Discounted VEC Bonds

Treasury bonds are instrumental in expanding the protocol's backing and enabling it to own its liquidity to undertake the mutlitude of yield generating strategies previously outlined for both vETH and VEC. When the treasury acquires these assets, it actively employs them with the goal of achieving returns greater than the discount at which the assets were initially issued, with time being the variable factor. Ownership of vETH liquidity by the treasury minimizes its reliance on incentives from third parties, thereby curbing the overall inflation of VEC.

How Bonds Work

These freshly minted tokens are then vested over a period of 7 days, at which point they are released for the bond purchaser. Bonding is useful for people who are bullish on VEC for the coming week or a greater period, because it allows them to acquire tokens at a discount while the vest is within the timeframe they are bullish - if price goes up during the vest, even better for the bonder. VEC is emitted at a discount based on the following formula:

$${VEC}_{\text{mintable}} = \frac{\text{vETH}_{\text{reserve}}}{\text{Backing Ratio}}$$

Why is bonding good for Vector?

When VEC is minted in exchange for bonding assets, those bond assets become part of the VEC intrinsic value. These assets, when deployed into yield generating strategies, grow rapidly and decrease potential downside on the VEC token. In summary, bonding does two important things for the Vector Reserve ecosystem:

• It facilitates deeper liquidity for vETH across various DEXs

• It acquires quality assets for the VEC backing.