Coupon expiry has been a clearly tense topic recently as the risk of a clean expiration has been rising for many coupon holders and debt accumulates.
Currently there is no protocol level liquidity for coupons. There is https://esd.money (CPOOL) which wraps coupons and allows for a secondary market. It has low liquidity but is an area with interesting utility to the ecosystem and show some clear demand for coupon liquidity.
Allow current outstanding coupons to purchase coupons during a contraction for a premium rather than the discount given to ESD.
The purchase price for coupons should be intuitive and quick to implement. It should not use novel mechanics as this increases the development overhead and complexity of protocol. Lets define the current coupon discount “D = 1 - coupon ESD purchase price”. I believe a good pricing model for coupon rolling would simply be “1 + D”. This would place the rolling price on the interval (1,1.5]. At the maximum of 1.5, 100 coupons could purchase ~66.6 coupons at the new epoch. Another formula might be “1 / D” putting the interval at (1,2].
Benefits particular to the above approach are that it incentivizing rolling while premiums are low, and when premiums get higher the rolling price is higher. Symmetrically ESD holders are more incentivized to purchase when coupon premiums increase.
An additional consideration is to make coupons with an closer expiry more expensive to roll. The argument for this approach is that the risk taken on by coupon holders increases over time and the premium should be steeper as this risk increases. A simple linear discounting would be most appropriate here. For instance a coupon with 1 epoch to expiry and a 90 epoch expiry window would only be able to roll at a price of 1:90 on what a 90 epoch expiry coupon could roll. This mechanic could be combined with the above mechanic of increasing premium with discount price or it could be the only mechanic depending on the communities views.
Benefits to the epoch weighting approach include a stronger burn effect for closer to expiry coupons.
- Provides protocol native liquidity to coupons during a contraction
- Applies to existing coupon holders
- Not in opposition to ESD incentives, as rolling gets less attractive to coupons as coupons get more attractive to ESD.
- Has a true burn effect on total supply if rolling at a premium in excess of the purchase discount. Burn compounds with sequential rollings. (Current coupon mechanics are more like “deferred inflation”)