• General

  • RFC: Additional Actions to Take for Clearinghouse Loans

Background: This proposal was created in response to Launch an Operator-Free Cooler Loan Clearinghouse posted May 24 and its associated TAP: TAP-25 - Cooler Loan Clearinghouse posted June 1.

Proposal:

This is a suite of potential actions to take as part of Clearinghouse loan preparation. The following additional actions are proposed here as supporting measures for Cooler Loans. Each action listed here, if approved through the forums, would be a separate Snapshot vote.

  1. Implement Cooler Loans with capacity following three possible schedules to be voted on:

    • Option 1 (fastest deployment):
      • Launch: 10M DAI
      • Launch + 1 week: 33M DAI ← stop here if voted on
      • Launch + 2 weeks: 69M DAI ← stop here if voted on
      • Launch + 1 month: unlimited capacity ← stop here if voted on
    • Option 2 (medium speed):
      • Launch: 10M DAI
      • Launch + 1 month: 33M DAI ← stop here if voted on
      • Launch + 2 months: 69M DAI ← stop here if voted on
      • Launch + 3 months: unlimited capacity ← stop here if voted on
    • Option 3 (slowest deployment):
      • Launch: 10M DAI
      • Launch + 1 month: 33M DAI ← stop here if voted on
      • Launch + 3 months: 69M DAI ← stop here if voted on
      • Launch + 6 months: unlimited capacity ← stop here if voted on

  2. Complete the OHMv1 → OHMv2 migration, which started in December 2021. Give 3 month’s warning from the date of Snapshot vote closure to implement the migration stop procedure.

  3. Change RBS minimumPriceTarget value according to the following formula:

    • (1 + RBScushionSpread) x (coolerLTV) x 1.02

    • Example: if RBS cushion spread is 7.5% and the LTV is voted to be $2,850 ($10.67 in OHM terms), then minimumPriceTarget should be changed to (1+0.075) x ($10.67) x 1.02 = $11.699

    • The 2% buffer on top exists to provide relevant optionality between taking the lower cushion and taking a Cooler loan

  4. Consolidate the Treasury based on the amount of OHM used as collateral in clearinghouses. So long as Cooler Loans capacity can be covered by Treasury-held stables, maintain the current Treasury composition ratio as laid out in the Treasury OIP.

  5. Enforce voted-on terms in TAP-25 to be applicable to all clearinghouses:

    • Loan-to-collateral

    • Annualized interest rate

    • Capacity

Motivations:

  1. Launching with limited capacity helps mitigate the impact of issues that may arise in the Clearinghouse functionality. As the code is used more in production, confidence in its continued good functioning increases. Increased capacity can follow that. An aggressive timeline is good for allowing more OHM to flow in faster and process whatever pent-up demand exists for this product. One tradeoff is security; implementing too quickly can leave too much capital exposed to a new contract which hasn’t seen full-scale production use.

  2. The v2 migration continues to be a pain point for accurate supply calculation. A key aspect of Cooler Loans is that they are non-liquidatable based on backing, and shifting supply makes the actual backing of OHM less certain. Since the start of 2023, less than 600 gOHM has been migrated, with amounts significantly trailing off since March. After 18 months of migration, it’s time to finally close the OHMv1 chapter. Migration can be closed in the following manner:

    1. If passed, send notification to Ohmies on v1 that migration will soon close

    2. Give Ohmies on v1 three months to migrate

    3. After 3 months (somewhere around 8 September 2023), close migration by pulling gOHM out of the migrator

  3. Cooler Loans should exist somewhere below the lower cushion offered by RBS. RBS lower cushion sitting below Cooler Loans basically eliminates any use case for lower RBS. This is especially true at higher Cooler Loans capacities. A positive spread between the RBS lower cushion and Cooler Loans value allows for RBS to continue to work as intended, capturing some outflows while also giving users the option to take out a loan at a reasonable spread. Specifically, a 2% spread between the two helps lower the risk of defaults in the case that price rides the lower cushion when it’s time to pay the loan back.

  4. The Treasury should be configured to ensure that the protocol has enough capital on hand at any moment to facilitate Cooler Loans. In a “worst-case” scenario, volatile assets in the Treasury could collapse in value, leaving older Cooler Loans being under-backed. One option is to rebalance current Treasury assets as DAI flows out of Cooler Loans. The amount of volatile assets remaining in the Treasury could still be used as they are today, just at a lesser amount of exposure. The limiting factor is to guarantee that all Cooler Loan capacity is backed by stable assets (DAI and similar stablecoins).

  5. This proposal can serve as a framework for further clearinghouse proposals. The term length is specifically omitted from the framework as it becomes interesting to allow for different tenors to arise from different clearinghouses.

