Great paper, and fully support long-term vision. I would discuss here a bit about tokenization and the liquidification of secondary markets.
Tokenization will introduce additional tokens, of which we already have OHM, sOHM and gOHM. Tokenization of bonds will possibly explode these tokens with one new token for each new expiry (?) - leading to an infinite number of token types issued by Olympus. While tokenization may bring benefits such as allowing the trading of fractional notes, and possibly the utilization parts of existing defi infrastructure, one must raise the question whether Olympus itself is the best agent to issue the tokenization, or whether this is better left to other actors - such as vault agents.
Tokenization is a means for Olympus, while liquidification is the objective. Is tokenization by Olympus necessary for liquidification?
In the white paper, it is stated that "bonds are completely illiquid", which is almost true but not completely so. Bond notes are not locked, as they can already now be traded OTC using the pullNote and pushNote functions of the bondDepository. We just dont have a trustless mechanism to execute bond swaps yet.
BOND (NOTE) SWAPS
To understand note swaps, we should try to create an understanding of the expected strategies from traders. When swapping/trading notes, users want to isolate risk to a time component only. What ever exchange risks, users can play for elsewhere. In the bond market, its all about the lockup period - time. We know that the principal paid out by a v2 bond is gOHM and hence, when we pay for a bond that is also the deposit token we want to use to purchase. Through same input and output (mirroring) we isolate risk to a pure time play. Some definitions for the below charts:
Premium: Unbonded gOHM always trades at reference value 100.
Time t(zero): Datetime at which bond is purchased
Time t(one): Datetime of bond expiration
A: No bond purchase. Staked gOHM represents a flatlined value 100, regardless of t.
B: User is able to purchase bond for 80 - below par value (100). Holds note until expiration.
C: User purchased bond according to B (paid 80), but publishes ask value to market according to formula y = kx + m with m = 95 at t(zero). With time, the gap between ask and par decays. If another user accepts the asking price at t(zero), then the first user flips the note, realizing the gap between 80 and 95 and is freed from time lock. The second user still wins from discount between 95 and 100, but accepts the time lock. The second user’s position would continue same as strategy B.
D: User purchased bond according to B (paid 90), but has another time dependent opportunity at t(two) and thus publishes ask value to market according to formula y = kx + m with k = 0 and m = 90 at t(zero). If somebody purchases his bond before t(two) he will be in profit. If nobody buys before t(two), his ask price begins to trade at a discount to staked gOHM.
E: Negative interest / discount. There is additional time value for the bond and it trades at premium versus staked gOHM. (For example, see my post on General forum on allowing governance vote boost from time-locked gOHM).
F: User purchased bond according to B (paid 90), and updates ask parameters 2 times during the note duration.
G: Advanced: Instead of linear y = kx + m, user may choose to set asking price formula using 2nd degree equation: x2 + bx + c = 0.
Without expertise in Solidity, all these trading strategies should be enabled by a pretty simple contract?
1a. Seller authorizes the smart contract (approves) to transfer the note to itself [pushNote]
1b. Seller signs a message, or otherwise, to the contract about the pricing parameters that the ask price should follow.
2a. Buyer identifies opportunity, interacts with the smart contract to purchase the available note.
2b. Required gOHM is transferred from buyer to seller.
2c. Note is transferred to smart contract via [pullNote]
2d. Note is approved for transfer to buyer [pushNote[
2e. Note is transferred to buyer [pullNote]
The main difference in this swap model is that only full notes can be transferred – no fractionalization at this tier. But where there is value, volume and a trustless transfer mechanism, there will be liquidity. The tokenization is not necessarily needed from Olympus itself, since major players will appear if there is value to be found. These major players will accumulate large bond positions and there will be opportunity for these (can be called vault agents) to tokenize on their part – allowing fractionalized bond buying from second tier providers. In this scenario, the likely bond buyers of Olympus (tier 1) will be other protocols, institutions (?) or in other words whale wallets.
Benefits should be faster time-to-market. More clarity in what is the offering of Olympus. Less explosion of various Olympus tokens. Liquidity should be ample, even with no tokenization.