• Proposal
  • TAP-27 - Cooler Loan Configuration Vote

pottedthings What's your response to the (wrappedDAI) argument?

i.e. if capacity is uncapped, all treasury assets would have to change into DAI making us some form of wrappedDAI and thereby lose our floating nature.

    Yella The implicit question is whether or not OHM is pegged to backing? My answer is no. OHM is currently pegged to selling, which is why it's running along the lower cushion. Or is the implicit question whether or not the protocol should drive backing down in order to create a premium? My answer is no. The protocol's investment into volatile assets have been again and again a detriment to backing.

    WAGMIcapital Thank you for this, I'm some of the few that voted to get the cooler loans and I couldn't get why there was so many vote for a no. ( I recently came back to crypto after being disgusted by the FTX affair)

    Viewing so many votes for no and a lot of my own ohm holdings into an loan and not accounted for was very depressing. But now I get where most people come from.

    unbanksy33
    "I’m interested in exploring all of these pathways but think prudence and careful consideration must be considered. I will go on record to say that the artificial urgency created by the community for this proposal is impulsive and reckless."

    if there's anything that comes out of this whole exercise… I hope it's this one. I will add that the "artificial urgency" seems to have come from both the community and the DAO (by rushing previous vote to snapshot without having thought it through).

    I want to take this back to first principles for a moment. I think WAGMIcapital does a good job laying out the What of Cooler, but I think equally important is the Why and the Where to.

    At the core of the original proposal is an attempt to derisk the protocol. This should manifest in several ways, some of which have been more discussed than others.

    First, it removes the need for treasury management. There is no need to compose a basket of treasury assets or deploy them into various protocols if individuals can do these actions on their own. I have not, and still do not, see any rational argument against this position in a world in which an individual can access a cooler loan and diversify their backing as they see fit. The one argument I do understand, that of protecting the vanity metric of volatile (and possibly appreciating) backing because of ie ETH holdings, is not one that I agree with and not one that holds any water, in my opinion.

    Second, it ensures holders are as protected from financial and smart contract risks as they want to be. Worried about USDC? Hold your backing in something else. Worried about Ethereum? Move to a different chain or off-chain. You might think: but if any of those risks were to manifest, the protocol is still rekt — and you’d be right. But the status quo is not that there would be any less harm on the protocol level, but simply far more harm on the user level.

    Third, it makes the implementation of on chain governance (in my opinion, the single most important development) far easier. This is not only because less/no treasury management means less complexity and scope of governance. The biggest blocker for OCG to date has been what I will call the “honeypot dilemma”: if the system is fully controlled via token voting, then token voting could be used to send all treasury funds to a single (or small group of) voter(s). Imagine OCG with the ~8% turnout for TAP-25 (the highest in a while) — if a voting bloc has >8% of supply, they could vote to transfer the entire treasury to themselves (12.5x their share). This is the single worst possible outcome for the network and it has proved very difficult to hedge against with a governance system. I used to think that this dynamic would actually serve to ensure a consistent premium for the network: for example, if 33% of supply is needed to pass a rug vote, then OHM would always remain priced at >=3x premium. This hypothesis remains neither valid or invalid; but at the current discounted state it doesn’t really matter. OCG is untenable so long as OHM remains so cheap relative to its treasury liquidity.

    Here is where Cooler comes in though. By lending backing to holders, you remove the honeypot. Rather than focus on premium (controlled by the market and not by governance), we can focus on treasury liquidity (controlled by governance and not by the market). Using our previous example with an 8% governance threshold, trying this attack does not make much sense if only 10% of the treasury is liquid and able to be heisted — a max-25% ROI is not worth the risk you would take on by trying the attack.

    I think that, following the launch and utilisation of Cooler, OCG can be implemented quickly and easily with a Compound/Open Zeppelin governor. The idea of a custom, complex, and untested system taking on such an important role makes me uncomfortable to begin with, and if its not necessary it should not be done. We can take some additional solace in the fact that the Compound/OZ system has a suite of tooling around it, meaning no custom smart contracts, front ends, monitoring, or anything else of the sort. This should sound especially great to those that have been dissatisfied by the governance process around Cooler.

    The thing to understand about the benefits to the implementation of OCG, however, is that it relies on high subscription. I wish I had fully understood this dynamic going into this whole process, because if I had I would have made fewer concessions when it came to capacity. I have heard many share the same sentiment I had around the limit — that if/when its reached, more would be added. However, this seems like a ‘kick the can down the road’ strategy that offers little benefit versus the already tapered deployment strategy (OIP 144) and carries the risk of undermining the entire proposal. The other detriment of limited capacity, which again I did not understand fully until well into this process, is that low interest rates run the risk of harming holders that cannot access the loans. If treasury productivity was 3% but falls to 2% of a result of loans, holders unable to borrow because of capacity limits lose at the expense of those able.