Next Steps:

  1. If Cooler Loans passes Snapshot, bring this proposal to Snapshot

  2. Reduce liquidity at the same time (already approved, does not need a vote)

  3. Move RBS target price as voted on here

  4. Launch Cooler Loans

  5. Complete OHMv2 migration as laid out in this proposal

Discussion:

  1. What should the Cooler Loans roll-out schedule be?

  2. How should the DAO handle the continuing migration of v1 to v2?

  3. Should the RBS price target be shifted up to accommodate Cooler Loans loan values?

  4. How should the Treasury change its composition for accommodating Cooler Loans?

  5. Are there additional actions that should be taken as a response to clearinghouses being implemented?

Thanks abi, good outline of some of the required actions.

My thoughts are that points two and four make sense.

A few comments on the other limbs;

Point 1

  • I would favour a full upfront rollout to ensure a level playing field. In similar logic as to why we would have $69m total capacity vs 33m, I think people should have access at the same time and not be disadvantaged because the launch occurred in the middle of the night, or someone wrote a bot to loop the staged capacity
  • I am not a dev, so take this with a grain of salt, but I don't believe the mechanism as described carries significant risk from a technical perspective. Furthermore, if the clearinghouse is manually filled with funds, the remaining treasury assets are ringfenced

Point 3

  • Conceptually having RBS as the first line of defence for someone that wants to "exit" makes sense. It would be good to create a visualization of how the minimum price would move against the $2850 Cooler Loan level and dynamic OHM price to make sure this works as intended

Point 5

  • I'm not sure this will be beneficial. Won't the whole point of deploying a further iteration of the clearinghouse be to adjust some of these terms?

One final comment on next steps - if the team believes that a liquidity reduction is warranted (which I believe has been recommended), this should occur ASAP as step 1 and before a Cooler Loans snapshot.

I'm wondering how exactly this is aligned with the mission and vision of Olympus?

More specifically: what do Cooler Loans (in any capacity) bring to the table to get us closer to becoming the reserve currency of DeFi / Autonomous Currency System? Specifically considering its impact on Olympus' ongoing strategies.

What I can see this doing is:

  1. OHM becoming wrapped DAI in case of high subscription. - Not in line with previously discussed treasury targets.
  2. Allowing people, who potentially could have been active ecosystem users, to close their chapter on Olympus. Perceptions are fragile and change often (see bull vs bear markets). This proposal is about closing a chapter, without writing a new one.
  3. Allow for the potential to kill off OHM's unique value proposition as there is the potential to vote on unlimited capacity. Why is full capacity even a consideration?
  4. Reduce our social proof to the public and potential partners. (I highly doubt that this will positively impact Olympus image to the public. They will see a drop in market cap as loans are not repaid, and will see that as a failure, further complicating our ability to acquire new users)

What I find weird is that in none of the posts on this topic has the motivation, from the pov of Olympus the protocol, been laid out. What's the gain here? In most of our proposals, especially in the case of major changes, it is clearly laid out ''what's in it for Olympus'', but not here.

If this is about ''de-risking'' the treasury, it should be laid out why that needs to be done.

If this is about one person's bearish view of the industry, it should be laid out why the DAO agrees with him.

If this is about getting to liquid backing, it should be laid out why we went with cooler loans (which leak network value) to get there.

If this is about adding a new utilitarian venue for OHM holders, it should be laid out why the capacity is significantly higher than our other clearinghouse proposals.

If this is about allowing holders to access treasury value, it should be researched why holders want this. After all, this is a currency, not a house, gold, share, or another non-currency asset.

Due to the complete lack of transparency, authenticity, and explanation on why this is aligned with Olympus vision - i'm strongly against this proposal.

I'm not against the idea of a clearinghouse, but I am against the idea that we implement proposals when there is no clear value-add to the protocol. I also wonder why there is no ''do not implement'' vote option.

    gud dao governance. I'm super proud to see everyone iterate on this & keep it unstuck.

    Yella these issues have been extensively debated here on the forum and in the discord

    Imputing bad motivations, without evidence, to the authors of the proposals is a waste of energy

    The benifit of lowering opportunity cost of holding OHM is clear

      Yella’s point is valid regardless of how much the topic of opportunity cost is brought up. These proposals and edits are all more strongly benefiting the holder than the protocol.

      That simple fact is OK as long as everyone is not blindly led to think these systems strongly benefit the protocol. The arguments laid out are clear - this is great for the holders and uncertain for the health of the protocol. Please note I said uncertain because only time will tell if it was actually positive or negative. It is certain this benefits holders.

      The obvious reply to this will be “lower opportunity costs, more holders! Pristine capital!” These facts are not deniable but it does not speak to the general strength and health of the protocol. The repetition is cute but I don’t find helpful.

