nicnombre Ah, the docs will be outdated now as they recently launched a "V2" and so those fees have been superseded. They now use a 0.3% flat fee, paid by the borrowers. So the lender (i.e. Olympus) gets 100% of both interest and any defaulted collateral. Should of clarified this in my other comments to avoid this confusion.
Launch an Operator-Free Cooler Loan Clearinghouse
nicnombre 5 days rfc? It's a proposal with a lot of potential implications and we have the holiday weekend to contend with for discussion. Let's plan a community call, when works for you?
@nicnombre so does this mean that we end up being somewhat pegged to backing? Does this ultimately stop any sort of price appreciation?
nicnombre Thanks for the clarification. I do believe something like cooler loans is needed to create a rate arb and bring down the cost to collateralized OHM, but by going as far south as 0.5% we will nonetheless release animal spirits and undercut ourselves as a cost. That doesn't make a lot of sense to me. An interest rate of 3.3% seems more appropriate IMO.
It would be beneficial for you to talk with the team/community so we can be aligned on more conservative subscription terms before this is moved to an OIP. As things stand it is a bit of an overreach. My suggestion would be for you to bring 3 subscription terms to Discord and we can discuss and vote on what makes the most sense.
hOHMwardbound please do at a time that works for down under too. I.e. UTC 10pm onwards
Shpadoinkal Short answer - no. Long answer - this likely drives us back to a premium. Because users with a higher risk profile than the treasury will see this as a very attractive way to have exposure to OHM and participate in other defi opportunities. It is essentially a call option on the success of OHM. Plus, I expect some to loop this by depositing OHM, borrowing DAI, and then purchasing OHM. This could provide the demand and exit velocity needed to restart the flywheel. Which ultimately is what is needed to recommence bonding and help OHM achieve its goal
ruby33 yup had a good chat in discord with hOHMwardbound and @nicnombre and this proposal now makes way more sense to me..I think parameters as is makes a lot of sense too. I'm all for this now that I've gone a little deeper.
Shpadoinkal great to hear as this is a very logical path for me and one of the few things I’ve felt strongly about in a while
0xFelix it is already used and listed in defi. Think of this proposal as liquity recognising that ETH is a reserve asset and setting the floor on borrowing against it at 0.5%. It makes ETH more useful not less, even if it boxes out other protocol's business cases.
If competitors can compete with the interest rate they will, if they can't they won't
We don't need to live under an inefficient market system that says a backed token needs a 6% interest rate - as a community we can use the treasury to set the market rate and others can build a network of products and services around that.
We have an advantage over other protocols wanting to be the reserve currency, we have a treasury! and we should use it to box out the competition!! The best way to do that is to ensure it is regarded as a prisitine collateral with best in class rates and this proposal provides a vehicle for doing that
Finally LFG! Seems to me objections are about other protocols but this is something for holders. That’s where the focus needs to be. How to put ohmies first.
notSHAFT don't we want these spirit animals of there are no liquidations? Why would we not want as much looping to drive to a premium as possible?
just concerned of psuedo RFV mechanic if LTV is 95 or more while were below back…
Also don't necessarily want to see the treasurey reduce its ETH composition
Can see the upside. if implimented as is would drive me to shift stables to ohm and actually borrow againts it which i've been hesistant to do in generall
nicnombre I believe you might be a little confused because of our recent update. Let me clear few thing out for you:
Vendor does not need oracle to operate and does not lend a "certail % LTV" based on oracle price. Vendor allows to lend a constant amount per unit of collateral. This was a thing way before Cooler loans were announced.
But what will happen on Cooler when the price of gOHM will fall bellow 3k? The pool will be drained. Boorrowers will deposit cheap gOHM to borrow 3k, swap that for more gOHM and repeat. On Vendor oracle will automatically pause borrowing. To save remaining lender funds. I do not believe that this is supported on Cooler.
Vendor V2 charges 0.3% of borrowed funds from borrowers and that is it. We will update the docs.
Vendor loans did operate for gOHM quite well and this is a live example: https://v1.vendor.finance/?chain=ethereum
We find this shift from a protocol that served this purpose for OlympusDAO quite successfully, that being Vendor, to Cooler loans to be quite odd. I would be happy to hop on the call and walk you over Vendor Finance as we believe a clarity on what Olympus DAO already does on this front is required before going through with this proposal.
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This proposal essentially enables everyone to access the treasury backing for 0.5% interest per year. (Basically for free, given the risk free rate in DeFi is now at 3.3%)
Depending on the loan to value ratio this could create a protocol wide level leverage which would be very unhealthy as you:
Take out a loan from the treasury against OHM which is backed by the treasury, so essentially you could be treasury swapping (with 5.05% slippage @95% LTV) your OHM back to DAI. (in case you dont pay back the loan)
From a macro risk management perspective this does make a lot of sense as this the only way to be truly decentralized and uncensorable.
