• Proposal
  • OIP-142: LUSD/OHM Boosted Liquidity Vault

Summary

Launch a Boosted Liquidity Vault for the LUSD/OHM pool on Balancer with a maximum vault capacity of $2.5m in LUSD. To match this, approve the minting of up to $2.5m in OHM for this vault in order for both assets to be deployed in a 50/50 liquidity pool.

Background

The Boosted Liquidity Vault (BLV) leverages Olympus’ competitive advantages (monetary policy flexibility and treasury strength) to mint OHM into liquidity pools with select high quality assets. LPs bring an asset (e.g., stablecoin, LSD) into newly developed vaults and the Olympus treasury mints OHM in equal value (for 50/50 pools) to match and create a complete LP position.

LPs benefit from boosted liquidity mining opportunities and partner protocols are able to more efficiently drive liquidity mining programs and deepen supplemental liquidity for their tokens. Olympus benefits from LPs providing counter asset liquidity, enhancing OHM’s liquidity depth, which enables greater utility and stability. It also has the potential to unwind part of the POL and use the reserve assets in other use cases. Furthermore, the BLV can be a powerful tool for partnerships. BLV is not intended to be utilized for any and all assets but rather select high-quality assets with which an OHM pairing would be beneficial.

The first BLV was launched in cooperation with Lido (wstETH/OHM) and has seen good traction, reaching an LP size of >$3m with an incentivization rate of ~10% for depositors.

Vault Details

The LUSD/OHM vault will be the second deployment of a BLV. As third parties add LUSD into the vault, the protocol will mint OHM to match this and deploy it into the liquidity pool and stake it to receive incentives.

These incentives will be in the form of BAL and AURA rewards and both Liquity and Olympus will vote with vlAURA to direct rewards to the pool. The expectation is that this pool will see significant arbitrage volume between other LUSD pools (where LUSD is frequently trading over peg) and the existing deep OHM pools against DAI and ETH.

All the reward tokens earned through this vault will be directed to LUSD depositors. The protocol itself will not receive these tokens, with the exception of trading fees which are accrued inside the LP token itself. The target APY range of the vault is 5%-10%.

The proposed vault will launch with the following parameters:

  • Maximum capacity: $2.5m in LUSD provided by third parties & $2.5m in OHM minted by the protocol.

  • Pool: 50/50 LUSD/OHM on Balancer

  • Incentivization strategy: Aura staking

  • Oracle: Chainlink

  • Fee: 5%

Note that the maximum mint capacity is perpetual and can be utilized by the contracts until the vault closes and/or a governance vote changes these parameters.

Polling Period

This OIP will remain on the forum until the 30th of May. Afterwards it will move to an official Snapshot vote.

Approve deployment of the LUSD/OHM Boosted Liquidity Vault?

  • z_33 replied to this.

    Mark11 I assume you mean in terms of incentivization? If yes, they will vote for the gauge with vlAURA.

      0xFelix

      Thanks

      Can you explain the 5% fee and how it was arrived at?

      Great proposal, but not a fan of the 5% fee.

      I don't really understand its purpose, it won't really add anything to liquid backing while it could lower the conversion rate into the pools.

      It'll become another friction point for potential users, especially as this product is targeted at cold audiences.

      I don't believe the value proposition to OHM holders should be the growth of liquid backing.

      In my opinion, OHM's value propositions should be stability, predictability, scalability, utility, deep liquidity, and future decentralization.

      • z_33 replied to this.

        The fee was always intended to be turned on at some point, but following the community feedback on both the forum and the Discord server, it seemed that people generally preferred to turn it on sooner rather than later. This is why it's included in this proposal - the purpose is purely to better align the product with the expectations of OHM holders.

        It's worth noting that once a user's vault is deployed it is locked into that configuration - so turning on the fee switch at a future date will mean that all existing vaults will be grandfathered in at 0% fee.

          Mark11 So basically the swap fees are split in the LP token (i.e. 50% to third party depositors and 50% to the protocol), and this fee % is the amount of third party rewards (think BAL, AURA) that accrue to the protocol.

          0xFelix Good to see the staking switch being turned on. But I'm concerned the Fee might be too high… I don't know how much juice we have to push meaningful rewards to another BLV. But let's assume we can sustain 10% return over 1 year on this (which I'd be surprised if we can…), that'd result in a net return of just 5% after taking fees into account… less if withdrawn earlier, add around 200 to 300 USD cost of creating and withdrawing a BLV and the position really becomes untenable.

          Can you provide more info behind the 5% fee? otherwise I'd suggest lowering it to like 2.33%

            Yella
            I agree that the fee might be too high (see my comment). I disagree that the fee shouldn't be there at all. BLV vaults are otherwise actively discouraging of holding OHM and we need to find a way for these to be accretive to holders. e.g. if someone is holding $1million worth of OHM and LP'ing it against stables. I don't see why they wouldn't wind that down, sell all OHM for LUSD and deposit that into BLV. That whole process would be a net loss for ohm holders and needs to be accounted for.

              z_33 I do not agree that BLV vaults are discouraging users from holding OHM especially since almost every OHM/stable LP position outperforms a BLV. Your example assumes that the user initially chose to hold OHM over LUSD solely because BLVs did not exist.

              • z_33 replied to this.

                notSHAFT Even if we assume it's not actively discouraging, BLVs without fee switch, at best, do pretty much nothing for OHM holders.
                In reality, if $1m worth of OHM-stables LP is giving you, say 15% rewards and you can get, say 10% from BLV why would you bother holding OHM? why not sell that OHM and convert that 1m worth of liquidity into 2m worth by depositing through BLV?
                The only BLV we have right now is OHM-wstETH, that sees pretty much no volume whatsoever, so is not a good yard stick to judge OHM-stable BLVs by.

                  z_33 I agree for the most part but my point is that there are other reasons to hold OHM outside of yield farming and we should be mindful of them. The existence of a BLV doesn't change anything for someone that is holding OHM because it is stable and predictable.

                  z_33 So just to be clear, the fee setting is a % of the total rewards earned. So if the vault earns 10% in yield over a year, 9.5% of that will go depositors and 0.5% to the treasury. Does that info change your view?

                    0xFelix I think the fee is too low actually!

                    Bur happy for it to be tested out at the proposed rate here - we can always change later or redeploy

                    Hello Ohmies, here's TokenBrice from the Liquity team. 🙂

                    Just wanted to thank @0xFelix for the well-crafted proposal; looking forward to how this will be received, but overall the proposed design seems balanced and attractive and should find its audience.

                    Regarding the support provided to such initiatives, there will be vlAURA voting power re-allocated from the LQTY/ETH/LUSD pool (to be discontinued, as volume is not there) to other LUSD-related pools on Balancer, including of course, LUSD/OHM.

                    0xFelix oh it's 5% of the rewards… yeah, that might be too little… agreed with @Mark11 . Although the Mark, I think changing fees requires redeployment… correct me if i'm wrong felix.

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