• General

  • RFC: Lending AMO as a key DAO project for 2023

Summary

Following OIP-128 and the new budget and compensation structure, designate the Lending AMO project as one of the key focus areas for 2023 and include it in the bonus program.

Motivation

OIP-127 outlined the importance of Lending AMOs for Olympus:

“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 by minting into these lending markets.

Finally, Olympus will also be earning OHM-denominated yield on OHM that is lent out, creating a new income stream for the protocol.”

Project definition

While OIP-127 approved a pilot programme to test out OHM lending markets, these initial tests will be performed through a multisig for ease of deployment. The full Lending AMO project encompasses a more sustainable solution that does not rely on holding funds on a multisig but rather on new smart contracts specifically developed for this purpose. The deployment of a lending AMO smart contract is thus the key deliverable for this project.

The full scope of the Lending AMO project is as follows:

  • List OHM as a borrowable asset on a select group of lending markets.

  • Implement a warm up period for OHM staking to prevent flashloan attacks.

  • Develop a set of new smart contracts - consisting of a base level contract and specific implementation contracts for each lending market - that allow for:

    • Minting into whitelisted lending markets

    • Setting a target interest rate and report the total supply needed in that market to achieve this target

    • Removing or adding liquidity to manage interest rates (i.e. to ensure rates are close to the target)

    • Harvesting yield

  • Audit these smart contracts before deploying them.

Note that while some of these elements listed above are live today already, they were developed during January-February 2023 and so fall within the scope of OIP-128’s bonus program.

Deadline

The deadline to implement the full Lending AMO project - from the pilot programme to the actual deployment of the audited smart contracts - is the 15th of April.

Bonus

The bonus allocated for the successful and timely completion of this project is 15% of the total bonus pool.

Polling period

This RFC will last until the 20th of February. If successful, it will move to an OIP afterwards followed by an official Snapshot vote.

List the Lending AMO as a high-impact project for 2023 and include it in the bonus program?

Thank you for posting this, Felix. Having OHM as a borrowable asset will promote protocol health and prevent unsustainable premiums as our lending market activity increases. The ability to diversify backing while earning on the OHM that is lent out is a huge accomplishment, and I look forward to seeing the launch of this project.

  • Roc likes this.

This is a unpleasant but necessary tool - let's get it done

I'd be interested to understand more the diversify backing narrative - seems a bit pipe dreamy unless we make it very attractive at the expense of holders

    Mark11 my understanding of that particular narrative is that the OHM that the protocol lends out becomes backed by the collateral that people put up. It doesn't dilute the existing holders since the lent out OHM only enters circulation in already overcollateralized state.

      Mark11 Z's response is correct, any OHM the protocol mints into lending markets does not negatively impact existing holders. Unless someone puts up collateral and borrows OHM it is not going to enter circulation.

      In terms of growing the supply of collateral-backed OHM vs. PCV-backed OHM, that will depend very much on how attractive the various lending markets will be and how heavily the protocol wants to lean into these lending AMOs. For the foreseeable future, PCV-backed OHM will still be the vast majority of OHM in existence.

          This seems like a most useful project. But it is difficult without view of all of the possible projects, to say if it is one of the top 3 that should be focused on however. Without having to go into detail on each, is there a shortlist for 2023 projects at this stage? (I realise the minimum in OIP-123 is 3 successful projects, but essentially that means we could greenlight the first 3 projects which might be easier than a more essential later project. If those 3 were achieved in the first 6 months then the pressure to deliver later ones goes off?*)

          The detail of the scope of the project and our ability to assess that it has been delivered seem fine. Perhaps a specific KPI around the number of lending markets is needed?

          I'll vote Yes on this one as the first-cab-off-the-rank.

          *However I have just realised that as the bonus of this project is 15%, and the max bonus per project is 33% then we will need at least 4 projects to spend the bonus budget. If I'm reading this right?

            0xFelix Yeah I guess the logical answer is that the community would not make it attractive and would not lean into these AMO - so diversified backing narrative isn't really relevant to push atm

                thomasscovell Yeah that's a good point. There are ideas around some of the key projects for 2023, but there is not an exact predetermined list since that will depend on various things. In general, I think the aim is to go for 5-7 key projects this year. Some of the key projects that are being considered for 2023:

                - Lending AMO.

                - Liquidity AMO. Name TBD, but essentially a product that allows the protocol to mint OHM directly into liquidity pairs against select, high quality assets.

                - Cross-chain native OHM. Moving to a mint and burn system instead of relying on synthetic bridge assets for cross-chain expansion.

                - On-chain accounting. Key piece of infrastructure that will allow for secure, decentralized accounting of PCV and OHM, which will be needed as a foundational building block for future products.

                - On-chain governance. Transitioning from current OIP/Snapshot/Multisig execution flow to a custom on chain governance system.

                Obviously this list is just a WIP and will likely change over time or be added to.

                  Mark11 That's fair, the backing narrative would definitely not be something for the short-term but I do believe it's an important one for the protocol on the the long-term. Another thing to consider is that lending AMOs don't necessarily need to rely on the Olympus community itself. I believe a large part of the success will depend on attracting third parties that want to borrow/use OHM, but not necessarily hold it. The current markets are more traditional lending and so probably rely more on our community, but a lending AMO could also be used for credit accounts, leveraged LPing, or debt facilities. If we can open up those use cases through lending AMOs, it would also create more venues for the community to deposit/lend out OHM as well.

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