Summary

Introduce LUSD as the next stable reserve asset in the form of reserve bonds and an OHM-LUSD pool on Sushi.

Background

Liquity launched earlier this year in order to fill a market gap for a governance-minimized, Ethereum-native stablecoin. Liquity allow users to take out interest-free loans against ETH collateral in the form of LUSD. Users need to maintain a minimum collateral ratio of 110% on their loan. In addition to users’ collateral, Liquity’s design implements a stability pool that acts as collateral of last resort by exchanging depositors’ LUSD for liquidated ETH. In the 5 months since launch, LUSD has reached a market cap of over $600M. Liquity has withstood one major market downturn with little impact on its peg and liquidations operating as designed.

Motivation

Policy and Partnerships Teams have been in discussions the past month evaluating different options for the next stable asset. A recurring theme in these discussions is the exposure many of these assets have to centralized stablecoins. While there are many implicit risks (ex: LUSD 3CRV pool), Liquity’s core mechanism does not rely on centralized stablecoins and will remain so indefinitely given its governance-minimized design. After evaluating several assets, the DAO Treasury team believes that LUSD is the best hedge against centralized stablecoin risk.

Integrating LUSD also provides several venues for earning yield for the treasury. A key element of Liquity’s design is the stability pool, which will receive LQTY staking rewards and allow our treasury to purchase ETH at a discount on liquidated troves. This is a natural extension of the recent ETH bond proposal and will provide a measure of stability to our ETH reserves while earning yield.

Finally, Olympus can run a Liquity front-end to allow optionality for users to take out loans against their ETH and bond the loaned LUSD. The profits from running a front-end would be accrued by the treasury, providing yet another source of yield.

Proposal

  • Introduce LUSD reserve bonds to diversify the treasury and hedge against centralized stablecoin risks. Upper limit of 5% of circulating supply.

  • Deploy incentives in the form of $5k worth of LQTY per day (already secured via discussions with Liquity) and $5k worth of OHM per day to an OHM-LUSD pool on Sushi. Incentives will run for 35 days to bootstrap the pool

  • Introduce OHM-LUSD bonds to accumulate ownership of the incentivized liquidity pool

Resources

Liquity Docs - https://docs.liquity.org

Twitter - https://twitter.com/liquityprotocol

Discord - https://discord.com/invite/2up5U32

Articles

https://insights.glassnode.com/defi-uncovered-experimental-lending-platforms/

https://medium.com/stakingbits/guide-to-liquity-protocol-collateralize-eth-and-mint-lusd-da6c72e6303c


Update: Vote is live on Snapshot!

https://snapshot.org/#/olympusdao.eth/proposal/QmSk9v2RtuZGc6JpAbqvFExNoGvt8fHaBDkn7PTqWs2CPW


Informal Poll

Should we add LUSD to the Treasury as the next reserve asset?

    So would the Sushi pool be earning boh LQTY dan OHM?

      first step into the world of liquidation?

      Would be pretty interesting if olympus could run a front end for LUSD minting. Just in case those ETH bonds aren’t juicy enough.

      This appears to be a solid approach moving forward to remove centralized stablecoin risk and provide greater rewards and cultivate sustainable partnerships to help Ohmies maximize their yields and exercise the utility of their OHM/sOHM.

      It does concern me that Liquity is a very young venture, but that said, so are we and it would be foolish to discount this proposal to further decentralize the protocol and OHM token.

      Another moment, where I am proud to be an OHMie.
      I guess YOU, reading it, too.

      Love.

      tex Huge user of liquity and I think this is a great idea. Would be super useful to also have it added as a debt option on Rari. Let's do this!

      I'm very excited to see this proposal. Liquity checks all the boxes for me: decentralized, governance minimized, and collateralized by ETH. I'm glad to see we are diversifying the treasury with a truly decentralized and trustless asset like this. Additionally, the revenue generating opportunities listed in the proposal will help grow and stabilize the treasury. I had not considered the possibility of Olympus operating its own front-end, but it's a great idea. It will offer a streamlined user experience for interacting with both protocols, and an additional revenue stream for growing the treasury.

      Personally, I don't have any experience with Liquity though I read about it in the past. But the motivations and proposal above look sound to further diversifying our treasury and grow Olympus

      tex thank you so much for the hard work you’ve put into partnerships and the evaluation framework.

      I don’t know enough about Liquity to comment on it or whether it’s the right stablecoin to add as next one, but I really like the process you’ve put in place to evaluate partnerships. For that reason you have my full support. This will also force me to learn more about Liquity.

      Thank you Ohmie!

      100% support on this one - I've shilled LUSD as the next stablecoin treasury asset a few times already so this proposal makes a lot of sense to me. LUSD is probably the best collateralized & decentralized stablecoin in existence currently. So to diversify away from centralized or semi-centralized assets LUSD is probably our best bet. I also like the idea of adding the treasury LUSD to the stability fund so that we can earn more LQTY that way + buy ETH cheaply during a downturn.

      Another step of further diversification on the road of becoming a fully decentralized currency! 🙂
      Never been more excited for Olympus and all Ohmies.

      Yes, absolutely use LUSD! I've been a Liquity user for months now and it is the best lending facility around. No interest loans on ETH collateral only, very over-collateralized and safe. Liquity handled the May liquidations no problem and us users that didn't over-leverage made ETH from staking LQTY. An Olympus front-end will help us earn Treasury rewards + encourage Ohmies to shop for lending at Liquity first..

      This is a great proposal. 100% for.

      tex Can you share the reasoning that led to this conclusion: "After evaluating several assets, the DAO Treasury team believes that LUSD is the best hedge against centralized stablecoin risk." ?

      • tex replied to this.

        My favorite decentralized stable - FOR✍

        Reimao Sure thing! So we evaluated several assets on a range of quantifiable categories like Market Cap, Trading Volume, On-Chain Liquidity, and Volatility in order to assess their relative size, stability, and performance as stablecoins. Additional categories like Decentralization, Utility, Unique Holders, and Smart Contract Age/Permissions were used to separate assets based on censorship-resistance and the benefits that we gain from adding to the Treasury.

        Specifically for Liquity, the category that really separated LUSD from other options was Decentralization. Since Liquity is fully governance-minimized, there is no risk of the goal posts being moved on LUSD's backing. This also makes the process of unwinding positions simpler, since we can redeem LUSD for the underlying ETH for a small redemption fee.

        Solid move in the right direction for us. Had not heard of LUSD before but seems like a good choice for OHM!