• Proposal

  • OIP-40: Increase ETH allocation target to 33% of Treasury RFV

Summary

The Policy team proposes increasing the existing conservative ETH target to 33% of Treasury Risk-Free Value (RFV).

Motivation

Over its ~7 months of existence, the Olympus treasury has accumulated over $150M of RFV (in the form of DAI, FRAX and LUSD) in its reserves, $90m of which were collected in the last month. OIP-15 first introduced ETH into the Treasury and OIP-25 increased the allocation to target 10% of Treasury RFV.

In order to reach its goal of becoming a reserve and decentralized currency for DeFi and the world, Olympus needs to continue to expand its treasury, move away from a RFV-centric vision and increase its backing with suitable non-pegged assets.

Olympus has been so good at accumulating assets that we are slowly hitting our risk ceilings on existing assets. For example, we own ~16% of the total LUSD supply which, while beneficial for the adoption of decentralized assets, presents some risks (which were addressed by freezing LUSD bonds temporarily). In addition, given our focus on decentralization and censorship-resistance, we are slowly running out of suitable future stablecoin candidates for our Treasury.

At the end of the day, the goal of Olympus is not to be a wrapper on top of the dollar, but to achieve a decentralized and censorship-resistant backing so that DeFi protocols and users can feel comfortable owning OHM long-term as a reserve currency.

We believe ETH is the best token to serve as the bedrock of our treasury in the long term. It’s decentralized, free from regulatory pressures, and indispensable to the Ethereum blockchain. It’s the natural choice to be one of our largest assets moving forward.

Proposal

We propose increasing the ETH target to 33% of Treasury RFV (from current 10%). As of today, this would mean accumulating around 50M$ of ETH in total, and this number will increase as Treasury RFV grows. We would follow the same strategy as currently implemented by OIP-28 using a 45 days moving average.

One thing to keep in mind is that Treasury RFV is an extremely conservative metric: At the moment, the market value of our Treasury is $670m, $11m of which are reserve ETH.

Finally, considering this  increasing exposure to non-pegged assets, the Policy team is working on a proposal to shift from minting solely against RFV, by also incorporating quality (i.e. censorship-resistant, decentralized) non-pegged assets in the calculations. You can expect more on this soon.

Note: ETH mentioned in this proposal is actually wETH (wrapped ETH).

Vote

For: Increase the ETH target to 33% of Treasury Risk-Free Value

Against: Do nothing

Informal poll

    So quantity of eth we accumulate is based on RFV, but the eth will not itself count towards RFV. Is that correct?

      kleb Yes, exactly. Bit confusing, but if the target was using market value, both would be going up and down, making it harder to manage, as well as RFV being more conservative.

        Agree 100%. And when we find a suitable fully decentralized wrapped version of Bitcoin, Olympus needs to swallow that up also - to be a truly decentralized reserve, we need our reserves to be composed of not just stables but the equivalent of the S&P 500 in crypto.

        Adding high market cap alts like ETH makes good sense. OHM is after all an ERC20 token!

        Just voted yes.

        "At the end of the day, the goal of Olympus is not to be a wrapper on top of the dollar"

        Amen. Almost…kinda…sorta…a more price-stable version of ETH. Great for swapping into rather than USDC or DAI.

        👍

        heavily in favor, as eth grows so would the treasury and the risk of eth compared to other non-stablecoin assets is minimal

        Inevitable development as we grow bigger in RFV. Let's go.

        Makes sense. All indicators right now show eth as bullish long term. Investing in appreciating assets is a positive idea. Last I concur with adding any future wrapped btc token to the treasury if it becomes a reality.

        Most large market cap stablecoins available right now have a regulatory attack vector. They are going to be public enemy #1 when the nation states fully see the threat to their fiats. I think Olympus needs to hold ETH and wrapped BTC to increase security and embrace decentralization. We will live or die with these core cryptos!

        We really need a true decentralised crypto native stablecoins which maintains purchasing power. So we should not compromise on addition of Decentralised stablecoins which are deemed centralised in the reserves to increase the supply of OHM or RFV.

        What's going to happen with this ETH? Is it just going to sit there? Will it be staked directly into 2.0 at time of acquisition or are we waiting on full rollout? Will it be staked elsewhere?

        • FD_ replied to this.

          MiggyFawkesy
          OHM-ETH LP maybe, stETH maybe or create any other pair as LP with ETH

            @shadow would this be a total of 33% ETH including ETH required for the ETH-OHM pool ? Or would the ETH-OHM be additional to the 33%

            My preference, for purely- meme-ological reasons, would be to have pure (w)ETH as 33% and then in addition to that whatever we need for the ETH-OHM pool.

            Nice work policy team.

            ETH has 18.5% weight in the global cryptomarket. With a Treasury allocation of 33%, OHM would attach 2x the market weight to ETH ? We will inherit value (+/-) and volatility of the underlying - where ETH can still exhibit 20-25% price swings in a single day. We are thus inheriting a daily (+/-) swing potential of ~8% to treasury value. At what point does OHM become its underlying? What value and volatility characteristics do we strive for OHM to display? Comes back to the old question of the currency index I suppose.

            Because OHM is grounded with stables, we are not cyclical. I can use OHM to diversify my risk away from the overall cryptomarket. I could not care less if ETH tanks. We have been called counter-cyclical, but perhaps better called non-cyclical. The more we load up with ETH and similar, the more cyclical we become as our correlation with overall crypto market increases. Does this not dilute our unique value proposition? If I want ETH I rather buy ETH myself.

            In a risk-on environment, its awesome to be far out on the risk-ladder, getting charged (power-up) from other risk assets in the treasury plus getting charged (power-up) from leveraged affiliates. In a risk-off environment, that debt comes due.

            Its not explained in depth why we stop expanding our LUSD treasury. I can assume we do not want to be too dependent on an external single point of failure. But I thought we liked the underlying mechanics of LUSD. Then can we not do something to address that risk instead? Maybe a merger, or an acquisition? Expand their lending features to include other assets than just USD. The valuation determination of an alternative LUSD we could give birth to (call it Drachma) could be rooted in whatever asset basket we want (all basketed assets just need to be publicly priced). Do an authorized fork, and send Liquity some fees back or any other arrangement. Through liquidation mechanisms we should be able to align the value of Drachma to whatever we want. And our Treasury value would then follow that asset basket valuation. OHM is the reserve currency. Drachma is the backing.

            ** Just some thoughts on the topic that is too complex for me. Full faith in the gigabrains of the team.

              the Policy team is working on a proposal to shift from minting solely against RFV, by also incorporating quality (i.e. censorship-resistant, decentralized) non-pegged assets in the calculations. 

              Looking forward to hearing more about this in future updates.