• Proposal

  • OIP-76: Create Inverse Bond Policy Lever

daRK Gm ser

  1. Capacity is based on market conditions and the need to manage backing
  2. Arbitrage opens up as bond premium increases
  3. I've been thinking of using the concept of "ohmptions" like what Max from FiatDAO proposed in that partnership proposal, for inverse bonds too. It's different than what you've laid our here, but optionality is good imo. Can you clarify in your example what price would be paid out to the options holders, should they decide to exercise?
  4. Treasury buying OHM from itself is a direct price manipulation (not necessarily a bad thing long term, to have as a tool). It's more capital efficient (no premium, full price impact of the buy is seen) but reduces liquidity as OHM is pulled from the pool during the reweight. Inverse bonds do not directly manipulate price, but can open up arb opportunity to bring price up. IB's also don't reduce liquidity, which is nice.

    cryptok1ng there is plenty of opportunity for "smart money" to come in and buy OHM back up to at least backing. In cases of extreme sell pressure below backing where that "smart money" is overpowered, inverse bonds allow the market to blow off steam without impacting price.

    To your other question about how this fits into becoming a reserve currency. For one, the reason I mentioned above contributes to the "trusted" part of "trusted backed reserve currency," where participants in the economy can trust that the treasury will be used as intended to bolster the economy in times when that's needed. More trust = more use cases available.

    Furthermore, as stated in the proposal, it's critical to for a backed currency to maintain backing in every possible market condition. Standard bonds can't do that in conditions where market price is below backing. So, this tool was developed in part to cover these scenarios.

        abipup I get that…but the treasury gets depleted with each sell, right?

        Why is this good?

        Also, does it effect runway?

            abipup backing IS maintained…as long as there is $1 RFV for every OHM in existence..

              Sadinoel backing per OHM is maintained, buy pressure is generated / sell pressure mitigated, propping the economy up as a signal to partners…

              It does impact runway slightly if RFV tokens are sold.

                One thing to note is that we have assets in the treasury that we promised to never sell, i.e. quote from the JonesDAO launch post:

                OlympusDAO granted 3.3% of the supply if partnership passes governance, and will hold tokens in perpetuity

                Source: https://jonesdao.substack.com/p/jonesdao-token-sale

                I’m sure other treasury assets may fall under the same category. IMO we should not break that promise and only consider assets for inverse bonds that the treasury acquired through means where there was no implicit or explicit promise of “never sell”

                what an awesome idea!!!

                This type of innovative incentive design is why OHM will outlast this and many more bear markets to come.

                In general, I am in favor of this proposal. I wrote the following note to share my thought process about this proposal and share them with ohmies.

                Things need clarification.

                • Which assets will be used for the inverse bonding? Stablecoin or altercoin? From the perspective of OHM's goal to be the reserved currency of Defi, it makes sense to use stablecoin for the bonding. Given coins are highly correlated right now, when the OHM's price is below the backing price, other altercoin's price are usually tanked as well. If we use stablecoin for the bonding, it's good for users in the downward market, and it will be good for Ohmies from long-term perspective.
                • What is criteria to determine the scale or amount of treasury assets to be deployed in this market lever?
                • What are the impacts to the regular bonding products?

                Pros of the Proposal

                • Take away sell pressure and encourage buying activity in the open market, stabilize price and increase investor and partner's confidence.
                • Reduce ohms in circulation, and increase backing per ohm.

                Cons of the Proposal

                • Encourage arbitrage activities.

                An interesting observation.

                • For a regular "currency", when the market is getting hot, the central bank usually reduce the amount of money supply, and increase it when market is on a downward trend. It looks like, as a reserved currency for Defi, we are doing the exactly the opposite. Can someone explain this?

                  Wukong Regarding your observation :

                  Nations print money in economic downturns (Quantative Easing [QE]) to fund recover programmes and stimulus packages. Olympus doesn't have the capacity to bail out the whole DeFi ecosystem and is still in its bootstrapping stage.
                  Therefore, Olympus is focused on protecting itself, so it can continue to bootstrap once markets stabilise.

                  However, programmes such as Thecosomata (allowing REDACTED CARTEL to use incur debt to borrow OHM) function much like stimulus deals. Once/if Olympus can become an e.g. top 10 TVL project, it'll be able to use it's reserves to effectively function as a reserve currency that arbitrary projects would choose to submit themselves too.

                  See this as a minor hiccup on the road to success. If Olympus can grow it's treasury in a sideways market, it WILL be the reserve asset of DeFi come next bull run

                    @abipup I love you what a great idea.

