A Theoretical Example for OIP-76 Implementation

JTnD

This is a very interesting proposal Ser and a novel approach to creating an orderly market for LPs to exit OHM positions with a known, or at least reasonably predictable, ROI. Bond in, Bond out, secure your exit in a manner such as to preserve your value. We could even have a component of the "coupon" be a fixed rate and a component be variable, depending on Treasury profits during the Bond out period.

Sadinoel

THIS! If this is implemented I will get behind it. Well thought out game! 🤌

@ProofofSteveGM you should post as an official ammendment to OIP-76

ProofofSteveGM

Sadinoel thanks for the support. But I think for now this best serves as just a document that policy team can refer to as they need to. They're very smart guys so it's entirely possible they will think of something far better. My discussions with people on Twitter have already come up with some simpler ways to do this that accomplish the same purpose.

Really the key point here is

Time lag on all inverse bonds from issuance, to create yield curve based on duration risk.
DAR < DTG

So long as any potential implementation meets those two, it will work very well.

m3m3

ProofofSteveGM

In OIP-76 the example of OHM=100 Backing=120, purchasers of inverse bonds (IB) can receive a $5 premium purchasing treasury assets instantly at$ 105

In your example OHM could potentially offer an (IB) at a %5 premium immediately, %10 premium at 15 days and %20 premium at 30 days?

sounds cool. would vote.

ProofofSteveGM

m3m3 I don't think you need a premium on any inverse Bond. The purpose of the inverse bonds are to allow people to redeem for backing. Not to make a premium tolerating duration risk.

aazaad

This changes the character of ohm. OHM is no longer backed (by assets), but instead by future revenue.

Total Treasury Value should consistently increase and never decrease, regardless of how many or how few redemptions there are.

What are the issues that you see if the treasury (minus the LP) decreases?

ProofofSteveGM

aazaad IMO we would enter a doom loop.

Treasury decreases.
Backing per OHM decreases.
Increased motivation to sell OHM or inverse bond.
More people selling/inverse bonding. (if this is done in such a way it can decrease treasury then)
Treasury further decreases.
Backing per OHM further decreases.
More people selling/inverse bonding.

It's not that treasury can't decrease, that's impossible to guarantee. But we should build our redemption system such that the redemptions never decrease treasury as this can lead to that 'doom loop' scenario where everyone is rushing for the exit.

abipup

Hey interesting write-up. Couple thoughts:

I like the idea of calculating a daily inverse bond capacity in terms of the previous day's sustainable revenue streams. But that may not be enough in and of itself to keep RFV (or backing) / OHM increasing. You have to take staking rewards into account there. The treasury amount may truly need to shrink somewhat to take take that into account.
You definitely shouldn't issue inverse bonds when OHM is trading above backing. You will absolutely decrease the backing / OHM if a user executes the bond when market price is above backing.
I disagree with having any bonds redeemable for a pre-set amount, as you propose for a full backing redemption. In fact, if you offer instantly vested inverse bonds, as OIP-76 proposes, any longer-dated inverse bond becomes unattractive.

aazaad

ProofofSteveGM

Treasury decreases.

Backing per OHM decreases.

In case of inverse bonds, even though the treasury decreases; backing per ohm increases because higher value of ohm is burnt. No?

If that's true, is treasury decrease still a problem?

ECAndre

ProofofSteveGM If you are redeeming for less than current backing then backing per OHM will always increase as long as OHM sold is burned. This is a condition of Inverse Bonding as proposed.

Example:

Bad Day Pre-Inverse Bond

Ohm Supply = 100
Ohm Treasury = $1000
Backing per Ohm = 1000/100 = $10/Ohm
Ohm Price = $6 (dear gawd, just a hypothetical
Ohm Inverse Bond Price = $8 (this is below backing)

Inverse Bond of 90 Ohm for $720

Ohm Supply now = 10
Ohm Treasury now = $280
Backing per Ohm now = $28/Ohm

So not only have you cut supply dramatically while increasing backing per ohm and thus runway, you're also incentivizing market participants to go buy $6 ohm off the market and redeem it for more pushing the price up.

My concern is, how is it better than a buy back and burn? I think it is better than a buy back for sure, but i'm having a hard time quantifying it. The answer might be that it's not better than a buy back and burn mathematically because if the treasury just did a buyback anytime price<backing they would be getting that $6 ohm in my example and increasing the backing/OHM by that much more. But even if it's not better than a buy back and burn mathematically, it might be better from a community engagement view.

Either way it feels like giving exit liquidity to sellers but if it props up the price and boosts the health of the treasury, that might be ok.

Diesel

aazaad treasury is everything though. especially if it can be productive, which i would argue all assets in the treasury can, via lending/investing. i am constantly reminded of fei. the farther that fei fell from peg, the penalties got larger and larger. these penalties did not stop the further burning of fei and therefore its market cap. we might think this is a good idea, but it might have unintended and unexpected results.

ProofofSteveGM

ECAndre Hey man sorry for delayed response. In terms of advantages vs buy and burn, I think the main one is optionality. Providing bonds provides people with a new instrument to play around with, providing bonds on a constant rolling basis (even if most of them go no bid) with different expiry dates allows people to hedge as Ohm price approaches backing. To be clear I think if you want to abide by KISS buy and burn also fine so long as, again, it uses only a portion of treasury revenues and doesn't ever drain treasury directly.