As the non-liquidatable loan model continues to grow in popularity, Vendor Finance has been working to streamline and simplify this process, bringing an easy to comprehend system of fixed-rate, fixed-term, non-liquidatable loans.
In Q1 2023, Ohmies exercised their governance power by passing TAP-21 that aimed to provide valuable benefits to the Olympus community. As a result, loans became accessible to the community through the Vendor Finance Protocol. In the following, we hope to outline a mutually beneficial proposition that can strengthen the existing partnership between Vendor Finance and the Olympus community.
On account of the recent resurgence of interest in Cooler Loans and our continuous dedication to optimizing lending opportunities, we at Vendor Finance would like to present an enhanced and updated proposal as a follow-up to our previously approved proposition for Olympus to consider alongside Cooler’s proposal. For reference, you can find our original proposal here.
Vendor Finance V2
Since our last proposal, Vendor Finance has launched the second iteration of the protocol. While the core functionality remains the same, there is a unique difference we would like to highlight, as it would directly benefit Olympus and the community.
Specifically, we have introduced “Vendor Strategies”. Within the context of a deployed lending pool, this feature allows idle funds that have not been lent out yet to be deposited into a yield-bearing vault, enabling them to earn interest even before being borrowed. This process is automated, requiring no additional manual steps or intervention other than toggling an option on pool creation. When the DAO deploys a pool utilizing a Vendor strategy, any funds deposited into the pool will automatically flow into an AAVE lending pool, generating yield for the treasury. In the event that a borrower decides to take a loan, the funds will be immediately withdrawn from AAVE and sent to the borrower, ensuring a smooth transition. We would like to highlight that this action is completely optional and the DAO does not need to take this route if it does not want to.
Success of the Existing Olympus Partnership
The ongoing success of the existing lending pool on Vendor V1 is proof to its effectiveness. By allocating capital to Vendor, Olympus has been able to achieve a reliable and consistent revenue stream whilst also providing desired utility to token holders. Furthermore, the demand for loans has remained steadfast, as evidenced by the consistent utilization rate of approximately 99%. This sustained level of interest reaffirms that Olympus can support the borrowing needs of Ohmies through further utilization of a Vendor pool.
Within the existing V1 pool, Vendor takes 10% of paid interest and 3% of any defaulted collateral. However, with the introduction of V2 pools, a streamlined fee structure has been implemented, greatly simplifying the borrowing process. Under this new model, borrowers will only be charged a nominal fee of 0.3% from the borrowed funds, offering a straightforward approach to accessing capital.
Coexistence of Multiple Platforms
We want to emphasize that there is more than enough room in the decentralized lending space for Olympus to engage with multiple platforms simultaneously. By utilizing multiple lending platforms the DAO can access a wider market, minimize risk through diversification and build relationships across the wider DeFi ecosystem. Furthermore, this approach allows Ohmies to select the platform that best aligns with their individual requirements, providing them the flexibility and freedom to deposit their collateral into whichever protocol best suits their needs.
To address the high demand for loans, we propose the following 3 options to begin discussions:
Deploy a $5.0M pool on Vendor Finance V2 (Ethereum Mainnet)
Deploy a $5.0M pool on Vendor Finance V2 (Arbitrum One)
Options 1 & 2 combined, not exceeding $5.0M total (e.g. $2.5M on each network)
The following loan terms are proposed in order to base discussion around:
Lend Token: $DAI (Ethereum) and/or $FRAX (Arbitrum)
Lend Ratio: 9.5 DAI/FRAX per OHM
Expiry: 6 months - 1 year from the date of pool deployment
Pool Strategy (Optional):
Ethereum Pool: Aave DAI Strategy or No Strategy
Arbitrum Pool: N/A
The intent of providing 3 options at this stage is to better understand what the DAO desires most before progressing to a TAP. In the event this RFC progresses to a TAP a singular option will be proposed based on community discussion and the general consensus of what is believed to be the best option. Similarly, the proposed terms are provided as thoughtful suggestions for the DAO’s consideration, aligning with our shared objective of determining the most beneficial approach. Ultimately the loan terms are to be decided on by the DAO/community.
