Spillover Bonds

Spillover Bonds are issued when treasury inflows exceed the threshold for regular bond issuance, providing a mechanism to utilize additional liquidity and maximize fund efficiency, providing users with additional opportunities for participation.

Bonds are typically issued at a 2.5% rate, however, in some circumstances the total bond value realized may be significantly lower than the tax pool. This scenario would more than likely create an overly aggressive period of deflation, which has its own pros and cons depending on the state of the organization's liquidity and valuation.

In order to help normalize these events, spillover bonds (SBs) are proposed to find a balance between extremes and normalcy. When bonds issued are less than or equal to 30% of the current tax pool value, such as during hypothetical "Week 5" period, higher return "spillover" bonds are issued.

Week 5: $100,000 of taxes accrued

• $30,000 of "W-005" QBs issued, maturing after issuance of "W-006"

SBs are created by recursively taking half the standard QB value, and doubling the return rate, where once a tier crosses a cumulative 50% of the tax pool, the issuance ends.

• $30,000 @ 2.5% (30% of the tax pool)

• $15,000 @ 5.0% (45% of the tax pool)

• $7,500 @ 10.0% (52.5% of the tax pool)

• Issuance halted

Given that SBs may likely represent smaller total values, deployment on low-fee L2s is under serious consideration, such as Arbitrum. Other chains, such as Solana could be deemed viable as well.

Each example above requires the DAO to pay $750 in interest for each, totaling $2,250 to bond holders in this cycle, for a total redeemable value of $54,750. While the expense appears heightened for the DAO, it's important to note during a normal period if $52,500 of bonds were offered at 2.5% it would only require the DAO to reserve $53,812.50 for bond holders, less than a 2% ($1,312.50) difference between scenarios, which the DAO is likely more than capable to cover.

Expanding bond offerings as above can offer the DAO two opportunities, both of which can be positive or negative for the DAO depending on its position and risk appetite.

Overall, the integration of SBs will only be considered if the DAO's research determines them useful long term (standard bonds consistently purchased, general DAO health and thesis realization). When sufficient data is collected, the addition of SBs will be put to a vote.