Summary:

Whitelist Liquity LUSD Stability Pool and LQTY staking for Olympus treasury deposits.

Background:

OIP-20 defined a framework for Olympus where 33% of excess treasury reserves can be deposited to earn yield in whitelisted protocols. At the time of this writing, the whitelisted protocols are Aave, Compound, Convex, and Sushiswap(Onsen). This proposal seeks to add Liquity to this whitelist while keeping the same 33% treasury deposit cap.

Description from liquity.org:

Liquity is a decentralized borrowing protocol that allows you to draw 0% interest loans against Ether used as collateral. Loans are paid out in LUSD - a USD pegged stablecoin, and need to maintain a minimum collateral ratio of only 110%.

In addition to the collateral, the loans are secured by a Stability Pool containing LUSD and by fellow borrowers collectively acting as guarantors of last resort.

Liquity as a protocol is non-custodial, immutable and governance-free.

Specifics:

This proposal is only targeting the LUSD stability pool and LQTY staking on Liquity. LUSD would be deposited in the stability pool to earn LQTY. The earned LQTY would be staked to earn more LUSD and ETH. Liquidations in the platform use the stability pool’s LUSD to ensure the protocol is healthy. In doing so, ETH is provided and LUSD is taken. This is considered acceptable as the treasury already accumulates ETH and LUSD bonds can replenish any LUSD removed from our deposit.

Risks:

A vulnerability in the Liquity protocol could lead to partial or complete loss of funds. Severe liquidations could leave us with substantially less LUSD, but more ETH.

Protocol Analysis:

Using a risk analysis framework developed by the DAO, the Policy and Partnerships teams have attempted to score various protocols based on some subjective and non-subjective data. Liquity scored well in this regard. The subjective values were derived from averaging the votes of multiple DAO members.

The following risk matrix shows the outcome of the vote. The "Risk of losing funds" column refers to the chance that assets are lost before the initial investment doubles. The "Impact of funds lost" column refers to how much treasury value will be lost if an incident occurs. Lastly, one final reminder that this score was partially derived from a DAO-averaged subjective value.

Motivation:

Whitelisting Liquity will allow Olympus to begin accumulating LQTY which can then be staked for more LUSD and ETH. This also increases our chances for further Liquity partnerships in the future. Lastly, our funds in the stability pool would help ensure the long term success of the Liquity protocol.

Should we whitelist Liquity?

    +1. Any consideration to use LUSD on element.finance? Seems like robust platform security wise with fixed yield on LUSD.

    Definitely in favor of this proposal. Big fan of productive treasury assets. Honestly should probably have a proposal to give treasury the green light to use assets within their own protocol (ex. staking spell in abracadabra, staking alcx on alchemix), if the assets aren't going to be backing any circulating ohm

    • MrE replied to this.

      irc huge fan of this, more DEFI legos and it seems we could be a stability force for Lusd. This decentralized and governance minimal stable needs as much support as possible.

      irc

      Consider adding Barnbridge to whitelisted protocol. Utilizing their smart yield product for additional yield in senior tranche. Thanks

      Whitelisting a decentralized governance-free protocol that we already have a relationship with? This is a very easy yes from me.

      irc Liquity scored well in this regard

      Hi what will be the frequency of Liquity risk re-assessment once we go-live with this since things are ever evolving at a fast rate? Is there a treasury portfolio re-balancing since some of the assets will outperform the others?

      • irc replied to this.

        irc ETH is provided and LUSD is taken. This is considered acceptable as the treasury already accumulates ETH and LUSD bonds can replenish any LUSD removed from our deposit.

        Is LUSD counted as RFV while it is used to buy ETH? What happen after LUSD is consumed to buy ETH till it is fully replenished by LUSD bonds?

        • irc replied to this.

          devoltaire good questions. Liquity is actually pretty interesting from a risk re-assessment standpoint because it is immutable, so we really only need to keep an eye out for new types of smart contract vulnerabilities. The DAO will do its best to look out for possible concerns with the protocols we have whitelisted, but obviously we ask the community to raise possible issues in the future if they come across anything.

          Regarding re-balancing, that could also happen, but only within our whitelisted protocols and never exceeding our 33% cap.

          HumbleFarmer Yes, I believe we will count the LUSD as RFV while in the stability pool. Based on past data only small percentages of LUSD should be used for liquidations unless something major happens. Due to us continually bonding new LUSD into the treasury, I don't expect to see any major dips, but anything is technically possible with these funds. Also, keep in mind that the LQTY we earn will be staked which will earn us more LUSD. I hope that this will make up for most of the LUSD taken from our stability funds over time.

          Resounding yes to this proposal.

          If I am understanding this correctly then the only risk is that ETH goes way down in value that LUSD have to be rebalanced. Considering we are still in a bull market, I think we will have enough time to stake a lot of LUSD before that ever happens so that is a yes from me.

          As we support Liquity already by holding LUSD, I see this as a natural extension.

          Great risk assessment!

          I really like the framework thinking initiative. Just a few questions on the logic reasoning before I vote: 1. you mention that "Liquity scored well in this regard". It seems it is outside of the blue "safe" zone from my glance, wondering how does this benchmark against other whitelisted protocols. 2. I want to ask if we have any existing frameworks gauging return/benefits vs. risks. Then my follow up question is that how does the quantified returns from depositing/staking in Liquity benchmark against other whitelisted protocols. Thank you sir. @irc

          It's all too obvious. More revenue for the protocol.

          This is a great idea, and I would like to make an additional suggestion on top of this.

          This LUSD can be deposited in the Stability Pool for Liquity through BProtocol (https://app.bprotocol.org/liquity).

          This will allow to continuously convert the ETH from Liquidations back into LUSD.

          In addition, there is a $BPRO Liquidity Mining Program (https://twitter.com/LiquityProtocol/status/1442491757246091265?s=20) going on that will run until mid December that includes this Stability Pool.

          So this is a no brainer.

            irc
            Hey OHMies,
            My name is Eitan and I'm leading the ecosystem development at B.Protocol.

            As ramaruro suggested - B.Protocol can be a great fit for this LUSD strategy to make sure the Olympus DAO's LUSD funds are automatically rebalanced after liquidations in Liquity (ETH is sold back to LUSD and deposited back into the Stability Pool).

            B.Protocol was founded by Yaron Vlener, ex-CTO of Kyber Network, and was launched in Oct. 2020 with Liquity integration up and running since Aug 2021. TVL is ~$95m, out of which 16m is in Liquity's SP.

            You can hear more about this integration on this call we had with the Liquity team -
            https://youtu.be/t81WxsStfD4?t=48

            Or do some in-depth reading -
            https://medium.com/b-protocol/b-protocol-liquity-integration-is-live-1342605e7cfb

            We would be more than happy to set up a call to explain it in more detail and see what's needed to make it happen.
            Or just whatever questions here on the thread.

            Thanks

            *For a wider perspective/credability on B.Protocol:
            - we were voted by MKR holders to open up a new MakerDAO Vault (WBTC-B) which will be liquidated by the backstop of B.Protocol [https://vote.makerdao.com/polling/QmYzt3ub?network=mainnet#poll-detail]
            - Voted by SPELL holders to integrate our backstop on Abracadabra [https://snapshot.org/#/abracadabrabymerlinthemagician.eth/proposal/QmVtBKUF3MqNA4bhcQn1XrsPrbRtcRbDBXMNebLV5tq3dM]
            - The B.Protocol-Liquity integration just got listed on Instadapp (the 8th protocol Instadapp integrates) - https://twitter.com/bprotocoleth/status/1452287397966790656

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