- Edited
Background
We at MYSO Finance would like to express our admiration for the two existing proposals (Cooler Loans and Vendor Finance) that have been submitted with regards to funding a dedicated Clearing House for OlympusDAO and would like to contribute to this initiative. More specifically, we would like to propose a pilot project to have OlympusDAO create its own non-liquidatable borrowing & lending pool, using MYSO’s newly released v1.1 protocol for “Zero-Liquidation Loans”. We believe this proposal will allow OlympusDAO to better compare the pros and cons that come along with each of the aforementioned and herein proposed systems and will allow the DAO to make a more informed decision on which is most beneficial for its community.
MYSO Finance is a DeFi protocol that allows users to borrow without liquidation risk through so called “Zero-Liquidation Loans” (also sometimes referred to as non-liquidatable loans), which are designed to make DeFi borrowing as easy as possible (i.e., users don’t need to worry about liquidations, health factor monitoring etc.) and at the same time meant to make them an attractive new yield source for lenders. In essence, Zero-Liquidation Loans function as a risk transfer mechanism, in which the borrowers are relieved from liquidation risk while lenders – by design – bear shortfall risk to earn yield for this. From the lender’s risk-return profile, this can be thought of as a physically settled covered call strategy. There’s a White Paper as well as several Medium posts explaining this concept in more detail.
MYSO Finance first started as a one of the finalists during the ETHOnline hackathon in October 2021, meanwhile completed a security audit with ChainSecurity (see https://chainsecurity.com/security-audit/myso-finance-core-v1/) and recently launched on Ethereum Mainnet (see https://app.myso.finance/).
Proposal Summary
We’d like to propose a pilot project to have OlympusDAO create its own borrowing & lending pool, using MYSO’s v1.1 protocol. This will allow OlympusDAO to offer its community members access to non-liquidatable loans, i.e., Zero-Liquidaitons Loans, while providing the OlympusDAO treasury access to a new yield source.
In order to allow for meaningful user interactions and testing, we propose to allocate part of the Olympus DAO treasury into a to-be-deployed gOHM/DAI pool. However, to mitigate the risk of using a newly developed protocol, we propose to deploy between $100’000- $500’000 worth of DAI and to revise after a 3-month trial period based on borrow volume and user feedback. With a gOHM/DAI pool, users will be able to borrow DAI against gOHM collateral without liquidation risk. More specifically, we propose the following initial pool parameterizations:
Collateral Currency: gOHM
Lending Currency: DAI
Loan Tenor: 30 days
Max LTV: 60%
APR: 8.00% p.a. (paid in DAI)
Upfront Fee: 0.00%
Olympus DAO APY (see Backtesting): 7.78% p.a.
We’ve added a script to backtest various pool parameterizations, which is open source and can be found here: https://github.com/mysofinance/notebooks/blob/main/olympus-dao-myso_v_1_1-backtest/olympus-dao-myso_v_1_1-simulation.ipynb For the above mentioned initial pool parameterization, the pool would’ve returned a RoI of 7.8% for the backtesting period from 2022-03-01 to 2023-01-16. The backtest was run with similar assumptions to the ones found in the previous mentioned alternative proposals. The MYSO Finance team is happy to provide additonal backtests on demand.
Moreover, we have also set up a testnet gOHM/DAI pool on Goerli where we invite the OlympusDAO community to test the borrowing with the v1.1 protocol: https://testnet.myso.finance/ Note, that – by design – the lender side is restricted through a whitelist (which eventually would be controlled by Olympus DAO during the pilot). In case users would like to test the lender side as well, please let us know so we can whitelist your address for testing.
Motivation & Compensation
While MYSO Finance has been actively developing non-liquidatable loans for almost 1.5 years, the first audited prototype was rolled out only very recently. Hence, as an early-stage project, MYSO Finance currently lacks adoption and traction in the market. As such, MYSO Finance is searching for partners that are open to experimenting with new innovative DeFi primitives and can help popularize “Zero-Liquidation Loans” as a valuable new borrowing & lending primitive in the market.
From a commercial model, we would like to offer two options: (a) a jointly managed pool, for which the MYSO Finance team would personally contribute $50k DAI in liquidity throughout the pilot. This is meant to highlight our commitment and optimally align interests. In this model, all potential loan proceeds and fees would be shared on a pro-rata basis. (b) alternatively, we can offer a one-off fee to test the v1.1 pool, including UI integration. This option would be without any personal liquidity contributions from the MYSO team.
Key Differentiators
The MYSO protocol has several important USPs compared to other non-liquidatable loan offerings:
- Open-ended pool, i.e., borrowing & lending pools don’t have an expiry date but are open-ended, meaning that borrowing and lending is continuously possible. This is different to other non-liquidatable loan offerings, where pools typically have a fixed expiry date and eventually need to be redeployed once the expiry date is reached.
- Constant loan tenor, i.e., users can always borrow at a constant loan tenor (e.g., 30 days) allowing for more meaningful borrow interactions. This stands in contrast to other non-liquidatable loan offerings, where the offered loan durations get shorter over time as the underlying pool approaches expiry, which leads to a situation where borrowers eventually can only borrow for a few minutes or seconds.
- Adjustable loan terms, i.e., OlympusDAO would have its own borrowing & lending pool, for which it could continuously adjust borrowing terms (i.e., APR, LTV etc.). This would allow to maintain attractive borrowing terms even under changing market conditions. Coordinating loan term updates can be facilitated easily by setting up a multi-sig with OlympusDAO representatives to ensure borrow term updates are only executed if OlympusDAO members agree on these.
- Upfront fee mechanism, i.e., in addition to interest rate earnings, Olympus DAO could collect an upfront fee on each borrow transaction, allowing it to earn returns on its deployed capital already before the underlying loans get settled (i.e., before they are repaid, or default and the underlying collateral becomes claimable).
- Adding 3rd Party Lenders, i.e., OlympusDAO could invite community members or other DAOs to also partake in the borrowing & lending pool by whitelisting such addresses. This would allow to grow pool liquidity beyond OlympusDAO’s own funds. Moreover, this would allow for “social trading” where OlympusDAO community members could participate in the DAO’s lending activities, assuming there’s a trusted relationship between community members and the DAO representatives who govern the pool’s loan terms.
- Built on Ethereum Mainnet
Additional Considerations
In addition to the advantages outlined above, it's worth noting the following:
- While we already have two live pools, TVL is still low, also because lender access is currently restricted.
- While our v1 version has been audited by ChainSecurity, we’ve already released an improved v1.1 version, with two changes: (i) improved capital efficiency to reduce a previously immanent LTV decay; (ii) allow for adjustable loan terms by the pool manager – previously these parameters were immutable, however, for more efficient market testing these are now changeable by the pool manager to increase pool longevity, especially for the case when there’s only one DAO lender. These changes have not yet been audited but are open source and one of our pools is already running with this v1.1 version: https://github.com/mysofinance
Timeline
As we are already live on Ethereum Mainnet, we will be ready to launch above specified pool within one working day, once the proposal has been approved by the community.
We are grateful for having the opportunity to share our proposal and look forward to the next steps in the process.
