Intro - What is Bonq?
Bonq is a self-sovereign DeFi (decentralized finance) platform that enables web3 protocols and projects to generate deep, protocol-owned liquidity (POL) at a very low cost. Additionally, it provides users with the ability to generate low-risk, sustainable yields. Bonq is operated by Bonq DAO, a non-profit decentralized autonomous organization that built, launched, and governs the platform.
In the context of finance, “self-sovereign” means that Bonq users don’t need any 3rd party to provide any external assets/capital or to provide any approvals. They use their own assets to mint liquidity (BEUR) in a completely decentralized, non-custodial, and permissionless way, so no 3rd party, even Bonq DAO, can interfere with this process. Also, each user manages their assets and liabilities completely independently from other users and Bonq DAO, as there is no combined “protocol treasury” to manage.
The Bonq platform consists of 1) a formalized, data-driven risk model, 2) a zero-interest, permissionless, non-custodial lending protocol, and 3) BEUR, an over-collateralized, non-custodial stablecoin.
The risk model determines which 3rd party token can be used as collateral for the lending protocol and informs the lending parameters like the required collateral ratio, borrowing limits, and redemption fees. The lending protocol allows users to create troves, deposit whitelisted 3rd party tokens as collateral, and mint BEUR loans at zero interest. The protocol also allows users to stake BEUR into the Stability Pool (SP), which is used for automated liquidations and arbitrage. SP makes sure BEUR is pegged to EUR and provides low-risk, sustainable yield options for the end user. BEUR allows protocols to generate POL and generate trading fees at zero interest and without selling their native tokens. End users can hold BEUR to diversify their portfolio, have EUR exposure, and stake into SP. More about the Bonq platform can be found in the doc section here.
End users can interact with Bonq through the Bonq user interface (UI) or directly with the smart contract on the blockchain. Additionally, they will be able to use bots (services continually running in the background) to automate a lot of operations, like managing the collateral ratio of their troves, taking advantage of arbitrage opportunities, or withdrawing rewards from SP.
Dual token design - BEUR and BNQ
Bonq uses 2 protocol-native tokens: Bonq EUR (BEUR) and Bonq Utility Token (BNQ). BEUR is an over-collateralized stablecoin pegged to EUR. BNQ is a limited supply utility token used to govern the functionality of the platform and to distribute the platform revenues back to the users.
Utility and demand – BEUR
BEUR is a stablecoin pegged to EUR, so it provides the utility of eliminating volatility against EUR. It is a decentralized, on-chain asset that retains a stable value against EUR. The demand will come from users who want exposure to EUR.
Additionally, holding and staking BEUR in the Bonq Stability Pool (SP) generates low-risk, sustainable yield. SP yields come from
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The staked BEUR is used to acquire the liquidated collateral tokens at a discount. The assets can then be swapped back to BEUR at a market price, generating a profit
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The stake BEUR is also used for zero-risk arbitrage between all the BEUR trading pairs. The arbitrage operations are automated and conducted by Bonq arbitrage bots
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BNQ tokens rewards. In addition to the above benefits, users who stake BEUR continually receive BNQ tokens, proportionally to the amount of BEUR staked. BNQ tokens can be then used to receive a part of Bonq protocol fees as cashbacks. Therefore, indirectly, BEUR stakers earn a portion of all current and future protocol fees.
For the first 4 years after launching the platform, SP stakers will receive 50,000 BNQ tokens per day, so a total of 73,000,000 BNQ over the first 4 years. Then, Bonq DAO will decide how BNQ rewards will be distributed. It is expected that the number of BNQ per day will gradually decrease over time, similar to the Bitcoin block rewards. There are no lockup or withdrawal limitations on the BEUR staked in SP. Users are free to add or remove BEUR freely. All the rewards are “streamed”, they are distributed to users staking BEUR at a given moment. It should be pointed out that the yields generated by SP staking will be variable, since they are generated by real economic activity on the platform and market conditions, and not by token dilutions caused by minting more new tokens into existence. This ability to receive low-risk, sustainable yields will generate additional demand for BEUR from users who want to diversify their yield strategies.
