OIP-76: Create Inverse Bond Policy Lever

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

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.

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.

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!

Sadinoel gets it. Providing exit liquidity to butt hurt investors who are in panic mode is detrimental to the long term health of Olympus. We need to build the treasury, not shrink it so some people can extract an investment they have lost faith in. Vote No on OIP-76.

Dreamboat I feel you ser, this was my worry - but apparently its being done in a way that shouldn't impact treasury…Still wrapping my smol brain around it but I trust the policy team…just still in the process of verifying…someone like @Asfi or @sh4d0w would be able to explain better than I…or Father @Zeus

Dreamboat …also, I think giving investors a "potential" escape hatch gives them more confidence to take a larger risk - so on a psychological level, KNOWING that there is, in essence, an insurance policy on their OHM should be beneficial for the protocol in the long-term

Dreamboat