• Proposal
  • OIP-76: Create Inverse Bond Policy Lever

Introduction

Ohmies know that OHM is backed by the assets in Olympus treasury, and that the treasury backing of each OHM has increased considerably since launch. OHM trades at a premium to its backing because the market understands that the treasury, revenue, liquidity, products, services and ecosystem integrations will continue to grow.

It’s important to signal that backing per OHM will continue to increase, regardless of market trends.

To ensure backing is always able to increase, the DAO Policy team proposes to add inverse bonds to the treasury toolbox. Inverse bonds are exactly what they sound like: bonds, but inversed. The inverse bonds will be initialized if OHM trades below backing, defined as the market value of our treasury assets (not including the OHM side of LP), divided by the circulating supply of OHM. When initialized, users can send OHM to the treasury in exchange for an asset held by the treasury. Similar to how bonds work today, the discount for these bonds will change over time and the market decides acceptable discounts. Also like normal bonds, inverse bonds themselves don't impact market prices.

It bears specifically mentioning that this is not a static, "direct redeem" mechanism. Inverse bonds will remove sell pressure from the market, but in a way that will at the same time increase the backing per OHM. Inverse bonds increase the backing per OHM by reducing the amount of OHM in circulation, while paying out less than each OHM’s backing.

Motivation

The Olympus smart contracts guarantee that 1 OHM is always backed by at least 1 USD in stablecoins. On top of that, Olympus pioneered protocol owned liquidity, where Olympus owns over 99% of all the OHM liquidity. This means that there will always be deep market liquidity for OHM.

Currently, the standard bonding process only increases backing per OHM when the treasury can sell bonds above backing price.

Inverse bonds add another mechanism that in certain market conditions will allow OHM holders to sell their OHM at a premium, without affecting the market price and while simultaneously increasing backing per OHM.

By introducing inverse bonds, Olympus is also able to maintain the bonding process throughout all market conditions.

Illustrative Example:

OHM price is at $100, Backing is at $120. You see that the inverse bond price has ticked up to a 5% premium. That means you will be able to sell your OHM at $105 to the treasury, instead of $100 to the market. The inverse bond price would not be able to exceed $120, because at that point it's a net drain on the treasury.

Proposal

Authorize the policy team to:

  • Create inverse bonds as a market lever

  • Launch inverse bonds if OHM begins to trade below its backing. Note that it is not a tool to peg OHM to that value. The lever brings OHM out of circulation and burns it, which increases the backing per OHM on every inverse bond executed.

Informal Vote below, live for 24 hours. If this vote passes, OIP-76 will move to snapshot.

Should the Policy team create an inverse bond mechanism?

This poll has ended.

    Wow, this is a great idea!

    I'm for it. It would protect the price and prevent massive cascading liquidations. Lets see locked staking next!

      abipup what would the accumulated OHM be used for? Would it be used to pay out rebase rewards?

        Great idea! Giving Olympus DAO the opportunity to not only engage with bullish investors but also with bearish ones!

        This very much seems like the end of the "black hole of assets" thesis.

        How is this the best possible use of the assets in the treasury, to give them back when the market is down?

          BowTiedTigris just to be clear, this mechanism isn't a "wall" that would prevent candles from blowing past liquidation points. It just helps to relieve sell pressure and create buy pressure on OHM via arbitrage opportunities.

          PS been thinking a lot about locked staking, more on that in the coming weeks I hope 🙂

            uliner it's cleanest and most efficient to burn the tokens, then continue to mint new on rebase.

            This way we make sure those tokens are truly out of circulation.

            sirsean assets have always flowed into and out of the treasury, via the LP's. In times when the market is down, inverse bonds help OHM retain purchasing power by moving sales off market where they don't impact price. Bolstering the econohmy and keeping the backing flywheel spinning are both pretty solid uses of the assets in the treasury when the market is down

              abipup in effect the game theory of this does kind of work as a "wall" in way. it just creates incentives to create buy pressure. And yeah I can't wait for locked staking. I would gladly lock mine up for a year if I could.

                BowTiedTigris I see what you mean, yes the capacity of the inverse bond would partially determine the "height" of that wall, still able to be scaled by enough determined sellers but all at a profit to backing.

                Couldn't this be amplified by burning 2 ohm for every one ohm inverse bonded?? Wouldn't that reduce supply of the token faster as sellers become decentivized? Can something like this be implemented or is there something I'm missing??

                  Cryptovestor77 where's that second OHM token coming from? DAO OHM is pretty far off market, and the treasury doesn't hold naked OHM

                    Not really for or against this (want to hear more discussion) but have a few Q:

                    1. Is there any idea what order assets would be used for this? If we use our most volatile assets, then we will by default be 'selling the bottom' assuming markets stay correlated. Alternatively if we use stables, RFV decreases. How is the policy team envisioning this in terms of 'order of payout'?

                    2. Exactly how is "backing" being calculated here, I.E. what price does OHM need to fall below for this lever to be used? Also, is OHM-DAI LP being included in this backing? Not sure if it is, but if we start selling all 'backing' or treasury assets except OHM-DAI LP we run into a risk where an increasing portion of OHM backing is OHM-DAI LP which would be bad for obvious reasons.

                    3. What happens to the OHM which the treasury buys? (Nvm this one reread the proposal understand now)

                    All in all I think it's a good idea but one we should be very careful about as one wrong step here could create a reflexive loop we want to avoid.

                      abipup Yea I didn't realize that thought we had naked ohm in the treasury. Still a great proposal!!

                      abipup Inverse bonds increase the backing per OHM by reducing the amount of OHM in circulation, while paying out less than each OHM’s backing.

                      Not sure if I understand the bonding mechanism correctly: If no body buys the inverse bond for a long time, the discount will increase and the next purchase will still likely pay out more than each OHM's backing, right?