                    Ditto to the general sentiment here that this is yet another strong policy OIP to help stabilize things when we dance around backing.

                    Numerous people here are bringing up the topic of what assets a bonder is going to receive. Please think carefully about this. One practical viewpoint to consider: every potential bonder is going to come to the table with his/her own biases - what is a bonder’s thought process going to be if they happen to not like XYZ asset Policy is offering up?

                    For example (using the first token in alphabetical order) what if Policy decides to offer up ALCX, and a bonder doesn’t like ALCX, or maybe the bonder loves ALCX but already has a bunch of it. They are going to be looking at this mechanism from the viewpoint of immediately liquidating the ALCX, which is going to effect the dynamic of the discount we end up seeing.

                    Policy “justification” / Policy communication / Policy analysis / Policy reporting should be a function of the premium over backing. In times like these, where, to put it bluntly, the market/community is skeptical of Policy, extra work should be done to convey your decisions. Please consider providing the community guidance on why a given asset is chosen or not chosen; bonders (and our partners) obv are going to prefer DAI over any other asset.

                    Case in point: if inverse bonds naturally will increase runway, can DAI be given out causing a net-zero runway gain? At least selling pressure would be reduced. Or maybe this wouldn’t work out due to some advanced analysis. I know it’s a lot of work producing these types of reports, but the transparency is key in sensitive times like these.

                    Thanks for all the work you and the Policy team are doing!

                    realkinando backing is a terrible term. It’s basically the balance sheet. Why use the balance sheet to support the price? If we keep doing the right things, eventually the market will respect it. This proposal is opportunistic with the current drop in price. No way would anyone consider this if price was still $300.

                      Hey there! I posted the following message in the DAO work server back in early November 2021:

                      "Hey guys, was thinking a bit last night about bonds being great for one to purchase OHM at a discount and allowing the DAO to own it’s liquidity. What if we had an “inverse bond” (name TBD lol) mechanism to reduce selling pressure during high-sell action periods? Something along the lines of: instead of selling OHM on the open market, person A can purchase an “inverse bond” to sell their OHM (or sOHM) at a premium to the DAO, over a vesting period of X days. During times where there is less sell action, the premium would be low/zero (or negative) to disincentivize people just selling at a premium frivolously, however during periods of high sell action, the inverse bonds would offer a higher premium and be better than selling on the open market with a trade-off of a vesting period to prevent large drop-offs and hopefully stabilize during period of uncertainty."

                      I'd love to know if my post inspired this? In the grand scheme of things it really doesn't matter since we all want the same thing; OHM to succeed. But its nice to be recognized for an idea and to be able to point at something and say I did/inspired that y'know? I saved a link to the discord post (and have the original Word doc I wrote it up in before posting) but unfortunately it seems like the channel I posted it in was deleted or archived maybe 🙁.

                      Needless to say, 110% support this idea :d. Keep up the great work in the policy team, we'll make it through this downturn no doubt.

                        Also, to be clear, I think we should stick to the original "buybacks occur if we drop below intrinsic RFV" because Inverse Bonds currently feels too reactive to current market conditions and increases the surface area of any potential attacks on the treasury.

                        However, I understand some members have lower risk tolerance than others so a solution to offset their current pain is important but NOT to the long-term health of the protocol.

                          Sadinoel

                          Agreed. Inverse bonds potentially allow for a negative spiral mechanic - draining of the treasury. Of course this can be stopped and mitigated with bond budgets etc, but still; should be used carefully. It does not relieve sell pressure, but introduces incentives to sell.

                          Potentially still a good addition to the system, but I think we're a bit premature for it with the current repricing / revaluation that's on-going.

                              Sadinoel

                              Great questions. These sparked some ideas:

                              What happens to runway with Inverse bonds - does it drop?

                              If we have an token that's constantly increasing in purchasing power, perhaps we can even do away with staking. Why 3,3 when you can just use an ever increasing value ohm?

                              What happens if a whale forces price down by market selling - does this action push down "Backing per OHM" or is that only pushed down by wider market conditions on treasury owned assets?

                              I think the idea of a speculative premium (above backing) vanishes. Ohm becomes pegged to its backing, and the backing is ever increasing.

                              If its not and a whale IS able to manipulate "Backing per OHM" by market selling, what prevents them from using this tactic to drain treasury?

                              I don't think they can manipulate it. The backing can only increase. The total size of the treasury may decrease. Not sure if that's a problem.