Summary:
Diversify treasury holdings by implementing liquidity bonds with Synthetix sUSD

Background:
Currently, the Olympus treasury primarily holds OHM-DAI liquidity pool tokens. DAI was chosen for the initial integration due to its status as the longest-standing, algorithmic stablecoin. Part of DAI’s stability is derived from its over-collateralization (130-175% for ETH).

Abstract:
Olympus DAO can diversify integrations by accumulating OHM-sUSD liquidity pool tokens on Sushiswap. This would create an additional source of liquidity on Sushiswap and avoid fragmenting liquidity across different protocols. A key synergy for this proposal is that Sushiswap already has the highest liquidity for sUSD-ETH ($11.9M).

Synthetix staking requires users to stake their SNX in order to be compensated with the weekly 1.25% emissions rate. Stakers receive sUSD in return at a collateralization ratio of 500%, which is set high due to SNX’s volatility. Staking rewards are claimed weekly at the same time that the collateralization ratio is maintained. OHM-sUSD bonds can be pitched to the Synthetix community based on the following merits:
• SNX Stakers – gain access to OHM’s high APY in between staking rewards
• Synthetix Protocol – lock up sUSD, which effectively increases protocol collateralization

Motivation:
As several ohmies have pointed out, the Olympus treasury will depreciate long-term if it is based solely on the US dollar. Accumulating sUSD will allow the treasury to diversify its holdings by leveraging zero-slippage trading on Synthetix and its wide range of investments including:
• Fiat currencies: sAUD, sCHF, sEUR, sGBP, sJPY, sKRW
• Commodities: Gold (sXAU), Silver (sXAG), Oil (sOIL)
• Index Funds: DeFi (sDEFI), FTSE 100 (sFTSE), Nikkei 225 (sNIKKEI)

Recent proposals to diversify the treasury are targeting protocols with similar entry-level risk profiles to OHM itself. Synthetix is widely considered a blue-chip protocol, as well as having one of the strongest communities in DeFi.

Risks:
• Intermittent (-1,-1) sell-pressure on OHM when sUSD weekly staking rewards are claimed
• sUSD breaking peg, low risk with $230M in the sUSD Curve pool
• Synthetix migration to Optimism L2
• Synthetix protocol risk

I like this a lot. The SNX community is awesome and shares a similar vibe to us ohmies. sUSD has proven that it can hold peg for a while now so that seems like a small risk. This seems like a really great opportunity for everyone.

Additional risk to consider is Fee Reclamation, see blog post here for a brief summary. Long story short: there could be some fee/rebate owed on Synthetix transactions that are owed/rebated on the next transaction. This is due to delays induced by the Chainlink price oracles on L1. This issue should be significantly reduced by the move to Optimism L2
*Credit to @BoredPascal for pointing this out

I like Synthetix, I think a risk is a hyperinflating dollar. Sell pressure on OHM is a risk.

Maybe staking rewards for bonds purchased with digital dollars (usdt, usdc, susd etc) based on time spent staking?

Big fan of the SNX community, agree they share our philosophy and are forward thinking. Such a partnership can not just increase liquidity and add collateral for us, but also introduce us to their community and users.

Why would there be sell-pressure on OHM when sUSD rewards are claimed? Don't these auto-compound if unclaimed? Or do they require unstaking SNX to claim the rewards?

An important long-term risk to pay attention to with SNX in my view is that adoption is largely incentivized by rewards from issuance. Rewards from trading fees is still only a small portion of total rewards (https://dashboard.synthetix.io/) and as their issuance decreases over time they hope that this balance will change. My fear is that liquidity will leave their platform and may lead to a destabilized peg, but that's years out (see supply schedule here: https://blog.synthetix.io/reaching-monetary-policy-consensus/). Nothing that should hold us back from implementing this, but something to be aware of.

  • tex replied to this.

    sisyphus1337 The only reason there might be sell pressure on OHM is if SNX decreased in value and the staker needed to increase their collateralization ratio, which is 500% right now. They would need to either burn sUSD or add SNX to increase their c-ratio and claim rewards... which could come from selling OHM. Might not be that big of a concern but something to watch out for if we see unexplained sell pressure on Wednesdays around 09:00 UTC

    Thank you so much for your proposal. I think the reason why we use DAI for backing OHM in the first place and not some USD derivative is because we want to free us from the centralization risk of e.g. the US Government's money printing. Now banking on sUSD would be backwards and we would start to get more bound to the US Dollar. Even if certain liquidity and revenue streams provide short term profit, we should ask ourselves more what we want to bank on in the future and what is it that helps us and DeFi flourish without having to fear to be shut down by external actors. So IMO anything fiat related is not an option for us. If there is an DeFi index and itself is decentralized we may want to consider such an asset in the future.