That being said, i think its super capital inefficient converting the entire treasury to dai and just let it sit inside the new protocol. I would rather see us apply a similar strategy as with RBS, where we provide a certain runway of available liquidity which we will continuously stock up as more people take out their loans. For example, provide an initial 75m DAI and see how the demand is.
To be recognized as an uncensorable & decentralized reserve currency it is necessary to have low interest rates but 0.5% feels too low, even 1$ - 2% interest would be very attractive. Additionally, i would keep the LTV rather conservative at 85%.
Olympus is right in the heart of DeFi and the next bull cycle will come eventually, the DAO has connections to every protocol imaginable and we will be for sure somehow involved in the next innovation that makes the DeFi market go 10x again. That being said, we obviously do not require multiple hundred million dollars to take advantage of it.
Even if we "only" keep an active treasury of 15m - 50m it can still bring significant value to the overall protocol for example with the ongoing expansion of OHM integrations into various exchanges on various chains (ramses, chronos, aura..) and the bribing activity that comes along with that or liquidity providing activities into protocols like Morpho.
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.
unbanksy33 what would your ideal parameters be for a less scaled out cooler (20-30m)?
So I've re-read the proposal a few times now and have put together a few thoughts for discussion.
Treasury is seen as a Honeypot making much of the risk Protocol Owned. This system seeks to distribute that risk (privatize it) to discrete holders without bias. The need for Treasury Management is largely minimized, and the protocol will just programmatically lend DAI on fixed terms to any holder. It clearly cites in the post note that it’s authored with a bearish outlook on the macro and hopes to derisk itself allowing every user to take on (or not take on) whatever risk they deem fit.
Objectively, this is a perfectly reasonable, albeit bearish stance but subjectively, I find myself trying to sort what number between $0 - $175m is right. The Protocol has already exchanged $46mm DAI for OHM via Lower Cushion IB and, to date, that’s been acceptable. This just iterates on that, making a low-cost loan available to everybody vs. a situational burn mechanic.
Ultimately, I see a place for this to exist (Especially given the predatory lending rates that have emerged) and for those who agree, I just think we need to debate how much and what the scaling strategy is. The argument is made if it’s too small then you essentially exclude Ohmie X not getting to recognize their backed value, but Ohmie Y does purely because of timing. That said, making it fully available fundamentally changes protocol structure and it’s largely a one-way trip.
My current outstanding questions are:
1. Can this scale if we opt to start small vs. splashing the pot with cheap money? Pro and Con this out.
2. How much POL and of what type is needed in this system. How does it scale with adoption?
Foot Note:
Brand Consideration - OHM has seen a lot of monetary conditions. Hyperinflation, Hyperdeflation, Token Migration, Soft Pegs Below Backing, Etc. I genuinely believe the iterations made are ultimately for the greater good but, it's a lot for market to take. Can we be gentle? Consumer trust is important and we suffer there at times.
Looking foreword to the discussions and next chapter.
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I think we should try to fight the fear that if treasury capital flows out to holders, it will never come back. I think thats only true if this network never delivers value in excess of the assets in its treasury. Otherwise only irrational actors default on loans. I think the positive outcome will be decided by whether the core components make OHM attractive enough from an r/r perspective to justify a premium. I do not think this is accomplished through treasury management and thus I see it as a positive to curtail these activities as a side effect of the proposal.
The question is: how much capital is needed to maintain those core components? I think that should be the guiding light. Inverse bonds would become irrelevant and bonds and BLE only require OHM, so the main uses of capital in my view become RBS and POL. Terms should be dictated by the minimum liquidity needed for those use cases.
0xTaiga But what will happen on Cooler when the price of gOHM will fall bellow 3k? The pool will be drained. Boorrowers will deposit cheap gOHM to borrow 3k, swap that for more gOHM and repeat. On Vendor oracle will automatically pause borrowing.
I don't think this takes into account the dynamics of the proposal. If the loan amount is available at all times to all tokens, there is no benefit to an automatic shutoff. In fact, I'd argue that would be more of a bug than a benefit, as it would act as a worst case arb. If the proposal was implemented without the full availability, this becomes a more legitimate concern.
Also, to be clear, I have nothing against Vendor. I just think the borrower-lender matching role (where Vendor adds the most value) is minimal here, and you can easily compute that hundreds of thousands of dollars would flow from this community despite it putting up the capital on both sides. With a viable alternative there's no reason to do that.
yieldohmie That being said, i think its super capital inefficient converting the entire treasury to dai and just let it sit inside the new protocol.