      A broader why to @Yella may be a stronger control of global rates across the ecosystem. This is OK again but more is required to move the protocol to be an autonomous monetary authority.

      in case it’s unclear - I’m cautiously supportive with the right parameters and motivation.

        Don_G_Lover A counter-proposal means shifting from 100% holder benefit, and 0 for the protocol, to for example a 70/30 split.

          5 days later

          Two changes I'd like to make to this RFC:

          Modify the RBS minimumPriceTarget calculation while the 30 day Simple Moving Average is below backing. Make it the lesser of:

          • (1 + RBScushionSpread) x (coolerLTV) x 1.02
          • Backing

          This change takes into account the possibility where coolerLTV is <2% lower than backing. If the lower cushion then consistently sits above backing, the protocol lowers remaining backing each time that cushion is activated. Adding this logic keeps the cushion in a good place until 30day SMA can be followed again.

          The second change proposed is to remove enforcement of the TAP-25 annualized interest rate. Customizing interest rate and tenors allows the protocol to define a non-linear yield curve. This more closely matches how rates act in traditional markets and also allows for the possibility of market-determined rate ranges in the future.

          Before moving to OIP, I'd like feedback on these changes.

            abipup

            I do not believe that a market-driven rate is appropriate for the Cooler Loans facility. The underlying substance of Cooler Loans is not a DAI loan that is made to third parties based on market rates for borrowing. It is a core native feature of the protocol that enables holders to access the backing of their gOHM to tailor their personal risk profile. From the protocol's perspective, it is a risk free transaction provided that the LTV is set below backing.

            I think the mindset of "what income can the protocol generate from this?" or "what is the opportunity cost of the DAI in the facility?" is opposed to the underlying logic of why Cooler Loans is proposed to be implemented.

            My personal view is that the rate associated should be zero or nominal. Failing this (i.e. if the TAP 25 vote results in a different outcome than 0.5%) then the next best alternative is the certainty of a fixed rate so that users of the Cooler facility can do so with confidence.

                WAGMIcapital I understand your point for Cooler, but what about for any future Clearinghouse? Vendor for example?

                  WAGMIcapital

                  In my experience with loans, any product that allows me to access equity or underlying value has a cost associated with it. IRL this typically means an origination cost as well as ongoing interest payment. I am then free to tailor my risk profile to my hearts content.

                  I'd be happy to pay 3.3% on a cooler loan, knowing the capital I deploy would be outpacing that rate. At that point it's just a cost of doing business. If I can't beat the rate, I don't take on the loan. It is a choice with benefits and risks. A key difference between this interest payment and the interest I pay on other loans, is that this payment directly goes back to the protocol. This benefits me as a holder, whereas interest paid at other institutions does not as I have no upside or stake and things are generally lost in layers of middle management.

                  So thinking long term, I am betting that the protocol is able to use that 3.3% in a way that is beneficial to me as a holder. Economies of scale at play here. I don't see this as opposed to the logic of Cooler loans… when the protocol benefits, holders are also benefitting. Cooler lets me access that equity now, while still providing benefit long term.

                  If I didn't think that the protocol was going to be able to do anything, then obviously I'd rather have the loans for free to allow me what would essentially be a tax free exit. Admittedly, I might be making a mistake thinking too long term. I don't think the hurdle rate should be excessively high, or drive majority defaults. But also have a hard time wrapping my head around how a no fee 0% interest rate makes sense.

                  There can be arguments made for a market driven rate or for an arbitrary fixed rate, imo this plays more into what the other variables of the loan are. Just wanted to touch on the mindset part and highlight how I don't think the protocol benefitting and holders benefitting should be mutually exclusive.

                      WAGMIcapital Right, and I don't disagree with you. It's this conflict of reasoning behind the interest rate that makes me not want to enforce standardization across all current and future Clearinghouses. Different clearinghouses will have different goals/target users/tenors, so it doesn't make sense to me to have a single interest rate apply to all of them.

                          hOHMwardbound Thanks for the response and outlining these thoughts hohmward.

                          I certainly agree with you that everyone (i.e. facility users and those that do not use the facility) benefits from having this facility in-house versus leaking value externally.

                          I remain of the view that the substance of Cooler is not a loan, but rather a facility to enable users to tailor the risk profile of their backing and allow the protocol to preserve a low risk profile. As monetary premium returns and additional utility for OHM is unlocked, usage of the Cooler facility will taper as users unlock their OHM by repaying the DAI backing to the treasury.

                          At a facility size of $69m I believe there is plenty of capacity for the protocol to pursue its objectives without sourcing income from users of the facility.

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