    • tex replied to this.

      xh3b4sd Thanks for the reply! Part of the pitch for sUSD is that there are diversification options within the Synthetix platform to keep OHM from being overly reliant on the USD. Just to clarify, DAI is as much a USD derivative as sUSD... they are just based on different collateral. The relevant questions are to what degree they are decentralized and if their collateralization ratios are sufficient. There is a good argument to be made that sUSD is more decentralized than DAI (though it's mainly a semantic argument). MakerDAO originally only accepted ETH and other decentralized tokens but now accepts centralized tokens including USDC, USDT, and Gemini USD (GUSD) as collateral to mint DAI. Meanwhile, sUSD is minted solely based on SNX tokens which gives Synthetix users a greater stake in managing the platform's debt pool and risk profile.

      Also, here is a link to the Synthetix DeFi index if you want to check out the tokens and their index weights

        tex Interesting note may be that MakerDAO added other stablecoins not just to access more liquidity, but also to reduce correlation of Ethereum on CDPs. OHM may benefit from building a treasury not just of different USD-pegged stablecoins, but also other non-pegged stables and non-stablecoin tokens. I think sUSD is a safe start seeing the high C-ratios that SNX demands of their borrowers.

        5 days later

        Adding an addendum to this proposal in light of the recent alUSD proposal. It might be more beneficial for Synthetix if we accumulate the sUSD-DAI/USDC/USDT pool tokens on Curve. In addition to the pool fees there are also 1.9% SNX rewards so this definitely serves as a productive asset for the OlympusDAO treasury. The downsides are additional exposure to centralized stablecoins like USDC/USDT. This change would also be more in line with the Treasury-as-a-service 💎🙌 idea

          tex Good thinking. Why can't we do both though? Give people the choice if they want to run that risk. We have the exposure to USDC already via Dai anyway.

          a month later

          I strongly support this proposal. I think sUSD is the best bet for us among stablecoin, it diversifies us out of USDC reliance (which both DAI and FRAX carry), it is proven through thick and thin and has OG battle hardened Synthetix community behind it.

          Very keen on this proposal! Hope it put to a vote soon.

          Would prefer sCHF or sEUR. Decreases our reliance on the value of a dollar and sEUR has just as much liquidity in the system.

          sCHF is good for performance reasons, historically it has done well vs the dollar. Switzerland is a country which historically has a conservative monetary policy and very low inflation

          • tex replied to this.

            0xChimp Definitely, I think the idea here would be to accumulate sUSD first as the primary debt of Synthetix and then rebalance into non-USD options for the exact reasons you mention

            • Zeus replied to this.

              I think we might want to separate this proposal into two pieces:

              1) OHM-sUSD liquidity bonds
              2) sUSD reserve bonds

              Liquidity bonds carry a higher cost. We need to bootstrap a new pool to the point that it can be activity utilized by market participants (my assumption here is that point is >$10m, and we haven't even reached that with FRAX yet). The benefit of liquidity bonds is in higher liquidity for OHM, and that it is a safe passive yield generating activity.

              Reserve bonds have less strings attached; we can accumulate as much or little as we want. They also have more flexibility; this is where we can diversify into other synthetic assets, like sCHF, sXAU, etc.

              We should be cognizant that there are many potential pools we could benefit from, but we only have the resources to pursue a small number at a given time. I think if we go down the liquidity pool route, we should have assistance from the Synthetix DAO and be aligned that this is a pool we want to have. But, given the relatively low liquidity currently available on AMMs for sUSD, this is something I'd imagine we can rally the SNX community on.

              It'd be great to hear which of these, or both, you think are most important to pursue tex

                Zeus finding myself a bit swayed in favor of a pool based on the role that we can potentially play in increasing sUSDs role within DeFi through greater buildup of liquidity. could be a great opportunity to team up with the spartans and flex the power of taas

                Zeus I definitely think there's a lot to explore here about which strategy provides greater utility for both Olympus and our partners.

                Liquidity Bonds in General
                I think liquidity bonds might be more beneficial for smaller protocols that haven't bootstrapped liquidity to a significant degree or are seeking a bridge to DAI. This is even harder to assess for stable assets that can deploy a Curve pool with massive amounts of reserves to maintain peg. For example, FRAX has $214M deployed on Curve in a FRAX-3CRV strategy. This leads a lot of aggregators to route OHM->FRAX swaps through OHM->DAI on SushiSwap and then DAI->FRAX on Curve... instead of the OHM-FRAX pool we deployed on Uniswap v2.

                sUSD Liquidity Bonds
                Similarly, sUSD has $180M deployed in a similar strategy on Curve... except recently the sUSD portion has decreased (to "only" $24M of that $180M pool) as its demand has grown to shore up Synthetix c-ratios. I imagine that an OHM-sUSD pool will not make much of an impact on Layer 1, but could be a good candidate if we expand to Optimism eventually. Alternatively, we could consider holding non-OHM LP tokens as an important source of liquidity for our partners. Obviously looking at Curve pools here but the USDC/USDT components in most 3CRV strategies are a no-go for me.

                sUSD Reserve Bonds
                My thinking on direct sUSD bonds is much simpler in that it provides a diversification option to the treasury and soaks up protocol debt for Synthetix. The diversification option is one of the largest selling points of this proposal since it not only offers non-USD stable synths but other assets not available on-chain in a non-custodial form... sBTC anyone?

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