Summary
A formalized, four-phased approach to launch OHM bonds, which requires a new emissions framework. The first phase, which has already been voted on and started in OIP-114 Tantalus, is to soft launch OHM bond trials. The second phase is to set a fixed, lower system base rate to prepare for OHM bond launch and Olympus V3. The third phase is the full launch of OHM bonds. Finally, the fourth phase will be the launch of a dynamic and automated base rate framework.
This proposal is to align on the full vision, and to vote on Phase 2 of the launch plan:
Phase 1 [vote passed]:
Trial period of OHM bonds - see more info here: https://forum.olympusdao.finance/d/1328-oip-114-tantalus-testing-ohm-bonds
Phase 2 [to vote on now]:
Replace the current emission framework with a simpler framework that serves as the base rate for OHM bonds and supports price stability in a low-growth market environment.
Phase 3 [to vote on later]:
Full launch of OHM bonds. A third OIP will be created prior to launch with complete implementation details regarding initial capacities, tenors, and lessons learnt from Phase 1.
Phase 4 [to vote on later]:
Set a new dynamic base rate, based on feedback from Phase 2 and Phase 3. This rate will be fully automated in line with the future On Chain Governance and Bophades upgrades.
Motivation
The main priority of Olympus V3 is to strengthen the stability of OHM, encourage OHM adoption with protocols and DAOs and build OHM denominated liquidity (in line with OIP-118 The Olympus 2022 Strategy). OHM bonds will be one of the first functions of Olympus V3 to launch, so it makes sense to update the emissions framework at the same time. OHM emissions are the foundation of the protocol and need to be improved in the following ways:
The emission framework should support stability in different market environments The supply-based emissions framework currently in use is no longer a useful metric for supply expansion. Protocol emissions are a key function long term to stabilize OHM by matching the growth of the protocol. However, the current emission framework assumes that the protocol is growing faster than it actually is, and the current reward rate is too high to be “real” growth in the current market conditions. In the current framework there’s no way to adjust the rate lower. Instead, high supply expansion leads to inflation which leads to less stability over time.
Framework should be compatible with RBS When inverse bonds are active, and at the lower bounds of Range Bound Stability a high reward rate directly hurts the effectiveness of these mechanics.
Framework should be compatible with OHM bonds At the same time, Olympus is preparing a number of protocol upgrades that will redefine protocol emissions. OHM bonds as voted on in OIP-114 is the first protocol upgrade that will impact how Olympus releases OHM into the market. Going forward, protocol emissions will start to be directed where there is a tangible extra benefit. **The reward rate should function as the foundational “base rate” for OHM bonds to build a proper yield curve on top of.
Framework should allow development of upcoming credit markets** Rebases are growth-biased, and when the protocol is not growing, its just inflation that don’t go towards productive economic activity. High rebases prevent lending avenues from scaling, and prevents (upcoming) credit markets from functioning at all.
Proposal
Authorize the Policy team to:
Deprecate the current supply-based framework voted on in OIP-18, in favor of a simpler and more appropriate metric for establishing a base rate of OHM expansion.
The new metric is proposed to be a 5% spread above the current 1-year stablecoin rate of return (DAI and USDC average), which results in a 7.35% Annualized Rebase Rate (ARR) or 0.006477% reward rate. Data arriving at this number are in Implementation Details below. This fixed reward rate will be set over a one week transition period.
Proposed benefits
Using a small spread above a trailing stablecoin rate allows for the base rate of OHM expansion to be competitive to stables, while also low enough to permit protocol lending activities at scale.
Further, a low reward rate allows the Range Bound Stability module to operate optimally during times of low demand. If implemented today, RBS would constantly struggle against the pressure that a high reward rate puts on it during a stagnant protocol growth phase. In keeping the reward rate low, RBS is freed from that burden without negative consequences.
Implementation Details
How to determine stablecoin rate of return?
USDC and DAI historical rates. 1 year Aave average rate at 2.44% and 2.27% respectively on 9 Sep 2022.
Source: Aavescan
The technical complexity of implementing an automatically adjusting rate seems unnecessary given a yearly average is used. The proposal is to stay with a fixed rate until OHM bonds and Range Bound Stability are launched and can be included in a broader emission framework.
It’s important to set a base rate for the Olympus system for use in lending markets and the coming OHM bonds. Choosing a 5% rate above the stablecoin rate of return gives OHM a competitive advantage over other stable options, while approaching a more sustainable “real” return. There’s little gain in going higher for now, and the risk is to keep overinflating relative to network growth.
How to change the reward rate?
In order to adopt the fixed rate framework, the reward rate will be adjusted over a one week period to the target of 0.006477%.
How to prepare to launch OHM bonds?
The launch of OHM bonds is dependent on Phase 1 (Tantalus - OHM bonds trial) and Phase 2 (set base rate) as described above to conclude. After this, Olympus DAO can prepare the Phase 3, the full launch of OHM bonds. Olympus DAO will monitor the performance of the different bond tenors, auction styles and other feedback. Finally, in Phase 4 a new fully automated, dynamic base rate will be introduced.
Poll
The poll below is to signal intention to move forward with a Snapshot vote. Changes cannot be made between OIP passing and Snapshot.
