Xenophon Docs
Risk-Free Value
The risk-free value, which is the amount of money that the Treasury guarantees to back XPH. The risk-free value comes from the assets in the liquidity pool. The Protocol considers XPH and BUSD to be equal because we measure XPH by its intrinsic value. This means that we only need to care about the sum of the assets in the pool, not their value. According to the constant product formula x y = k, the risk-free value is the minimum of x + y, which happens to be when x = y. We can use the square root of x y to determine this. When bonds are sold, the balance of stable coins in the treasury increases. The RFV is calculated differently for different types of bonds. For securities purchased with BUSD, the calculation is as follows:
RFVreserveBond=assetSyppliedRFVreserveBond = assetSypplied
For BUSD bonds, RFV is the amount of BUSD assets consumed by the purchase of the securities, and the direct purchase of bonds with BUSD will be gradually opened in subsequent releases
For LP purchases of securities, the calculation is as follows:
RFVlpBond=(constantProduct)βˆ—(ownershipofthepool)RFVlpBond=(constantProduct) * (ownership of the pool)
The LP token trading pair consists of XPH, and each XPH in circulation will be supported by these LP tokens. There is a cyclic dependency. In order to safely ensure that all XPH in circulation are supported, the protocol marks the value of these LP tokens, hence the term risk-free value (RFV).
Usually sell their LPs for less than the market value. However, this will be offset by the XPH tied to the Protocol. You can see the relationship between the value of the LP sold and the value of the XPH below:
The XPH value of the bond grows exponentially relative to the value of the LP, and it is expected that the higher the price, the higher the demand for the bond. This is a very favorable dynamic; the higher the price (the more the Protocol sells), the more liquidity should be available. Despite the time risk, bondholders can make such trades because their break-even point has been lowered. The higher the price, the greater the fill.
Such a trade only makes sense when XPH is trading at a premium. At a discount, it actually produces a higher breakeven point than simply buying in the market. This is beneficial because we want more premium liquidity (holding premium) and less discounted liquidity (forcing supply to sell at a lower price and recover more easily). To exacerbate this dynamic, when the price falls below IV, the Protocol removes some of its LP holdings, burns the XPH and deposits the BUSD into the treasury.
  • Permanently lock in large amounts of liquidity
  • Positive correlation of liquidity to price
  • Adding treasury assets will result in a lower discount on token purchases
  • Increase participation by introducing a second dominant strategy with a completely different risk profile (compared to buy and stake)
  • Increase agreement profits by adding a second mechanism to burn XPH (pulling LPs)
  • Fill the Treasury balance sheet by marking the value of LP securities at equilibrium (they are worth more than the price = $1 at any given time). This means that the intrinsic value of XPH has a lower limit at 1 BUSD and the Protocol is marked at that lower limit, but in reality it does not fall below the lower value in most cases.
  • Staking profits are increased by deferring LP awards to a separate mechanism so that we can retain all Protocol profits for Stakers.
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