There's been a lot of discussions both Olympus DAO and Alchemix discords related to the feasibility of a self-repaying OHM vault with Alchemix V2. There is plenty of community crossover, and it seems that both protocols would significantly benefit from this - Ohmies have a place to borrow from their loan with no liquidations, and Alchemix gets to open a new vault, increase TVL, and earn more revenue in the form of OHM. I believe the ideal scenario is users deposit OHM, take out an alOHM loan (which they can sell or buy more OHM with), and their initial loan repays itself with the (3,3) APR. However, the discussions always seem to hit the following road blocks.
- alOHM requires users to provide liquidity in the form of alOHM/OHM - if users supply straight up OHM as liquidity, they will be completely diluted by missing out on staking rewards.
- alsOHM makes no sense as then you are repaying alsOHM debt with alsOHM yields - which either don't exist or maybe exist in small amounts in some places. Either way, this is not the self-repaying (3,3) strategy that everyone wants.
- Alchemix only functions when the alAsset is pegged with the asset itself (that's why there are no liquidations). This means you can't pair OHM or sOHM with alUSD. You could potentially pair sOHM with alOHM , but again this would require users LP-ing naked ohm to some degree. No one will want to do that unless we give them all the ALCX emissions and more! Plus I'm not convinced it's possible, would have to noodle further on it. Either way, if you can solve the LP issue, then you might as well just do option 1 above.
A creative solution is necessary (which is why I want to start the discussion now, instead of after V2 launches). Here's how I propose we solve the problem of alOHM/OHM LPers getting diluted and give the people what they want:
1)We create an OHM vault on Alchemix V2. Users deposit OHM and take alOHM loans. Nothing innovative here.
2)Create an alOHM/OHM liquidity pool. Here's how this pool would function:
- Users stake their alOHM/OHM LLP tokens for ALCX emissions, and will collect trading fees from the pool (nothing unusual here).
- Olympus DAO will have to create a synthetic staking position for the pool. Essentially OlympusDAO would take the total alOHM+OHM value of the pool, and consider that entire amount of ohm to be "staked" in the (3,3) strategy. The (3,3) vault would send the corresponding amount of OHM to the alOHM/OHM LP pool. Note the amount of OHM could actually be slightly less than the (3,3) strategy as users are also compensated with ALCX and fees. However, BEFORE this OHM gets to the staking pool:
- Half of the OHM earmarked for the staking pool will be deposited into the Alchemix transmuter. This creates a strong backing for alOHM, and provides boosted debt repayment APR for alOHM borrowers. Then the OHM and alOHM would be deposited into the alOHM/OHM pool at equal weightings.
- If at any point the pool is imbalanced with too much alOHM, the ratio of OHM/alOHM being deposited with each rebase could be adjusted.
Item #2 is the primary contentious point I can see in this proposal, for two reasons:
- I have no idea if a synthetic staked position is even possible in the (3,3) contract.
- Technically the alOHM that the liquidity pool would be receiving would be earning (3,3) rewards, in addition to the OHM in the transmuter that backs it. This would have the effect of slightly diluting the (3,3) pool - it's difficult to say by how much.
However, if #1 is possible, then #2 seems like a small price to pay (I'm fairly sure it would be a negligible dilution) to give Ohmies the ability to take a self-repaying, interest-free, boosted-apr, no-liquidation loan on their OHM collateral.
I look forward to input on if this idea is truly feasible. Thanks for reading!