Bonding (1,1)

## What is Bonding?

Bonding is the process of trading assets to the protocol for KLIMA. The protocol will quote you an amount of KLIMA for your asset, and the vesting period for the trade. Today, the protocol takes in:
1. 1.
Reserve Assets: BCT (Base Carbon Tonnes)
2. 2.
Liquidity Assets: KLIMA/BCT and BCT/USDC sushiswap LP pairs.

## Why should I bond?

Bonding allows you to buy KLIMA at a lower cost basis. Because the protocol can sell at a discount to the market price (as it can mint KLIMA at IV),you are able to more cheaply buy KLIMA.

## Bonding Dynamics:

The protocol quotes the price of a bond based on the intrinsic value of KLIMA, and the premium charged on bonds:
$Bond Price=1 + Premium$
This premium is dependent on 2 factors, the total debt of the system, and a external controllable variable. This ties the price of the bond to the amount of bonds outstanding. The more bonds there are (more demand), the higher the premium and the lower the discount is and vice versa.
$Premium = Debt Ratio * BCV$
$Debt Ratio = Bonds Outstanding/ KLIMA supply$

## Risk Free Value:

The risk free value is the value of an asset in terms of the intrinsic value, and cannot fluctuate. For the KlimaDAO ecosystem, our intrinsic value is one carbon tonnage. Because an LP share can fluctuate in value in terms of BCT, we mark it down such that the pool is balanced (1 KLIMA = 1 BCT). Since the protocol will step in to protect the backing of KLIMA, this is the theoretical lowest backing. This is formularized below:
$RFV= (LP/Total LP)*2sqrt(K)$
Where K is the constant product of the LP pool.
For carbon assets equating to 1 carbon ton, the risk free value is 1, as klimaDAO promises that each KLIMA is backed by 1 carbon ton.
For non-carbon assets, the RFV is 0.

## Expectations:

With the bonding mechanism, not only will we acquire carbon assets into the treasury, it also allows us to acquire liquidity to facilitate market operations as well. This assists in creating a decentralized carbon market, as well as provide a passive revenue generation through the LP fees.