Summary
In order to support the OHM asset listing on Sentiment and to bootstrap the initial market, deploy a Sentiment Lending AMO. Considering the lower levels of liquidity on Arbitrum, and the fact that Sentiment is a relatively new protocol, this proposal caps the Lending AMO capacity to 25k OHM (deployed in tranches). As the market matures and third party capital flows into the lending market, the lending AMO capacity can be decreased over time to make room for third party depositors.
Sentiment background
Sentiment is a liquidity protocol enabling permissionless undercollateralized borrowing on Arbitrum. Through a Sentiment credit account the capital efficiency of borrowing is increased through onchain hypothecation, allowing users to leverage to a greater multiplier than with traditional lending markets and deploy these assets in (whitelisted) DeFi integrations. These include assets (such as GLP, wstETH, and - after the listing - OHM as well) as well as protocols (such as Aave, Curve, Balancer, Convex and Sushiswap).
Today, Sentiment has around 29k accounts with a total of $30m in cumulative borrowed assets (see here). OHM is listed as the 7th collateral asset on the platform (besides USDC, USDT, ETH, FRAX, ARB and wBTC) which allows users to lend OHM, borrow OHM, and leverage into OHM.
Security Overview
The protocol has been live for over six months, has been audited by Arbitrary Execution and Sherlock, has a bug bounty programme with Immunefi and an insurance agreement with Sherlock.
One thing to note is that Sentiment suffered an exploit in the past on 4th April, 2023. The exploit led to an initial loss of $1M in user funds that were recovered within 48 hours from the incident. The root cause of the exploit was a view-only reentrancy bug in Balancer Pools exploited through the Sentiment oracle. The team successfully recovered part of the funds through onchain negotiations with the hacker and the rest of the shortfall was covered through their insurer, Sherlock.
The protocol was restored to its initial state on 10th April, 2023 and has been functioning normally ever since. A technical postmortem and incident details were released shortly after.
For more information on Sentiment please see here.
Motivation
Following OIP-127, Olympus has made the first steps into OHM lending markets. Currently, a total of 73k OHM is deployed in lending markets through this programme. A key goal of the Lending AMO project has been to promote OHM as a borrowable asset. Recently, OHM has also been approved as a new collateral asset in Gearbox in combination with a Lending AMO (OIP-140).
The benefits of introducing OHM as a borrowable asset outlined in OIP-127 still hold true. But one additional strength of a Lending AMO is that they allow for rapid bootstrapping of new markets. And so to help support the listing of OHM as an asset on Sentiment and to guarantee a minimum amount of liquidity on the platform, this OIP approves the creation of a Lending AMO for Sentiment.
Over time, as the market matures and as third party capital finds its way into the OHM passive lending pool, the protocol can scale back the deployment of this AMO to make more room for third parties. Since users deposit assets single-sidedly into the passive pools, the Sentiment OHM lending pool creates an opportunity for passive OHM holders to earn yield on their assets - this is one of the first passive lending opportunities on Arbitrum.
As with the recently approved Gearbox Lending AMO, Sentiment is also a credit account style lending market that only functions with whitelisted integrations. As such, there is no risk of OHM being borrowed and used for bridging back to Mainnet and used for staking or OHM bonds, which could have a negative effect due to rate arbing.
Considering the lower levels of liquidity on Arbitrum, and the fact that Sentiment is a relatively new protocol, this proposal caps the Lending AMO capacity to 25k OHM. This would be sufficient to bootstrap the market and allow for the development of OHM use cases and yield strategies on the platform.
As with the previous lending AMOs, any OHM minted but not borrowed will not increase the circulating supply. Only after a borrower deposits collateral and borrows OHM will this be considered part of the circulating OHM supply.
Details
Deployment source: Sentiment OHM lending pool (Arbitrum)
Maximum capacity: 25k OHM, deployed in tranches
Method: Multisig deployment at first, to be switched over to a contract per OIP-130 (once available)
Polling Period
This OIP will remain on the forum until the 30th of May. Afterwards it will move to an official Snapshot vote.
