The proposed pilot programme is the first foray of Olympus in DeFi lending markets and aims to introduce and promote OHM as a borrowable asset. More specifically, through this programme the protocol would mint up to 200k OHM and lend it out (in tranches) on Silo and Euler to test demand and interest rate models.
Up to this point most integrations of OHM/gOHM in lending markets have focused on the collateral-side. With the recent changes through RBS and the resulting price stability and low volatility, OHM/gOHM are becoming preferred collateral assets to use - as the recent listings on Silo Finance and Fraxlend have shown. At the same time, it is important for the protocol to also start focusing on the lending-side of the market and to promote OHM as a good borrowable asset as well.
There are a few different reasons why. For borrowers it diversifies options to borrow “stable-ish” assets beyond just USD stablecoins. For traders and speculators it provides the option to hedge or short OHM, both of which are not easily doable today. While this may seem like a downside, shorting or hedging allows for more natural market dynamics and price discovery, and helps to prevent unsustainable premiums. For Ohmies lending markets also adds additional utility in that they can lend out OHM to interested parties on various lending platforms.
More importantly though - from the protocol’s perspective - is that lending markets allow for more efficient scaling of OHM as well as diversifying the assets that back circulating OHM. Rather than being exclusively backed by treasury assets, OHM minted into credit markets would be backed by a basket of collateral assets (or rather, a claim on those assets). As a result, the OHM supply could theoretically grow without increasing the treasury assets and/or diluting liquid backing of the floating supply.
Finally, Olympus will also be earning OHM-denominated yield on OHM that is lent out, creating a new income stream for the protocol.
Minted OHM for lending markets will be supplied through a lending AMO that is currently under development (and will go into audit afterwards). Depending on the timeline of the contract deployment, this OIP also allows for seeding the initial OHM lending markets through a multisig in order to start these pilot markets as soon as possible. After deploying the lending AMO contracts the multisig would unwind its position, while the lending AMO scales into them.
For this pilot Euler and Silo Finance were selected as the initial lending markets. Both have the option of OHM as a borrowable asset and we’ve worked with both teams to set an interest rate model that makes sense for the protocol.
Euler currently has a TVL of $189m and has been audited by several firms including Halborn, Solidified and ZK Labs, Certora and Sherlock. Collateral assets on Euler (i.e. assets that OHM can be borrowed against) are stablecoins such as USDC, DAI, and USDT, ETH and liquid staking derivatives such as stETH and wstETH, and WBTC. For more information on Euler please see here.
Silo Finance is a newer lending market and focuses on isolated lending pools. It currently has a TVL of $22m and has been audited by Certora, ABDK, and Quantstamp. Collateral assets on Silo are ETH and XAI, their stablecoin (currently backed by USDC and ETH). For more information on Silo please see here.
The maximum OHM minted through the pilot programme is 200k. These funds will not be lent out all at once but instead will be added to the pilot lending markets in tranches, both to see the scaling of demand as well as to manage interest rates (see below). Note that any OHM minted but not borrowed will not increase the circulating supply. Only after a borrower deposits collateral and borrows OHM will this be considered part of the circulating OHM supply.
Managing the OHM interest rates in these pilot lending markets will be key. If interest rates are low, it would incentivize users to borrow OHM and stake it, netting the difference between those two rates. If interest rates are high, it obviously discourages people from borrowing OHM in the first place. Through the pilot programme and lending AMO the protocol could add or withdraw liquidity in order to keep the interest rates at a level where it is both profitable for the protocol as well as interesting for the borrower.
Euler and Silo both have different interest rate models. The Euler OHM market will have a base interest rate of 5% (at 0% utilization) with a kink interest rate of 20% before increasing exponentially. The Silo interest rate model is still being finalized and works differently than Euler, but at an “optimal utilization” of the market the rate would be close to today’s staking rate.
Metrics to track
Throughout this pilot programme, the protocol will be tracking key performance metrics. Indicators of success for this pilot would be:
- Consistent demand, measured by the # of borrowed OHM, as we scale into the markets over time
- Interest rates that are close to or above the staking rate
- Healthy mix of user actions (e.g. is borrowed OHM used for shorting, staking, bonding, et cetera)
On top of that we will also track utilization rates, changes in circulating OHM backing (i.e. the ratio PCV-backed vs. collateral-backed OHM), and gross interest rate income for the treasury.
Depending on the performance of these pilot markets another OIP can be created to scale the capacity or to add additional lending markets.
The polling period begins now and will end on Tuesday (10th of January). Afterwards, this OIP will be added to Snapshot for a final vote.