Gm and thanks for putting this together @nicnombre
I generally agree with expanding lending capacity but disagree to the extent being proposed. I think we can achieve the same goals with less capital but before I go into this, I want to align on the benefits of Cooler Loans.
Benefits
First, this solves a real pain point for users. There’s about $10M in debt against gOHM with some markets charging up to 10.5% APR. Most markets are maxxed out in capacity which demonstrates demand for leverage amongst ohmies. Expanding capacity at competitive interest rates will allow these borrowers to refinance. You don’t need full consolidation to achieve this, however.
Second, this should bring us back to Liquid Backing (LB) simply by opening an arbitrage between current market price (2832 DAI) and target price (3000 DAI). Moving away from lower cushion is beneficial as it reduces RBS expenditures and *may* trigger upper ranges of RBS. Again, I don’t think full consolidation to achieve this.
Third, this strengthens OHM’s narrative as “good collateral”. Today, market makers incur slippage via xy=k liquidity which reduces ROI and eliminates some arb strategies. This introduces a novel form of liquidity with only a fixed 0.5% slippage. New opportunities open up but only if traders and market makers hold OHM (thereby driving demand for OHM).
Finally, on a philosophical level, this makes explicit that backing is a utility *for* shareholders. This aligns with crypto’s ethos of building resilient systems by removing single points of failure.
Shortcomings
So what’s not to like? I see this proposal as pushing OHM deeper into a Store-of-Value narrative at expense of Medium-of-Exchange narrative. Why? Consider that today's stablecoin supply sits at $125B and OHM makes up only 0.16%. To be a common pair for DeFi requires expanding supply to match demand. Furthermore, full treasury consolidation will eliminate BLV as it may dilute backing and requires non-DAI assets to incentivize third-party liquidity.
Naturally, I’ve seen a form of the following counter-argument: the current liquidity strategy has not led to price appreciation. Therefore, we must abandon and try something else. This is short-term thinking; a balanced approach achieves both. Let’s establish facts about the current liquidity strategy.
First, I want to point out that in the past year, we’ve seen OHM liquidity reduce from 100% POL to 80% POL (https://dune.com/spoysp/top-ohm-pools). BLV and bribes will continue bringing that ratio down. This is actually beneficial for Cooler Loans as capital locked in POL can be re-hypotheticated toward supporting larger lending market capacity.
Second, there is clearly demand for OHM liquidity. stETH BLV vault sits at $3.2M and is the largest stable-stETH pool in DeFi (https://defillama.com/yields?token=STETH). OHM-FRAX is the 7th largest stable-FRAX pool in DeFi (https://defillama.com/yields?token=FRAX). This is not counting a pipeline of 9 LSD+stablecoin partners interested in BLV (which would result in +9 counter-pairs).
Third, cross-chain liquidity achieves a dual purpose: unlock opportunities for ohmies that are priced and capitalize on Arbitrum momentum. On the former, 92% of holders (34,138) hold less than 1 gOHM; high gas fees prevent participation in most trading strategies. On the latter, there’s significant demand for OHM liquidity on Arbitrum. Case in point, within 1 month of launching we’ve already integrated 2 partners.
This is by no means product-market fit (yet) but this is progress toward making OHM a common trading pair. The path forward should be to scale these initiatives rather than killing them right when things are getting good. What does this path look like?
The path forward
I see a balanced path that achieves the goals of Cooler Loans AND makes OHM a common trading pair. What does this balance look like?
First, I want to expand on what we’re trying to achieve here:
Refinance borrowing into lower interest rates by tapping into backing
Bring OHM back to liquid backing
Introduce enough volatility to activate RBS
I believe these goals can be achieved (or at least validated/invalidated) on a smaller deployment of Cooler Loans. How?
On the point of refinancing, there is about ~$10M outstanding debt against gOHM. The minimum capacity should accommodate those borrowers.
On the point of bringing us back to backing, the deep POL sitting in AMM (presently, ~$60M) works against this proposal by requiring large directional pressure to push price (~$2M to get to upper cushion). Reducing liquidity and implementing Cooler Loans on a smaller scale will bring us to liquid backing but does so with less capital.
The added benefit of reduced liquidity is more volatility. This coupled with supply locked in Cooler Loans *should* activate upper ranges of RBS.
Conclusion
To summarize: I generally agree with expanding lending capacity but disagree to the extent being proposed. I think we can achieve the same goals with less capital. This proposal should not be taken lightly and I suggest the community consider both short-term and long-term implications of the proposal as it’s currently written.