Finally, the demand for BEUR comes from arbitrageurs who can make a risk-free profit when BEUR’s price falls below 1EUR. When this happens, they can buy BEUR at a discount and redeem it for collateral in other troves at face value. They pay less than 1EUR for 1BEUR and get 1EUR worth of collateral for it. They will have to pay the redemption fee that depends on the trove risk, defined by the trove’s collateral ratio and collateral type. Riskier troves, with more volatile assets and lower collateral ratios, will have lower redemption fees than less risky troves, with less volatile assets and higher collateral ratios. The redemption fees are split between the Bonq platform and the redeemed trove owners. Trove owners can stake BNQ to increase the portion of the redemption fees they receive.
Utility and demand - BNQ
BNQ can be used inside the protocol by both individual users and protocols/projects that have their own native tokens. Individuals stake BNQ to receive a part of all the fees collected by the Bonq platform. The fees are allocated proportionately to the BNQ stake and are distributed as cashbacks and not as dividends. It means that users need to interact with the platform and pay fees to benefit from the cashbacks. The cashbacks can be used to cover the BEUR borrowing fees, the fees for premium services, and to pay back BEUR debt in troves. But, it’s impossible to receive any cashbacks just by staking BNQ without using the platform. The cashbacks are automatically calculated and distributed by the Bonq protocol smart contracts.
Additionally, users can stake a specific number of BNQ to receive a share of the redemption fee that is charged when their trove is redeemed. (Read more about the redemption here) This way, their collateral is redeemed at a premium (the equivalent of selling it at a market price plus a share of the redemption fees). Users can then buy the collateral back and mint BEUR and generate a profit.
Protocols that want to list their native tokens as Bonq collateral have to buy and stake BNQ. The BNQ remains staked as long as there are active troves still using the whitelisted token as collateral. The number of BNQ required to whitelist a token is governed by Bonq DAO and is a part of the whitelisting criteria checklist.
BNQ demand will come from end users who want to offset Bonq fees, automatically repay their BEUR debt, and hedge against redemptions. The demand from web3 protocols will be driven by the ability to whitelist their native tokens to create deep, protocol-owned liquidity for their token.
Bonq ecosystem stakeholders and value flow
The Bonq ecosystem includes end users, web3 protocols/projects, and the Bonq DAO as the main stakeholders.
End Users
Anyone with a blockchain wallet can be a Bonq user. Users can
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Buy BEUR
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Mint BEUR in their troves using any whitelisted collateral
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Stake BEUR
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Buy BNQ
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Earn BNQ by staking in SP (and, initially, by providing liquidity to BEUR trading pairs)
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Stake BNQ to receive cashbacks and redemption fees
Protocols and projects using Bonq
Web3 protocols use Bona to whitelist their native tokens. This way, they can create deep, protocol owner liquidity by pairing their native token and BEUR in liquidity pools. Protocols that stake BNQ and have their token whitelisted become Bonq DAO members and will govern the protocol with the other DAO members.
Bonq DAO
The DAO developed, launched, and governs the platform. It defines the collateral whitelisting criteria and all the related parameters like the minimum collateral ratio, maximum redemption fees, borrowing fees, etc. The DAO also manages and maintains the Bonq risk model which is the analytical, data-driven framework that underpins the ecosystem and informs the collateral listing criteria.
Value flow in the Bonq ecosystem
End users buy BEUR and they also generate fees in the ecosystem, by using both the basic and the premium features of the platform. Protocols buy BNQ to whitelist their tokens. They also provide liquidity in their native token and BEUR liquidity pools. Bonq DAO is a non-profit that manages the platform. The platform fees are distributed back to BNQ stakers. The listing fees and other service fees collected by the DAO are used to cover the operating expenses related to managing the platform and developing its new features.
All the value in the ecosystem flows from end users and protocols to BNQ stakers. Being a non-profit, Bonq DAO doesn’t extract any value from the ecosystem, but reinvests its revenues in the Bonq platform.
