• General

  • RFC: Expansion of Vendor Finance Partnership

Summary

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.

Motivation 

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 In the event that a borrower decides to take a loan, the funds will be immediately withdrawn from AAVE and sent to the borrower, ensuring a smooth transition.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.

Fees Involved

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.

Proposal

To address the high demand for loans, we propose the following 3 options to begin discussions:

  1. Deploy a $5.0M pool on Vendor Finance V2 (Ethereum Mainnet)

  2. Deploy a $5.0M pool on Vendor Finance V2 (Arbitrum One)

  3. 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:

  • Collateral: $OHM

  • 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

  • APR: 2%

  • 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.

Justifications

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.

Considerations

  • 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.

Timeline

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.

Conclusion

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.

Useful Links

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

Pool Deployment Option

Great write-up, very interested in this.

I actually would like to see an asymmetric deployment to L2 to help spark more activity there (both for LPs and users). Depending on others' comments, I would be most supportive of simply $5M to Arbitrum or a variation of 1:4 etc.

The value here makes sense to me as it would rival Vesta Finance current cap & utilization. Effectively doubling the opportunity on L2.

Excited to see what the community thinks.

Very much in favor of this proposal. Agreed with @Don_G_Lover on favoring greater deployment on arbitrum. Otherwise this is a great proposal in terms of every single parameter (interest rate, capacity requested, LTV etc.) that Cooler proposal can actually learn from.

Absolutely agree with doing both Cooler and this at the same time, as it minimizes overall risk.

I'm all for this. Tbh I would like to see 5m mainnet and 5m arb as it will make for easier refinancing of debt out of other protocols into this.

In favor of a deployment to Arbitrum. Terms should probably match those of Cooler if it is utilized on Ethereum.

    nicnombre I agree with both points. It's probably best if an "all-up" proposal is made for these deployments. In that I'd expect to see:

    1. A total "Lending Market budget" (i.e. 33M seems to be a favourable idea amongst the community) and how it will be allocated across Cooler, Vendor and future platforms. For example:
      - 15M total pool(s) on Ethereum Mainnet
      - 5M total pool(s) on Arbitrum
      - 13M reserved for expansion to meet demand on current and future networks and platforms

    2. Loan Terms for all deployments

        Joel33 I like this. Back to the originator of this post it feels as though the 9.5 borrow amount should go up as LB goes up and wall parameters increase as well. At least there should be some way to revisit this as those things appreciate.

            Shpadoinkal Unfortunately the lend ratio of the pool is set on deployment and cannot change. The TVL available to borrowers changes as the price of the assets change, but the lend ratio remains constant for the duration of the pool. However if this is an issue for everyone, multiple pools could be deployed over time at different lend ratios to emulate the effect of the lend ratio increasing as liquid backing increases.

            The proposed 9.5 lend ratio felt like the safest option for both the DAO as a lender and ohmies as borrowers. With the RBS lower wall being at 9.61 DAI, the chances of borrowing being disabled due to a large price dump are greatly reduced. This also allows the DAO to deploy a single pool and "set-and-forget", which would eliminate the need for monitoring or maintaining the pool

            @nicnombre I am also in favor of deployment to Arbitrum. The costs for both borrowers and lenders would be significantly cheaper, and this would drive further integration and utilization of OHM on Arbitrum

                lorem Wondering if as part of this the bottom wall moves up to LB to be in line with the cooler proposal

                    Shpadoinkal Also I would personally prefer to see GOHM as it would enable us to participate in governance. Once of the issues with current lending facilities is no governance abilities for holders.

                        Shpadoinkal I'd be interested to hear what others feel about this. For us (at Vendor) both tokens gOHM and OHM work, but it was my understanding that gOHM is to be replaced with OHM over time. I suppose the decision between the two tokens depends on how long the transition from gOHM to OHM will take as well as the length of the pool

                          Shpadoinkal That would go against the entire cross-chain strategy and the efforts put into the native OHM deployment on Arbitrum. It would also increase the tail risks of the gOHM cross-chain synthetic asset - i.e. more funds sitting in a bridge contract not controlled by the protocol. Today, already more >$22m of funds are sitting in this contract and if this proposal were to pass with gOHM as a collateral asset that situation would only get worse (and the risks would only increase).

                              Shpadoinkal at the moment, we do not have this ability. We could investigate if that can be done though. Is there a good person who would be able to explain how this works in detali?

                                  Thanks Lorem - couple of questions:

                                  Are there code differences between v1 and v2 other than "Vendor Strategies"?

                                  Is the v2 audited?

                                  How long has v2 been deployed for?

                                  Are the fees charged upfront? Is the 0.3% per term, per a year, or something else?

                                  Thanks

                                    Mark11

                                    1. Numerous code differences exist between v1 and v2, primarily aimed at improving future scalability of the protocol while preserving core functionalities.
                                    2. V2 is audited. You can find the report in the v2 contracts repo here.
                                    3. V2 contracts have been deployed for ~1 month on Arbitrum.
                                    4. Fees are upfront. The protocol fee is charged on a per borrow basis.

                                    Ex:
                                    Borrower borrows 1000 USDC w/ 5% term rate & 0.3% protocol fee. Borrower receives 1000 - 5% - 0.3% = 947 USDC. 3 USDC (0.3% proto fee) is sent to protocol. 50 USDC (5% term rate) remains in pool for lender. It's worth noting however, that the total amount a borrower wishes to borrow and inputs into the UI is the actual amount of USDC they will receive. The amount of collateral required to back that loan will be adjusted accordingly.

                                      Shpadoinkal The naked asset should be fairly easy to add. However, both OHM and gOHM on Arbitrum don't have a build in delegate function as far as I know, and so I'm not sure how feasible it is to include assets in lending markets. It would really only be a temporary thing though (for Cooler as well) because OCG is likely to completely change the voting set-up and I'm not sure to what extent all these assets can be accounted for if everything is done fully on-chain.

                                          Lemme see the whole 'Vendor Strategies' thing is presented as something new and exciting. But does it really offer anything groundbreaking to Olympus? And let's not forget where all this comes from. Vendor's system is simply a rehash of the defunct Ruler V2 contracts. Sure, reusing old contracts might be quick and convenient, but is it truly innovative? It's pretty hard not to compare it with the bespoke solutions like Cooler that were built from the ground up, specifically for Olympus.

                                          They're quick to trumpet a 99% utilization rate of their V1 pool, but seem to conveniently gloss over the hefty fees that accompanied it. Now they're offering a simplified fee structure with V2, but is that enough to put treasury funds at risk to boost TVL of an unproven protocol?

                                          Their call for diversifying our involvement across multiple platforms sounds good on paper. But in practice, it might just end up creating more opportunities for third parties to profit at Olympus's expense. Is that really a gamble we want to take?

                                          And then there's the proposal to establish a $5M pool on V2, and the choice to use OHM instead of gOHM for collateral. On the surface, it might seem reasonable, but a deeper look suggests it's a strategy that's more beneficial to Vendor than Olympus.

                                          So, yeah, while Vendor's proposal might seem impressive at first glance, we need to unwrap the package and look at what's really inside. It's essential we dissect these proposals to ensure we're making the best decisions for our community. Just food for thought.