This OIP establishes a new framework for the DAO’s treasury, covering the following categories:
- Guiding policy
- Target treasury composition
- Asset allocation process
- Strategic Assets
The DAO should reevaluate the framework from time to time, accounting for evolution of the protocol and changes in the market.
The Olympus treasury is at the very core of the protocol and the DAO and, combined with novel monetary policy, makes OHM unique. The long-term sustainable management of the treasury is essential to OHM’s success. Yet, we must also recognize OHM’s growth will be driven to a far greater extent by true demand and utility rather than treasury management alone. Our strategy will reflect this reality by focusing on conservative deployment as opposed to active and aggressive investments. Furthermore, it will be consistent with Olympus’ ethos of decentralization, favoring organic third party proposals and scalability to ensure the framework is compatible with an on-chained governed future. The treasury team may devise and propose strategies but ultimately intends to spend more time shepherding and vetting proposals from the community, DAOS and service providers.
Target Treasury Composition Recommendations
The treasury is currently composed of approximately 79% stable assets and 21% volatile assets. The RFC preceding this proposal recommended an increase in volatile exposure to 25%, providing Olympus with a stable base for open market operations (RBS) while maintaining sufficient market correlation and upside. The vast majority of comments to the RFC were focused on this ratio, with most recommending or requesting a more aggressive shift toward ETH and other volatile assets. However, given the current state of the protocol and nature of RBS, the Treasury team maintains the 75%/25% recommendation. Still, especially in light of the USDC depeg, the Treasury team recognizes need for Olympus to decrease reliance on stablecoins with centralized backing. Increasing ETH exposure marginally is one step in that direction while not undermining the relative stability of OHM’s backing in the near term. The other step is increasing exposure to purely decentralized stablecoins. The Olympus Treasury has generally limited this exposure to 5% of respective supplies. In order to facilitate further decentralization, the team recommends increasing the cap for LUSD to 10% while maintaining a hard cap of 5% for its counterparts with centralized backing. These two steps together will reduce exposure to centralized stablecoins by more than 10% or approximately $25 million as of this writing.
Looking forward, as Olympus matures, garners more adoption and as evolved versions of RBS are deployed, the DAO should reevaluate these ratios to determine whether it is feasible to increase decentralized exposure. This may include increasing ETH exposure or introducing more purely decentralized stablecoins as they become available. The Treasury team recommends this reevaluation be done every six months.
In terms of execution of the 75%/25% split, the transition should be complete within 60 days of the passing of this OIP. LUSD exposure will be increased opportunistically, as it approaches parity with DAI/FRAX/etc.
The target weights should behave more like bands, rebalancing when weights deviate more than certain thresholds from targets. The Treasury team recommends rebalancing bands for volatile assets between 20% and 35%. Custom strategies, including improvements to RBS, may be created to automatically rebalance and a dashboard will be created to empirically monitor and measure positions against their target weights.
Protocol Owned Liquidity Mix:
The Treasury Team recommends rebalancing the OHM/DAI and OHM/ETH pool sizes to better match broader treasury target ratios. As of this writing, there is approximately $16 million DAI and $20 million ETH deployed in POL pools. While the treasury team recognizes the importance of the pool, it recommends reducing the OHM/ETH pool by $10M (and possibly increasing the OHM/DAI pool) to mitigate IL and to increase capital available for LSD or other ETH opportunities. ETH liquidity may be supplemented with BLE vaults and/or other third party liquidity.
Maximum Protocol Exposure:
Limit exposure to any protocol / project to 60% of the treasury. For reference, DAI accounts for 50% as of this writing. This would still apply to protocols with multiple products – e.g., exposure to FRAX and frxETH would cumulatively be limited to 60%.
Limit deployments into illiquid venues to 7.5% of the Treasury. For purposes of the ultimate proposal, illiquid is defined as a maturity or lock-up greater than 4 months. In no event shall the treasury deploy into assets with maturity or lock-up greater than 1 year, with the exception of select strategic assets acquired via DAO swap or other similar arrangements, which today include FXS and JONES.
Asset Deployment Process
The treasury team will recommend baseline strategies for each asset or group of assets. Baseline strategies should carry little to no incremental risk over holding the underlying asset. Yields on base strategies should serve as a hurdle rate for other opportunities for the DAO to evaluate.
Through past OIPs, baseline strategies have emerged as follows:
There is no baseline strategy for ETH today. The treasury team recommends deployment of ETH into liquid staking derivatives or similar products.
Asset Deployment Applications:
It is our hope that the treasury team spends most time not writing proposals, but rather vetting and shepherding deployment proposals from others. The ETH baseline strategy should serve as a great test case, as we invite proposals from the community, LSD protocols and other stakeholders to engage. With respect to other assets, we expect the baseline strategies to cover the majority of holdings but that leaves ample room for other deployment opportunities. The treasury team has developed an objective intake and vetting process, and will work with initial applicants to iterate and establish best practices. Applications should be consistent with the treasury guiding policy, prioritizing security and decentralized processes above chasing highest returns. Applications will be evaluated along the following criteria:
- Protocol history
- Strategy risk
- Smart contract risk (including audit history and oracle reliance)
- Protocol governance
- Expected returns
- Strategic benefits
Today, treasury deployments are done through a custom system of allocator contracts that interact with the treasury. In the future, we intend to develop an “allocator SDK” allowing third party proposals to come complete with an allocator that can plug into Olympus architecture paving the way for a decentralized treasury management system that is compatible with on-chain governance.
Protocols, service providers and others who are interested in making a proposal to the community can reach out here.
The treasury team will recommend target levels of strategic assets for governance purposes. Once achieved, additional rewards will be sold into stablecoins or ETH depending on the current ratio. With respect to voting, the treasury team will make intentions clear for each asset, providing certainty to the market for a given period of time.