Bonq ecosystem incentives
End users are incentivized to stake BEUR in SP through the yield options mentioned above. Their incentives are designed to bring a lot of BEUR into SP which makes the entire platform and BEUR more stable. BEUR in SP is used for automatic liquidation and for BEUR arbitrage which further tightens the peg to EUR.
BNQ stakers are incentive to actively use the platform through cashbacks. This should facilitate the adoption and promote the usage of the platform, especially through automatic debt repayments.
Web3 protocols are incentivized to continually work on improving both the economics and the liquidity of their native tokens. The more organic demand and liquidity their tokens have, the more attractive borrowing terms the tokens get as Bonq collateral (lower collateral rates, higher redemption fees, and borrowing limits), which will result in more demand and more liquidity, creating a positive reinforcement loop.
Token supply and distribution of BEUR and BNQ
BEUR
Bonq EUR is a variable supply token. It is created by individual users minting BEUR loans and it’s removed from circulation (burnt) when users repay their loan or redeem BEUR for the collateral assets. The supply of BEUR will always closely match the demand for BEUR, creating a situation where its price closely follows EUR.
When new BEUR is minted by the users, the platform charges a borrowing fee of 0.5% (half a percent). In a situation when the demand for BEUR is lower, and the price of BEUR moves below 1 EUR, the borrowing fee is increased, to curb the supply and bring its price back to 1 EUR. When the demand for BEUR is lower and the BEUR price is below 1EUR more redemptions are expected. Therefore, the Bonq platform monitors the amount of BEUR redemptions and increases the borrowing fee if the redemptions go up.
It should be pointed out that the supply of BEUR is completely decentralized and independent of the Bonq DAO or any other entity. Minting and burning on BEUR happen in the individual troves of Bonq users, and only they can control the troves and the number of BEUR being minted and burnet in their troves.
BNQ
Bonq Utility Token is a pre-minted, fixed supply token. There will only ever be 1,000,000,000 (1 billion) BNQ created and circulating. The total supply is allocated based on its purpose to the following categories:
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Early investors - 10% of the total supply
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Founders -12%
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Impact grants and investments - 5%
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Community rewards and incentives - 50%
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Late investors and BonqDAO treasury - 23%
BNQ is distributed gradually over time. Early investors, founders, and contributors will receive their tokens subject to vesting and lockup schedules. The lockup lasts for 3 months after the token generation event and then tokens are unlocked daily over the next 3 years. Community rewards, including both SP staking rewards and liquidity mining rewards, are distributed daily.
Sanity check 1: Does BonqDAO solve a real problem?
Thanks to its zero-interest protocol, Bonq solves the problem of liquidity for all web3 protocols and projects that have a native token. Additionally, the platform solves the problem of accessing the liquidity of crypto assets at low costs and providing low-risk capital allocation options that provide sustainable yields for end users. The lack of liquidity and no sustainable, real yield options are both one of the biggest DeFi problems today.
Many predict that in the future DeFi will eat all real-world assets (RWA). When this happens, each of the tokenized RWA will need liquidity and the ability to generate sustainable yields for its holders. Both needs will be fulfilled by Bonq because the platform can whitelist the long tail of assets thanks to its formalized, data-driven risk model.
Sanity check 2: Does BonqDAO need a token?
BEUR is obviously needed. Without an over-collateralized, non-custodial stable coin there is no Bonq platform. Relying on external sources of liquidity and capital, for example using a fiat-backed stablecoin, would mean that the platform has to charge recurring interest and is dependent on 3rd parties who provide capital, so it’s not permissionless or non-custodial anymore.
BNQ is needed to provide customizable, permissionless access to the Bonq platform for both end users and projects who want to whitelist their tokens and be a part of the Bonq DAO. Additionally, BNQ is used to facilitate adoption and orchestrate incentives in the ecosystem.
Without BNQ there can be no Bonq DAO, that is operating not for profit. Instead, there would have to exist a for-profit web2-style corporate entity that would maximize value extraction from the platform and the ecosystem.