RFC: Clearing House Partnership with Vendor Finance

0xTaiga

In light of the recent proposal by Zeus, which you can see here, we at Vendor Finance wanted to offer an alternative route that we believe would better benefit the Olympus community. Non-liquidatable loans are a great new iteration on loans in DeFi and we at Vendor have successfully deployed a working model, with many improvements in the pipeline. For those unfamiliar, Vendor is a protocol inspired by Ruler that offers non liquidatable, fixed rate loans on any asset. When we were designing the protocol we did it with Olympus in mind as we think it is a perfect match. We initially approached the Olympus Incubator and we were at the stage of contract signing when the deal fell through for a reason unknown to us. We still have some artifacts in our contracts that point to the fact that we not only fit well with Olympus but are fully ready to offer our services!

Why do we think using Vendor would be a better route?

Time in production:

Vendor contracts have been running in production for over 4 months with more than $1,000,000 in TVL without any outside emissions.

Audit:

Vendor contracts were audited by a company that was proposed by the Olympus team itself. Our Omniscia report can be seen in our docs and we are soon to schedule an engagement with a different firm as well. Audit: https://omniscia.io/reports/vendor-finance-specialized-upgradeability-implementation/

Market Simulation:

Before contacting Olympus DAO we conducted a market simulation on several tokens including gOHM given the model we suggest. We wanted to do all the due diligence and ensure a serious and calculated approach.

https://drive.google.com/file/d/1lqiqHo9wzsq5e-Vdjlib5TP45ZdtNPV2/view

Borrower posting collateral might not be the best route to take:

While Cooler Loans offer a route where the borrowers post collateral first and then lenders fill them, we believe a reverse approach might work better specifically in Olympus' case. After looking at the contracts of Cooler Loans we see that this is an order book where the lender has to actively fill the requests posted by the prospective borrowers. While there is a clearing house contract that will ensure that the treasury funds are not lent on inappropriate terms, that is an operational overhead, an inefficiency and an additional trust point as someone will have to manage it (whether that is a human or a keeper). With Vendor all lender funds are deployed into a contract owned by the lender, known to all, that can lend funds immediately without any clearing process on DAO-created terms. You can see that at work on our Arbitrum deployment. We also want to mention that the inverse Vendor pools are currently in the works but Olympus DAO can immediately utilize our current model.

Vendor has already worked with other DAO treasuries successfully:

We have been working with UMAMI Finance to polish this concept and we are familiar with many edge-cases that are not immediately obvious. Umami DAO has been lending with Vendor out of their treasury and has made a consistent 40% APR. Currently they are lending $100k and taking a measured approach to lending. So far they have been satisfied with the service and we greatly value them as our partner. Please see their treasury report to learn more: https://blog.umami.finance/umami-finance-treasury-update-december-2022/

Budget planning will be easier with Vendor:

Since in the framework of Cooler Loans there is no limitation on what terms the borrowers are trying to borrow, and the lender manually approves the incoming proposals it is harder to predict the future revenue stream since clearing house will approve a range of rates. All Vendor borrowers would be left with DAO decided terms which helps with planning the budget for the Olympus treasury.

Oracles are actually needed:

With Cooler loans “no oracle dependency” is not a completely correct statement. Someone would still need to monitor that existing loans are not lent under collateralized. If the pool allows under collateralized lending in any form, the entire pool can be drained by borrowing the lent asset and swapping for the collateral asset, which can be used to borrow more, until the entire pool is drained with no risk. That is another trust assumption not mentioned in the proposal. For tokens with an on-chain oracle, Vendor Finance automatically disables lending when the lent funds exceed the collateral being deposited. Notably, we support the gOHM native oracle currently, as we had the initial intent to partner with Olympus.

Delegation Process:

We do realize that the Cooler Loans allow the delegation process of all deposited collateral to one address specified by the Cooler creator. While we do not support that currently, we would be happy to add that into the contract if requested by the DAO.

Fees Involved:

Right now Vendor charges 10% of interest earned by the lender or 3% of defaulted collateral. Our firm intent is to minimize the risk for lenders and make money when our lenders make money. We also are capable of offering discounts on those fees via the means of NFT “licenses” for specific use cases. In fact, we are willing to offer a 100% discount of the normal 3% defaulted collateral fee, which will reduce the risk from the Olympus DAO treasury in a loan default scenario.

Proposal:

Our proposal is to approve a small amount of $100,000 - $500,000 to be lent on Vendor Finance against gOHM on governance approved terms. We have built our product with Olympus users in mind and we believe that our work will prove to be useful.

Timeline:

If this proposal is passed we would need 5 days or less (starting from the successful passing of the proposal) to deploy and test the fresh mainnet deployment and UI integration. We would also be happy to offer consultations and any help drafting a proposal deciding on which terms such loans would have to be issued.