    With the long form out of the way, I will suggest this:

    • Use TAP-27 to reject the TAP-25 configuration (as seems to be occurring already)

    • Start over with a new proposal (I can do this part)

    • Implement the following terms

      • Capacity for all tokens (this can be iterative to hedge smart contract risk)

      • 2,850 DAI per gOHM loan (a wider buffer to backing makes sense)

      • 0.5% interest rate (incentives subscription at no individual loss bc full capacity)

      • 3 month tenor (loans can be rolled over in advance of their expiration, so all this will do is require more frequent interest payments. I get the arguments favouring this and I’m here for it.)

      nicnombre The one argument I do understand, that of protecting the vanity metric of volatile (and possibly appreciating) backing because of ie ETH holdings, is not one that I agree with and not one that holds any water, in my opinion.

      if this is your view of holding ETH and if there's no value in diversifying backing of OHM with additional volatile assets why did we ever offer volatile bonds? What exactly was the thought process behind accumulating (and never selling) tens of millions of dollars worth of ETH? Even Oly Pro was touted as a way to "diversify OHM's backing through a basket of assets" etc. I don't remember hearing any arguments from you (or anyone else in leadership at that time).

      I agree with the remaining parametrization except 0.5% interest rate is still pointlessly low. Somewhat unsure how full capacity will work, but it is definitely more egalitarian.

        z_33 you need the previous sentences to understand what you quoted in context:

        nicnombre There is no need to compose a basket of treasury assets or deploy them into various protocols if individuals can do these actions on their own. I have not, and still do not, see any rational argument against this position in a world in which an individual can access a cooler loan and diversify their backing as they see fit.

        it makes sense when out of the control of the individual, doesn't when its not. I was never big on it in the first place but I am just one of many and I try not to opine unless I feel I need to. Maybe I should have -- spilled milk.

        Haven't seen meaningful discussion so posting 3 options as alternatives to @nicnombre suggestion:

        1. Fully ETH-backed treasury (no Cooler Loans)

        2. Fully ETH-backed treasury (with Cooler Loans)

        3. Cooler Loans with staking (or variant thereof)

        On (3), some variation of staking acts as a game-theoretic tradeoff between choosing to use Cooler Loans facility and staying in OHM. E.g. revenues and liquidations accrued from Cooler Loans flow from borrowers to stakers. The yield could hypothetically be attractive enough to compete with whatever Cooler Loans parameters are chosen.

        On (1) and (2), whether it's from a narrative perspective or regulatory perspective, a fully ETH-backed treasury is closer to the vision of a digital currency (in my personal opinion). I include option (2) as there's merit in Cooler Loans derisking the protocol. All of nicnombre's points are also addressed by (2). Also, this reduces regulatory risk in better ways that original Cooler Loans - the protocol takes on DAI risk for as long as it has outstanding loans in DAI.

        Keep in mind that none of these ideas are fully fleshed but same can be said for original proposal of Cooler Loans. The current state, which I characterize as a false choice fallacy marked by deep community divide, is an indication of that. I therefore disagree with nicnombre's next steps and looking forward to further discussions with him to find a way forward. For those that feel the urgency of some impending bull run, I invite them to consider utilizing existing (and soon to launch new) lending markets with competitive interest rates.

          unbanksy33 I think (3) is fine to explore but need not hold up Cooler loans to develop the mechanism. But it does lead to the question why is the protocol served by ppl not accessing Cooler loans? If it isn't, why do you need such a balancing mechanism? I think this is the primary problem with the unfairness argument and would be good to understand - I mean we don't have such a mechanism for the essentially risk free arb between the 2.3% staking rate and the DAI/OHM pool on Aura at 14%apy? I would say ppl are less likely to sell their OHM if they have borrowed against it in Cooler and pursued some other strategy or are using a vault product that pursues some yield or OHM related strategy (additionally it creates a product space for builders) - this friction is beneficial to the protocol in a similar light to LPs - but it is so much smaller diff at Cooler theoretical 2.8%apy difference rather than the LP at 11.7%apy difference

          In relation to the LP pools there will continue to be ppl who see the LP options as superior strategies for them who do not access Cooler and just want to LP, particularly if we hold onto some/all our Aura/Convex

          The ETH backed treasury would be a good (separate) project for the DAO to launch with RBS and Cooler (RIP Jimbo) but isn't within the realm of possibilities wrt to stability for OHM because we denominate in USD and will do so for the foreseeable future. With that said fully supportive of the DAO proposing use of some treasury funds to stand up such a project if it is backed by some OHM also maybe 50%OHM/50%ETH backed or somethin

          With all that said I think we are on a good path wrt some urgency to get things done (as things usually take longer than we estimate) and the iterative process of coming up with consensus - keen to see @nicnombre's new proposal and discuss soon!

            Mark11
            If we are actually talking about "serving the protocol" rather than serving the holders (which both who access cooler loans, and those who don't, equally are), then those who borrow assets from the treasury at potentially ridiculously low interest rates (compared to market rates) aren't "serving the protocol" either.

            Having said that, I believe (3) only makes sense in the case that Cooler loans are offered at limited capacity which creates these forced "haves" and "have nots". Won't be needed in case of full capacity as everyone will have equal access.

              z_33 Have and have nots is a choice - and full capacity is a meme as there is a lot of dead OHM - the protocol and holders are served by supply sinks from Cooler borrowing OHM - 'potentially ridiculously low interest' is far higher than the 0.25% charged by Liquity over two years and we should aim to be near as we can be on par with the best. We are going back to ZIRP soon in any event - this just gives us a chance to get some mind share - as I've said before this is marketing budget

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