Bonds are a financial service for protocols to acquire their own liquidity, in exchange for their governance tokens at a discount:
Bonds provides Price Stability & Confidence by ensuring the availability of liquidity
Negative flywheel effect during a market crash at DeFi
With Bonds, now Protocols own their liquidity, solving the negative FlyWheel
ELO DAO bonds are a financial primitive for protocols to acquire assets, including their own liquidity, in exchange for governance tokens at a discount. In other words, ELO bonds are a pricing mechanism for any two ERC-20 tokens that does not rely on third parties like oracles. ELO bonds internally respond to supply and demand by offering a variable ROI rate to the market and its users.
Bonds are the primary mechanism for Treasury inflows, and thus, the growth of the network.
Bonders commit a capital sum upfront and are promised a fixed return at a set point in time; that return is in ELO and thus the bonder's profit would depend on ELO price when the bond matures.
If the ROI is positive – a bond can be purchased at a discount to tmarket price) – market participants (bonders) are incentivized to exchange their assets for ELO, vested over a period of time. The Treasury sells ELO at a premium to its backing, while the bonder is able to capture a discount (positive ROI) by purchasing ELO directly from the Treasury. However, if the variable ROI is negative, and market participants are unable to express their demand on the bond marketplace, they would have to resort to a decentralized exchange.
The variable ROI rate is at the one hand determined by the demand for the given bond on the ELO bond marketplace, and on the other hand, it is governed by the policy team which sets the BCV which determines the bond capacity. In exchange for being temporarily illiquid, and exposed to ELO volatility for the duration of the vesting period, the bonder is rewarded with a variable ROI rate.
When you buy a long term bond (6 months, 1 year or 2 years): You can request your payments in ELO for the period of time that has already elapsed since the purchase of the bond, i.e.:
If you buy a 1-year bond, in 3 months you can take out 25% of what you bought, in 6 months 50%, in 9 months 75% and all in full after 1 year.
This gives long-term bond buyers flexibility to dispose of part of their assets progressively as the purchase term approaches.