Useful Links:

Vendor Finance Site: https://vendor.finance

Vendor Finance Docs: https://docs.vendor.finance/overview/what-is-vendor-finance

Vendor Audit: https://omniscia.io/reports/vendor-finance-specialized-upgradeability-implementation/

woofwoof

0xTaiga Question: We already have a proposal with Alchemix where users can take out self paying loans with zero possibility of liquidation or losses since, it's self paying. For my own understanding, how is this better? Or what benefits can this offer that Alchemix can't?

z_33

0xTaiga love this well-structured proposal and the very reasonable ask of 100k to 500k against gOHM. This seems like a very good proposal to me.

Joel33

0xTaiga Very much in favour of this proposal.

A 500k pilot budget for mainnet deployment will be a great start in my opinion to get the ball rolling and see the level of demand. Then hopefully once cross chain native OHM is available in the coming months the possibilities will be endless.

Don_G_Lover

I appreciate the simulation data & the thought out counter proposal above.

Would the same contracts from Arbitrum be deployed to mainnet? If so, Are there additional security concerns to be considered?

0xTaiga

Don_G_Lover Thank you for a wonderful question! We are Eth mainnet compatible. In fact we were designed to work on mainnet, but then decided to switch to arbitrum later, since we were to launch ourselves and we wanted to be conservative with deployment funds. We have front running protection built in. We also just secured a spot for integration with @saluslabs who will help us monitor our pools.

Don_G_Lover

0xTaiga Great!

One more question - could the simulations be run again using more recent data?

0xTaiga

Don_G_Lover In theory we could but that is a decently time consuming process to generate a quality backtesting report. Given the team size we have that is an expensive endeavor.

0xFelix

Thank you for taking the time to write this up @0xTaiga, really appreciate it. I think it makes sense for the community to evaluate both proposals and see which one would be preferable for a pilot programme (or perhaps test both protocols in practice).

The advantage of Vendor to me seems that it was already designed with Olympus in mind initially and that it is audited and used successfully in practice - i.e. the contracts are already (somewhat) battle tested on the Arbitrum deployment. If the community would like to proceed with a "clearing house" solution I would be in favour of using Vendor as well, considering the history between both protocols.

hOHMwardbound

Thank you for sharing this proposal, can you give more detail about the inverse pools in the works?

0xTaiga

hOHMwardbound yes definitely! With our current structure it was always a no brainer to flip the model to allow the borrowers to dictate the terms as well. This is being done in a way where the borrower post a collateral while requesting the loan terms similarly to Cooler Loans, but then anyone could fill that in full or partially. Again, I would say that in Olympus case the lender posting the lend funds first might be a better alternative as it reduces operational overhead.

thomasscovell

Thanks for the thoughtful proposal and considered response against the other option on the table. This, like Cooler, seems to have lots of merit for the ecosystem - but the suggest capital to be deployed seems much more reasonable as a trial in this case.

I suggest we do what we did with OHM bonds (testing Dutch Auction and Gnosis) and run a trial in tandem of both, at low volume, to compare their merits. e.g. $250k of each say for a total of$ 500k.

dr00

Ohmies - what do y'all think about having the Vendor team in our Discord for an AMA?

MaxCoins

woofwoof So as I understand it, the yield from the Alchemix self-repayment comes from the ARR, which would mean that your OHM collateral/loan position would be redeemed with OHM, rather than gOHM. This means that the inflationary yield accrues to OHM in the future, when you eventually recover it from the Alchemix vault. You can presumably swap and deposit alOHM-OHM to create up to 2x leverage, but the end result will be realized in future OHM (which by its nature does not inherently include the ARR).

In contrast, a Vendor pool would accept gOHM as collateral in exchange for DAI to be used now. This allows the borrower (community) to continue to realize the ARR inherent in the gOHM wrapper as well as to pay an interest rate to borrow DAI (and use that for whatever, including creating leverage by buying gOHM and borrowing more DAI - the maximum ratio will equal 1/(1-LTV), where LTV is set by the lender, in this case, the OHM treasury).

Does this make sense?

kleb

Great proposal. The deal between Incubator and Vendor fell through because of changes in the DAO and Incubator team specifically. The team and product at Vendor were viewed in a very favourable light by the Incubator team at the time.

I would personally love to see this proposal pass. $500K is a reasonable initial allocation.

0xTaiga

kleb Thank you for this clarification! It was a pleasure working with you while it lasted!

Don_G_Lover

@0xTaiga what would be a reasonable timeline for a mainnet launch for Vendor Finance?

My strong opinion is that we can bring forward a combined OIP and let the community vote on the two Clearing House options presented thus far - where we can pilot deposits (of some size) in both protocols, one or the other, or neither.

thomasscovell

Don_G_Lover This was my opinion also. I believe Zeus has parked his however after he received clear feedback on audits and is looking at how he undertakes that so there may be delay on that option?

0xTaiga

Don_G_Lover In our case we would need about a week to spin up on Ethereum in our current shape and form. It might take a bit longer if we decide to add the support for the delegation logic of OHM. We would need to contract the Olympus dev team to make sure we are aware of all the nuances and do not miss anything.

Shpadoinkal

When does this move to snapshot. More utility!

0xTaiga

Shpadoinkal

We are currently waiting for the AMA to be scheduled before this goes to the snapshot.