponding fractions can no longer be withdrawn by the bond issuers. Upon maturity, if the buyer redeems the gOHM then the ETH is unreserved and back in the pool available for withdrawal or for new convertible buyers. If the buyer instead exercises the right to convert the bond to ETH, then the gOHM are transferred to the bond issuer. Oh, I forgot.. Yes if the convertible was sold at premium (should always be the case), that premium is always transferred to the bond issuers regardless whether the convertible buyer redeems for gOHM or not.
Why is this cool?
- The purchase currency is always OHM/gOHM
- Creates demand for OHM and activity in the econohmy
- Removes OHM supply from market while bonded
- Can add 0.33% purchase fee for Treasury
- Corresponds to existing V2 logic.
- gOHM is the perfect base token for this bond type
- Allows sales/monetization of assets bound by longer term vesting agreements
- Should in general, always price bonds at a premium
- Anyone can be a bond issuer
- Anyone can be a convertible buyer
Whats not so cool?
- Assets with high inflation rate are not suitable for sustained lockup periods
- The collateral (ETH in this case) could potentially be used for double yield if it was not collateralized.