A $5.0M deposit is being proposed as we believe this amount is beneficial to both the Olympus protocol and Ohmies. A $5.0M lending market would provide ample liquidity for borrowers whilst also not being too financialy constraining to the protocol thus allowing it to remain flexible in its approach to its lending strategy going forward.
The suggestion to use $OHM for collateral instead of $gOHM stems from the DAO seemingly being in favor of OHM utility as opposed to gOHM utility moving forward. Evidence of this can be seen in the recent vote around the staking rate strategy (OIP-133) as this approved the reduction of the staking rate to 2.33% and then to 0% at some time in the future. As such, gOHM will soon have no added benefits over OHM and so we believe adopting the philosophy of OHM utility now is the optimal decision.
As seen for the “Lend Token” options both DAI and FRAX are proposed. For any Ethereum deployments DAI is the obvious lend token choice in Olympus’ case; however, for any Arbitrum deployments we believe FRAX to be the best option. The reason being is that FRAX is able to be more securely bridged from Ethereum Mainnet to Arbitrum by utilizing Fraxferry whilst also not being a typical cross chain synthetic token. With respect to an Arbitrum deployment we believe Olympus’ Treasury team are best to assess and comment on the feasibility of this aspect and so we welcome any and all responses regarding this.
A lend ratio of 9.5 is suggested, which is ~90% of $OHM Price ($10.47) with the lower wall of RBS being at “9.61 DAI” at time of writing. Currently Vendor V2 has not enabled under-collateralized borrowing and as such if the price of OHM were to fall below the lend ratio then the pool would automatically disable the ability to borrow from it until the price of OHM went back above the lend ratio. As such this is the reason we have suggested 9.5 for the lend ratio as we believe, at this value, the pool should never be inaccessible to Ohmies looking to borrow due to the dynamics of RBS protecting price at the lower wall of 9.61 DAI. Should the DAO/community desire a higher lend ratio (closer or above price), which could possibly result in under-collateralized borrowing, then this is something that can be enabled.
The implementation of the Vendor strategy effectively eliminates concerns regarding potential under-utilization of the Vendor pool when capital is allocated across multiple platforms. By leveraging idle funds, this strategy ensures that all capital is actively earning interest for the Olympus treasury, thus rendering the worry of under-utilization irrelevant.
In regards to strategies, on Ethereum, the DAO could opt into an Aave DAI strategy (to be deployed), however, on Arbitrum, no strategies are currently supported for FRAX.
Upon successful discussion and “temperature check” vote of this RFC we would look to propose a formal TAP within the next 1-2 weeks. Within the TAP a singular option of the 3 proposed in this RFC would be put forward and finalized loan terms would be included.
Following successful voting of the TAP on both the forum and Snapshot, we would require a maximum of 5 days (starting from the successful passing of the proposal) to deploy the DAI strategy (if chosen) and for UI integration.
By embracing Vendor Finance as a complementary lending platform, Olympus can continue tapping into a tested, audited, and secure ecosystem that has already been benefiting the DAO for the last several months. We urge all community members to engage in constructive discussions and voice their opinions, ultimately shaping the future of Olympus DAO’s lending strategy.
Thank you for taking the time to consider this proposal, we look forward to all oncoming questions and discussion.
Vendor Finance V2: https://vendor.finance/
Current Olympus Lending Pool: https://v1.vendor.finance/borrow/0x83234a159dbd60a32457df158fafcbdf3d1ccc08?chain=ethereum
Vendor Finance Docs: https://docs.vendor.finance/overview/what-is-vendor-finance
Github repo for V2 contracts: https://github.com/VendorFinance/vendor-contracts-v2