• Proposal

  • OIP-132: wstETH/OHM Boosted Liquidity Engine

Mark11

I am confused how this would work - the way it seems to me is we would have the same exposure wrt to IL on the OHM as ETH

Yeah sorry I worded that badly, the protocol is still exposed to IL risk except that it is denominated in a single asset that we minted into the pool. I.e. either OHM is being bought out of the pool or it's being sold into the pool and as a result of that the protocol ends up slowly releasing supply or slowly buying back supply. One potential advantage here is that we can substitute the ETH POL for ETH BLE and use the freed up ETH for staking and/or yield strategies.

for the marginal cost of incentives to the pool.

In today's environment this is not true though true. A good example is the OHM/FRAXBP pool, which we heavily incentivize through voting power and it's still at 25% yield for a pool that essentially has 0 IL.

The only benefit of organizing it the way you described is that there would be an easy solution for retail users to add OHM to the pool. While that may have a (marginal?) increase in uptake vs. directly LPing on a DEX, it negates most of the benefits this product has, e.g. that we can do this at zero cost of capital. Why would other protocols want to participate in this if it essentially becomes traditional liquidity mining? At that point they might as well bribe Convex/Aura directly to increase their liquidity. The biggest advantage of using the BLE is that it makes incentivizing liquidity 50% cheaper for partners plus we throw in additional voting power for the first few vaults.

Now, that's not to say that we shouldn't create more opportunities for retail users to LP directly and in an easy manner. That is important and we are working with other protocols on potential solutions for that. The BLE just isn't the right product for that. It really is meant to be a B2B product that leverages some key aspects that are unique to Olympus (like the zero cost of capital).

      0xFelix Incentivization strategy: Aura staking & LDO rewards

      Did this mean LIDO gonna incentive the pool w/us with ur aura ?

      And did we have other plan to acquire aura or accumulated the token ? ( i mean except the 1M$ )

      • JaLa replied to this.

          Peazy The plan is for Lido to coincentivize the pool, exact amount TBD at launch.

          The treasury team plans to have an OIP up in short order on Aura strategy beyond the $1M approved to date. Some of it is dependent on the success of the BLE program and partner needs.

            0xFelix

            0xFelix In today's environment this is not true though true. A good example is the OHM/FRAXBP pool, which we heavily incentivize through voting power and it's still at 25% yield for a pool that essentially has 0 IL.

            This is not correct:

            • the pool has a potential for high IL as we have literally discussed before if OHM price increases
            • it requires you to sell half your OHM or source additional assets to participate
            • it has only been functional for a few weeks
            • there is no integration with the Olympus frontend - it requires medium level of technical capability to access
            • it has the potential to drop substantially/totally in rewards
            • there is no long term commitment to the pool by the protocol
            • the OHM staking rate is potentially being reduced/removed as we speak so alternatives are urgent/more attractive

            0xFelix The only benefit of organizing it the way you described is that there would be an easy solution for retail users to add OHM to the pool. While that may have a (marginal?) increase in uptake vs. directly LPing on a DEX, it negates most of the benefits this product has, e.g. that we can do this at zero cost of capital.

            It does cost us in incentives, volatility and exposure to protocol risks of Lido.

            0xFelix Why would other protocols want to participate in this if it essentially becomes traditional liquidity mining? At that point they might as well bribe Convex/Aura directly to increase their liquidity. The biggest advantage of using the BLE is that it makes incentivizing liquidity 50% cheaper for partners plus we throw in additional voting power for the first few vaults.

            Under the alternative scenario I suggested it isn't traditional liquidity mining because the OHM holders would absorb the volatility and the non-OHM asset just deposits and receives extra rewards. The value in this is that the non-OHM asset just has to provide a marginal incentive to attract liquidity cause the OHM holders accept the volatility (the usual barrier to providing liquidity).

            0xFelix Now, that's not to say that we shouldn't create more opportunities for retail users to LP directly and in an easy manner. That is important and we are working with other protocols on potential solutions for that. The BLE just isn't the right product for that. It really is meant to be a B2B product that leverages some key aspects that are unique to Olympus (like the zero cost of capital).

            I am all for this product going ahead, and have voted accordingly. There is an alternative and potentially superior, more scalable and OHM holder aligned product which I have suggested which deserves to be considered and not dismissed outright

                        Mark11

                        "the pool has a potential for high IL as we have literally discussed before if OHM price increases"

                        I don't want to rehash the same argument we had in the Discord server and I think we should agree to disagree on this point. If we were to break out of the upper wall there would be ~0.5% IL for that pool, and if OHM were to double in price (which would be huge considering RBS mechanics) the IL would be ~5%. As an LPer those numbers are very low and I personally think it's pretty unlikely for the OHM price to double on any reasonable time frame.

                        I do agree with your other points about the commitment and ease of access, as I mentioned before.

                        "Under the alternative scenario I suggested it isn't traditional liquidity mining because the OHM holders would absorb the volatility and the non-OHM asset just deposits and receives extra rewards."

