OIP-76: Create Inverse Bond Policy Lever

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

cryptok1ng backing is useless if it can't be used to "back" price

@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!

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.

DejaEntendu Hi ser - Zeus was talking about inverse bonds on the Good Will Yunting podcast just after Olympus launched in April - so he beat you to it unfortunately

I am against losing treasury assets at all costs - but I think this ammendment to OIP-76 by @ProofofSteveGM is great and should be considered: https://forum.olympusdao.finance/d/1022-a-theoretical-example-for-oip-76-implementation

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.

great idea!

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.

Platinum_Duck

Yeah. Doesn't seem like a bad thing at all.

Seems like market making, where value gets accrued to ohm.

Wukong

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?

Disclaimer: Not sure I am entirely accurate here. Thinking out aloud.

In a downturn, increasing money supply enables the state to sustain demand (through stimulus) and maintain price stability. Most times this prevents the structural issues (in the economy) from self-correcting, and inflates and delays the issues for the next cycle.
But what it also achieves is prevention of panic.

As a central bank of the new world order, we shouldn't have a role in manipulating demand (through stimulus). Instead we can just focus on being the safe haven asset.

When panic happens, Ohm will just absorb it and the economic premium increases. Which can then in due course oscillate back into the ecohnomy, as the panic subsides.

Inverse bonds seem genius.

Also,

Cons of the Proposal

• Encourage arbitrage activities.

Doesn't seem like a con. Arbitrages will ensure things stay efficient.

Baitfish

IMO the fear of treasury shrinking may be unfounded.

As the defi currency, we are only as valuable as the ecohnomy. When it shrinks, the size of ohm must shrink with it. As long as the backing per ohm increasing, all should be fine.

Mark11 Zeus and his giga brain! Thanks for the reply, happy to know my train of thought is on the right track at least haha.

aazaad

If you don't have 3,3 you don't have inflation control;

Which means you don't have bond issuance;

Which means you don't have treasury assets;

Which means you don't have expanding OHM supply;

Which means you don't have expanding treasury supply;

Which means you don't have expanding value;

Which means you don't have OHM buy pressure;

Which means you drop below RFV intrinsic value;

Which means treasury burns away trying to maintain above RFV;

Which means OHM dies.

Sadinoel

If you don't have 3,3 you don't have inflation control;

Which means you don't have bond issuance;

I am perhaps missing the correlation. Can you guide me to some learning resources to the right mental model?

My current understanding is: As long as there is (positive or negative) delta between market price and backing; (direct or inverse) bonds can be issued. Each bond increases backing.

aazaad https://olympusdao.finance

This proposal does not relieve sell pressure. It actually increases sell pressure. By allowing "an orderly exit", OIP-76 actually encourages exit. This is a free get away pass to the paper handed. Please, Zeus, needs to weigh in on this. The majority of comments are in favor which means some people are just waiting to drain the treasury and dump at "backing price". Please understand that this proposal puts treasury assets at risk. It is negatively accretive in intent. If you are interested in the long term health of Olympus you will vote no and tell everyone else to vote no. Strongly opposed!