• General

  • RFC: Create a Cooler Loan Clearing House

Summary: Fund a Clearing House with 15m DAI to clear Cooler Loans written against gOHM.

Background: Lending has historically been a sore spot for Olympus. Rari Fuse stands out as the glaring example — Ohmies were plagued with unreasonably high interest rates and expensive & restrictive liquidation proceedings. This is especially nonsensical in the current environment, where OHM trades at/near/below backing and offers significantly more liquidity relative to supply than other, more lent to tokens like ETH, CRV, and others. Even now, we see little to no available liquidity on the two primary options (Vesta and Fraxlend), and high interest rates on Fraxlend. We can do better.

I have built a new smart contract lending infrastructure inspired by Ruler loans, which I have dubbed Cooler loans. The way they work is pretty simple: a prospective borrower can create a "Cooler" (a collateral escrow smart contract) for a debt-collateral pair, and request a loan. The borrower specifies in their request: the amount they want to borrow; the amount of collateral they will put up; the percent of the borrow amount they will pay as interest; and the amount of time they will have to repay the loan. Any third party can come and approve a loan, providing the debt token to the borrower and taking soft ownership of the collateral. Collateral remains in the Cooler so long as the loan is active, during which time the borrower can delegate voting power and repay to reclaim their collateral, but is released to the lender in case of default. There are no oracles and no price-based liquidations — if the loan is not repaid by the predefined expiry time, the loan is simply considered to be in default, and ownership of collateral is transferred to the lender. In the default scenario, the borrower keeps the debt tokens they borrowed and the lender keeps the collateral. Alternatively, the borrower can repay the loan at any time, with interest, before this expiry time to reclaim their collateral.

The Cooler Loan structure is lightweight, permissionless, extends to any debt-collateral pair, and has no reliance on dynamic conditions (i.e. oracle prices, perpetual interest rates, etc). It can and will be deployed in isolation from Olympus. The above describes the protocol design and functionality, but this proposal regards only capitalizing a lender for gOHM-collateralized Coolers, which is described below.

You can more information on Cooler Loans in these docs and on this repo.

Proposal: Fund an independent Clearing House with 15m DAI to fill some loan requests on DAI-gOHM debt-collateral pairs. Loan origination would be subject to the following strict constraints, which are enforced on the smart-contract level:

  1. can only lend to DAI-gOHM debt-collateral pairs;
  2. can only lend, at maximum, 2,500 DAI per gOHM;
  3. can only lend for, at maximum, one year;
  4. can only lend for, at minimum, 2% annualized interest.

As far as net effect of these loans go, I feel its best to think about the two scenarios (no-default or default) separately. In the no-default case: treasury capital has been productively deployed and generates yield for the treasury. In the default case: the treasury has repurchased gOHM at a price no greater than 2,500 DAI per gOHM (the loan-to-collateral value). Both cases are profitable to the treasury, and both are useful for the network. For reference, inverse bonds have expended approximately $82m to date at an average price of $2,525.

The Clearing House segments responsibilities between two parties: the Operator and the Overseer. The Operator, a non-DAO multisig, handles loan origination (counterparty selection, termsheet negotiation, rollover, etc), while the Overseer, the DAO, handles funding for the facility. Either party can defund the facility, sending any token balance back to the treasury.

Strengths: Expand credit-market liquidity for OHM/gOHM, which should result in lower interest rates in existing credit markets (Vesta, Fraxlend, etc). Productive and profitable deployment of capital to generate yield or repurchase supply, in no-default or default scenarios, respectively. Demonstrate yet another area in which Olympus is empowered to create novel and beneficial infrastructure due to its unique and inherent characteristics (namely, the existence of treasury and backing).

Drawbacks: Decreases treasury liquidity by 15m DAI (though a greater proportion of supply becomes locked or destroyed); discretionary loan origination (though bounded by constraints).

Timeline:

  1. Cooler Loan contracts and docs, and Clearing House proposal, are published (January 4, we are here).
  2. Cooler Loan contracts are deployed and self-funded with 20 gOHM (~$50k) loan position. White-/Grey-/Black-hats encouraged to exploit and steal this money if they can! (January 7).
  3. Clearing House funding vote goes live (January 14).
  4. Clearing House funding vote ends, first tranche of 2.5m funded if vote passed (January 17).
  5. Additional tranches released on following schedule: 2.5m January 24; 3m January 31; 4m February 7; 3m February 14.

    Zeus Thanks for contributing this well thought out use-case for Ohmies. At first blush it seems like a reasonable request and I could see a lot of Ohmies getting on board with funding this initiative.

    A couple of points:
    - should we append RFC to the title and move this to General as we have for other proposals of this nature.
    - do you mind me sharing this to Ohmies in the Discord?

