Background: This is a follow up proposal to Create a Cooler Loan Clearing House posted January 4. The associated smart contracts underwent an audit with Sherlock; raised issues can be found here, and the repo can be found here.
Proposal: Launch a Cooler Loan Clearinghouse with no operator. Loans would be provided with the following smart-contract enforced terms:
Loans are extended in DAI, to gOHM collateral
Loans are extended to any gOHM collateral
Loans are extended at a ratio of 3,000 DAI per gOHM
Loans are extended at an annualised interest rate of 0.5%
Loans are extended for one year at maximum
Loans can be rolled over at the same terms into the future
The proposed system is permissionless, immutable, and would depend only on the treasury-level permission to access reserves. The Operator component of the previous proposal was a point of weakness, and this improves it with an open format.
Motivations: This is the best use of the Olympus treasury at this point in time when optimising for the protection of network value and the privatisation of risk and reward from asset deployment activities. The expectation is that this proposal has the following effects:
Reduces OHM-collateralised debts with third parties by 40-100%, saving the network an estimated $325,000-$365,000 annually (interest currently flowing from Olympus to other protocols like Frax, Vesta) and grows the treasury by up to ~$900,000 per year on a interest-receivable basis.
Provides significant liquidity (~$175m in the case of full subscription) to holders.
Stems the continued contraction in supply.
Considerations: Subscription will reduce the liquidity of the treasury as raw assets are lent to gOHM holders. Activity regarding treasury management would be curtailed as a result.
Assumed State Post-Implementation: OHM is infinitely liquid relative to itself if its market value remains similar to where it has been for the past year. Holders would be able to both hedge against industry risks (another event like the USDC depeg, for example) and macro risks, and maximise asset productivity on an individual level, should they choose to do so. Supply would stabilise.
One can argue that this proposal eliminates all risk seen in the network today and allows work to proceed in a positive-or-neutral (but not negative) manner into the future. This comes at the cost of treasury liquidity, and the flexibility it provides activities today.
Cooler is re-audited with a new, open Clearinghouse.
Volatile treasury assets are consolidated into stable coins.
Loan terms are finalised.
DAO plans for consolidation in scenarios like full subscription (in which treasury liquidity would fall to $10-20m).
Post-Note: The following has been carefully crafted so as not to, or to minimally, interfere with network features like cross-chain, RBS, and BLE. The motivating concerns reside primarily in forces outside of this community’s control and a negative outlook on the macro-economic environment in general, and the crypto industry in specific. This proposal is a conservative route where our community is derisked while the developments of the network (which work, for the most part) can still see their day in the sun.
On Loan Interest Rates: The thought process on the interest rate is twofold. First, the lending facility is open to all, with enough liquidity for any interested OHM holder; as a result, the higher the rate, the higher the cost essentially imposed onto yourselves. Second, the higher the interest rate, the higher the likelihood of default. 0.5% is seen as a solid middle ground in which cost is real enough to ensure non-default is purposeful, while low enough that it is not prohibitive. Little value is seen in a term structure in which most/all supply simply defaults and is destroyed upon loan expiration. That said, anywhere from 0.33% to 0.67% is reasonable and accomplishes the same result.
Where does interest go? Under the structure proposed, interest is a receivable until a loan is repaid and collateral is reclaimed, at which point it is contributed to the treasury and utilised for i.e. RBS.