                        Maybe I'm misunderstanding your proposed idea, but how does this not turn into de facto liquidity mining? We would need to incentivize both wstETH deposits and OHM deposits. And yes, you can play around with the incentives and IL split between both groups but the fact remains that we now have to incentivize more, which makes the PMF more questionable. For the OHM depositors we would need to beat whatever the staking rate ends up being + compensation for the IL/volatility risk on top which, for a ETH pair, would be quite high. For the wstETH depositors we would need to incentivize up to the extent that it beats existing opportunities in the market and there are numerous alternatives.

                        In fact, it sounds to me that what you're describing is Ondo v1 style vaults. While we might be able to improve on that product, those vaults never really found PMF and are now defunct for various reasons (if I remember correctly, a large part was due to the high realized IL and losses for the variable side - OHM in this case).

                        The idea of this product is that it makes attracting liquidity significantly cheaper for partner protocols and if instead of making it significantly cheaper, we only make it marginally cheaper (because we now need to incentivize both sides), then I don't know if this product will be attractive enough vs. existing solutions.

                        "There is an alternative and potentially superior, more scalable and OHM holder aligned product which I have suggested which deserves to be considered and not dismissed outright"

                        I'm not trying to dismiss it outright. I realize that all nuance is lost in textual communication but I do really appreciate the comments!

                            0xFelix

                            • Please consider launching with a performance fee similar to yearn vault factories, we are not charity.
                            • What a 5m pool gonna do compared to existing pools?

                                Thanks 0xFelix

                                I think we can say that IL is a material consideration for those deploying to the OHM-FRAXbp and any other pool in which OHM is part of the pair.

                                0xFelix In fact, it sounds to me that what you're describing is Ondo v1 style vaults. While we might be able to improve on that product, those vaults never really found PMF and are now defunct for various reasons (if I remember correctly, a large part was due to the high realized IL and losses for the variable side - OHM in this case).

                                This is exactly the issue - someone has to pay - here we are socializing it to all holders of OHM and putting the protocol on the hook for $5M if there is a protocol failure of Balancer or Lido which, if we deploy this system widely, is net bad for OHM holders imo. Instead we should consider if we could incentivize OHM holders to take risk. What I am suggesting a similar product but instead of the protocol taking the IL risk, the Lido protocol risk, the Balancer protocol risk - you can socialize the cost of the liquidity by paying out OHM to the OHMside of the pool for doing something that is useful for the protocol (i.e. we pay ppl 7.3% currently to do something not useful for the protocol which is putting it in a staking contract). It is just a different way to skin the same cat. In this scenario Lido merely has to provide a marginal cost of incentives for half the liquidity with no IL risk or their holders (which we can boost with Aura if we like). Any way I just think that we are a bit myopic about BLE and haven't considered that it is a product, if widely deployed, that could have a negative impact on utility - as the main utility of holding a reserve currency should be liquidity provision and BLE will act as a direct competitor with holders for liquidity provision. The staking rate reduction opens up an impetus for liquidity provision and we need to be in a position to capitalize on it.

                                      imho we should go all in with the Boosted liquidity Engine but on stablecoins. control that first, then we can go fk around with LSDs.

                                      Mark11 Just to be clear: the protocol is not bearing the full IL risk for BLEs. Counter asset depositors will only get their pro rata share when they withdraw, i.e. they bear IL risk as well.

                                      We looked at Ondo v1 style vaults earlier in the development process and maybe that is something we should evaluate again. But if the variable (OHM) side bears the full IL risk I fear that the protocol will have to pay a significant amount of rewards in order to compensate/incentivize depositors. Especially considering the fact that the going rate for OHM/stablecoin incentives is >25% at the moment and so an OHM/ETH pair will have to be significantly higher.

                                      Finally, I will say that I disagree that this product will have negative impact on utility because this is not a zero sum game IMO. They more we proliferate OHM throughout DeFi and increase the number of liquidity pairs, the more utility we will add on the long-term.

                                      But thanks again for the feedback! If you want, I'm happy to open a chat/channel where we can discuss Ondo style vaults further, in order not to deviate too much from this specific OIP.

                                          CryptoAnalyst The idea is that we test the product first, create a number of different pairs and evaluate the success of this product after that. If the results are good then we can turn on the fee switch for all vaults. But our thinking is that it doesn't make sense to charge fees for a novel experiment with limited TVL (the actual fees collected would be marginal unless it scales up).

                                          Can you clarify your second question?

                                              Thanks for answering all my questions 0xFelix - I think we agree, just a matter of a few degrees apart

                                              0xFelix If you want, I'm happy to open a chat/channel where we can discuss Ondo style vaults further, in order not to deviate too much from this specific OIP

                                              Maybe a thread in the discord would be good - I think there is something here especially if we consider stablecoins as the paired asset

                                                  0xFelix

                                                  • What would be the pool utilization %? How much volume can we expect to be routed? Is that competitive enough to begin with?

                                                  Maybe you already answered that and I missed it. sorry.

                                                      CryptoAnalyst If this BLE reaches maximum approved capacity it will be a $10m pool, so it would be a fairly large pool. It also integrates into the existing OHM pools on Balancer as well as some wstETH pools there - so lots of opportunities for arbs. The exact utilization will be a bit tough to predict but it should see good volume I think.

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