# Propose $10M Bond Issuance for Lido

**URL:** <https://research.lido.fi/t/propose-10m-bond-issuance-for-lido/2400>\
**Category:** Proposals\
**Created:** [June 12, 2022, 1:38am UTC](https://research.lido.fi/t/propose-10m-bond-issuance-for-lido/2400 "2022-06-12T01:38:10Z")\
**Posts on this page:** 1\
**Showing post:** 4

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**Author:** ![carvas](https://dub1.discourse-cdn.com/flex013/user_avatar/research.lido.fi/carvas/32/570_2.png) [@carvas](https://research.lido.fi/u/carvas)\
**Post date:** [June 14, 2022, 2:51pm UTC](https://research.lido.fi/t/propose-10m-bond-issuance-for-lido/2400/4 "2022-06-14T14:51:42Z")

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Also have a few comments aimed at increasing clarity in a potential deal.

### 1. Embedded LDO calls in the Bond

As discussed, the convertability of the bond amount into LDO at 3x~5x current price is _de facto_ the same as Lido giving an out of the money LDO call option to the bond purchasers as part of the deal.

In my view, this is a much bigger part of the deal than it may seem at first. I did a quick model on how what value these calls may have, presented bellow:

**Assumptions:**

1. We used standard [Black-Scholes](https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model) to try to value the options. The BSM [has limitations](https://www.investopedia.com/articles/active-trading/041015/how-circumvent-limitations-blackscholes-model.asp) and there are critics on its accuracy especially in pricing longer term options (which is the case).  
However, it’s the most widely used model and should give at least a base estimate.

2. For LDO spot price, we used the [LDO 30-day TWAP](https://dune.com/queries/903622) instead of today’s price. At the time this was computed, the TWAP was $1.152.  
Daily price is to volatile for these estimates to be useful for more than a week and a TWAP will almost always be fairer for both sides.

3. [Implied volatility](https://www.investopedia.com/terms/i/iv.asp#:~:text=Implied%20volatility%20is%20the%20market's,factors%20for%20calculating%20implied%20volatility.) is, obviously, the hardest input for the Black-Scholes model. Since there are no liquid option markets for LDO from which to extract IV from option prices, **we used the historical volatility as the estimate for implied volatility.**  
Since this isn’t perfect, we looked at average LDO HVs from tradingview and used a wide range around them (from 100 to 200) for different estimates.  

4. As for other assumptions, we used a **3% annual risk-free rate** to discount the options. This value could be higher or lower but either way it wouldn’t affect the outputs much so it shouldn’t be a big focus here.

**Pricing estimates**

1. Under these assumptions, the following tables contain what the present value of the LDO calls would be, a **function of the chosen strike price** (to be determined in the potential deal terms) and **implied volatility** (multiple possibilities used as explained above):  
 ![Screenshot 2022-06-14 at 15.48.20](https://europe1.discourse-cdn.com/flex013/uploads/lido/original/2X/f/fd4b666a2d939b328437d3727b706f613ac70458.jpeg)

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The goal of this analysis is to provide more detail to the Lido (and Solv) community regarding what this structure entails 🙂

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_[View the full topic](https://research.lido.fi/t/propose-10m-bond-issuance-for-lido/2400)._