    Good to see you contributing to the ecosystem!

      shadow changed the title to RFC: Create a Cooler Loan Clearing House .

      Also - who will act as the lender in this case? Olympus funds the clearing house for the $OHM coolers, who approves them?

      This is no doubt a "cool" idea! Possibly the "coolest". But couple of points:

      1. that timeline seems rushed.
      2. I don't think I can get behind putting in $15m into an unaudited contract. no matter who has written it. May be 500k if a "proof of concept" is needed. but anything more should require an audit.

      Why wouldn't we just take 15m into frax lend? Seems we are taking risk on a new unproven smart contracts with significant capital.

        Shpadoinkal Not having an oracle interaction, and no liquidations for users, is a very powerful feature.

        Also, it is not explicit here, but borrowing at fixed rates also compelling for users to understand their cost of capital easily.

            ruby33 fair enough. Still seems rather rushed with big numbers. Would love to hear from other policy folks..end of day anything that increases demand for ohm is good for us and the current solutions are not perfect by any means but seems strange to put 15m into a untested contract. Who maintains this going fwd or is it just purely permissionless and once it's deployed it just lives with no further work involved?

              I like the idea overall. Essentially an inversed product to what Vendor Finance have on Arbitrum (i.e. the borrower creating a request as opposed to the lender creating a pool). So why should Olympus fund a clearing house for Cooler Loans as opposed to funding pool(s) on Vendor of various expiration dates, LTV's, interest etc.? Or should it do both 🤷‍♂️

              My main gripe, similarly to others, is the 15m DAI request. A pilot budget of 500k-1m would make more sense imo for testing and observing demand. Timeline doesn't seem that egregious, although it doesn't account for audits (if not already carried out).

              Audit please.

              This is Tai from Vendor! Great proposal!

              Just wanted to say that we would be absolutely happy to partner on this and offer any help we can. We have many ideas and as you might know we have built Vendor with Olympus in mind. Despite things not working out initially we would still love to work together offer to be a loan platform for Olympus DAO and its members!

              It is encouraging to see creativity live and well in the world of OHM. I like the proof of concept approach also - it allows us to observe and to address problems in a constructive, thoughtful manner rather than in panic mode.

              Zeus I like the concept, but I think this is a bit early and rushed. I'd like to see this have much more testing, finalization of a roadmap, and publishing of fully deployed code on mainnet or an L2, with the ability for people to test. I'd also like to see some kind of audit, by something like Sherlock.

              $15m seems like quite a lot of money to deposit at this point in time, especially assuming a ~2% yield, and the high risk from a new smart contract with unaudited, or time-tested code.

                Like the idea and a more competitive market to borrow.

                Agree that ramp up time to 15mil seems a bit too speedy.

                10% of that seems like a more reasonable ramp up following like a code4 arena or something?

                  This sounds to me like a slightly different - i.e. inverted - version of Vendor, which has been live on Arbitrum for a few months. And while I'm all for experimenting with these types of fixed-rate, fixed-term loans in practice, I do think the ask is too high and I don't think the treasury should be depositing $15m worth of reserve assets in unaudited and non battle tested contracts. A 500k pilot programme seems more reasonable IMO.

                  It also raises the question in my mind why we don't collaborate with Vendor to see if they are willing to deploy "inverted pools" on mainnet since 1) they're already audited and the contracts are being used, and 2) we've been in touch with them for a while already on the topic of fixed-rate, fixed-terms pools for Olympus.

                    This is a no brainer and desperately needed - tranche schedule timeline looks good - would be good to do a Code4Areana for the code out of treasury or grants

                    Awesome to see new innovations for the Olympus ecosystem. I will eco the majority of comments above on the deployment of a very substantial amount of protocol reserves into new protocols and contracts. Many protocol exploits are done on audited contracts that have been live for substantial amounts of time. I think that the highest priority for Olympus is to ensure safety of the protocol reserves.

                    I'd like to see a much slower ramp up, up to 500k for at least 6 months and after that do an evaluation for further deposits.

                    Another thing that we as the community can think about is the OHM vs gOHM discussion. This is a good example where gOHM has more utility as the collateral, while I think it's better for the protocol to focus market development on OHM.

                    Zeus I’m supportive of this approach and would like to see us be aggressive here in terms of roll-out (timing and volume). My thinking;

                    • The risk profile is fundamentally low (a point that won’t be lost on the author who adopts a risk first lens)
                    • This will make OHM a very attractive asset to hold as a reserve asset and should lead to a further tightening of circulating supply

                      0xFelix 500k-1m seems reasonable for a testing period. I'm surprised how many ohmies are comfortable with 15m being used immediately without audits or testing.