Chicken Bonds Create a Flywheel for LUSD and Ethereum

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Chicken bonds pop up more and more in the crypto space. It’s time to understand this cluckin` idea that helps create protocol loan liquidity to any protocol. But for now, it is applied to Liquity´s stablecoin which currently trades at $1.03. This shows how much demand there is for LUSD. Let me explain why.

Liquity offers 0% interest loans against ETH with a 110% collateral ratio. These are possible because Liquity charges a small, one-time fee to borrow LUSD instead of highly variable interest rates, and the efficient liquidation mechanism allows for a $1,000 ETH collateral loan of $900.

The goal of chicken bonds is to bootstrap liquidity at a minimal cost and provide superior user protection over existing bonding mechanisms. To achieve this, LUSD has to be swapped to bLUSD (bonded LUSD). bLUSD has a high APR, coming from the bonded interest-bearing LUSD and the Curve LUSD-3CRV pool.

The bonds are called chicken because it is possible to “chicken in” or to “chicken out” of any position at any time. The actions of users are awarded with dynamic NFTs representing their actions. A bonder gets an egg or by chickening in a rare cock. 

Extra earnings on the LUSD create a flywheel effect on bLUSD. People playing the chicken bond game will get more LUSD which increases the price. By chickening in (bonding) the Curve pool APY increases making bLUSD more profitable. This in turn increases bLUSD profitability and drives more demand and the flywheel starts again.

Bonding stablecoins can be a profitable game to play, however, as always in DeFi, a deeper understanding is needed before using advanced techniques. Fortunately, there is a simulation available for Liquity´s chicken bonding to test out the .

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Todd Lyndon
I am a junior copywriter, my main field is the crypto world and the real use case of the blockchains. I am also an expert of the NFTs and addicted to F2P games, also I am a game developer. My dream is to try all Blockchain games at the release.