I think this misses the point -- the dai doesn't just sit there, it goes into the hands of the community who can utilise it as they see fit. I'd argue that this is more capital efficient than the status quo which is constrained and often conservative.
yieldohmie Olympus is right in the heart of DeFi and the next bull cycle will come eventually, the DAO has connections to every protocol imaginable and we will be for sure somehow involved in the next innovation that makes the DeFi market go 10x again.
I'd also caution against the speculation here. I'm all for keeping the call on this outcome (the proposal accomplishes this well imo) but it is by no means guaranteed and it worries me to see it taken that way and used to make decisions.
unbanksy33 I don't think I view the third party LP initiatives in the same light that you do. OHM today is a stable-ish coin that has perpetual bids as well as these programs that push incentives onto pools. It creates a farmers paradise countered only by governance risk at the expense of holders, who subsidise the yield with either dilution or exposure to volatile tokens to secure incentives. I don't see that as net positive until these two conditions are met: OHM trades above its backing (LPs take on risk) and there is ample volume flowing through pools to necessitate the liquidity. That said, it does have the benefit of reducing reliance on protocol owned xyk liquidity (which gets us closer to that second condition), and if this proposal were to pass you'd see the first condition met (or at least brought much closer).
On cross chain liquidity, I'm all for it, but I think you discount the effect that providing the community with liquidity can have (this actually circles back to third party LP too). Right now, you need to bring in external capital or sell tokens if they want to be an LP. With these loans, you could simply borrow against a portion and then pair it with another portion in an xyk or concentrated pool. Ample liquidity on Ethereum and other chains can arise from that if people see value in providing it.
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I can see the benefit of having a facility such as this in that it allows the community to tap into liquidity at a higher price than today, while still retaining exposure to OHM. However, if that is the goal of the people here, I think it's important that we fit this proposal into a vision where OHM can continue to be improved and worked on.
As a long-time community member and DAO contributor, I would be foolish not to recognize the stagnation in demand for OHM. However, I echo the belief that Olympus is in a unique position to innovate, pivot as needed and be an important player in this ever-evolving space. That is by no means guaranteed, but I consider our relationships, contributors, internal processes and overall credibility as a community an intangible asset, a form of goodwill that is easy to overlook, as the market is today.
Impact on DAO projects
Maybe you could argue drastic steps are needed to turn this ship around, but I am afraid that accepting this proposal as is would make it very difficult to continue improving on OHM, mostly due to the restriction on emissions. I've compiled a list of projects that would be made redundant by that lack of emissions.
It's completely fair if people don't want to pursue these projects anymore, but the community was excited about them and I want to explicitly point them out so that we're all on the same page on what we are voting for.
Emissions Framework - Redundant if no emissions
Automated Emissions Controller - Redundant if no emissions
OHM Bonds - Redundant if no emissions
On-chain Accounting - Redundant if no emissions
RBS 2.0 - Depending on capacity and price action. Could see increased usage and reserve bonds if a premium builds up. Could also end up with 0 capacity and the lending market being RBS if price trades at $3000 gOHM (price for loan purpose in proposal).
On-chain Governance - This project could still be valid, implementing it is a substantial task, so if all the protocol does is allow you to borrow DAI against OHM, it could be going overboard and exposing the protocol to unnecessary new smart contract risk.
Cross-chain (Mint & Burn) - Project is live and the Cooler proposal doesn’t interfere with it, lack of opportunities to use it cross-chain would probably be a consequence.
Boosted Liquidity Engine / Liquidity AMO - Redundant if no emissions
Lending AMO - Redundant if no emissions
Treasury Management - Redundant with the whole Treasury being DAI
More information about these projects can be found here.
Impact on the DAO
Naturally, we would also need to consider the DAO contributors here as well. If we are restricting emissions, then there would be a need to significantly cut the working DAO's budget and members. Again, this is completely fine if the community wants to vote for that, the working DAO just executes the community's vision, but I want to highlight that it will be difficult in the future to go back on this and get the DAO working as it is today.
Going back to having the ability to retain exposure to OHM and tap into DAI liquidity, my main concern would be what kind of asset are you retaining exposure to if we cripple the ongoing work on it.
Possible middle ground
I think that in this proposal already there have been good suggestions around reducing the LTV or limiting the capacity, or increasing the interest rate. For the capacity and/or LTV, we could go backwards and figure out an emissions budget we want for the various projects and working DAO to be able to use to continue developing OHM.
If Maker increases the DAI savings rate to 3.33%, I'd be keen on keeping the DAI in the DSR, withdrawing from there and charging the borrowers in Cooler that same rate.