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  • RFC: Project Phaeton: A new vision for Olympus

Project Phaeton: A new vision for Olympus

Introduction

Olympus DAO once was a titan in Defi. It brought innovation to an industry that had been in a stalemate for a while. Unjustly, it now has a stench of a failed protocol without a future. Yet, people fail to see that it is a sleeping giant. Recent proposals have kindled the flame of the community, and we feel the time is ripe to make use of Olympus’s 3 exceptional qualities: Its 200m dollar treasury, its innovative main product, Ranged Bound Stability, and the contributors who made it possible.

Today, we propose a new future for Olympus by changing the backing entirely to ETH. The vast majority can be staked in a diverse set of staking protocols to earn yield which guarantees working capital for the DAO and increased yield for OHM holders. After doing so, Olympus would denominate Ranged Bound Stability in ETH to harvest volatility from OHM’s relative position against ETH.  This would result in a growing backing per OHM, ultimately increasing OHM holder's exposure to ETH. In essence this would become a superior product compared to stETH, it would have dampened volatility which makes it more attractive to borrow against, and it allows for several creative protocols to be integrated with.

Problem

This industry is not ready for a decentralized floating currency. Many who will read this will disagree with this, but we would implore you to think again. Many attempts have been made to bring this type of product to the market. Initially, they do well, since the need for such a product is extremely clear to crypto-native participants. As we saw with Olympus, it might even create a bit of a hype. But ultimately, whether it is economic circumstances, bubbles or attention fatigue, they all need to face reality: the broad public is not ready to hold and use this on a massive scale. Let’s dive a bit deeper:

1. Holding a decentralized floating currency:

  • People either want something extremely stable or want to speculate. Olympus in it’s current form gives neither. This despite Olympus showing extreme stability compared to the market and showing positive returns since introducing RBS. Yet, rarely has the price diverged from the bottom cushion and OHM has been trading under backing for months, showcasing the aversion of people to hold OHM. Furthermore, even after 2 years the majority of the backing is still in USD equivalents, leaving it exposed to US monetary policy and a currency which means very little to 95% of the population. 

2. Using OHM in a decentralized economy:

  • Protocols don’t want to integrate with OHM on a large scale or adoption lags severely behind. Despite a large treasury and a perceived large community, OHM has had extremely limited market adoption. None of the major protocols has adopted OHM in its 2.5 year existence. The only adoption we see is in the lending and borrowing market, and even that brings very limited value to the protocol. 

3. Operating a decentralized currency’s treasury is hard: 

  • There will always be extremely difficult tradeoffs. As a currency, you would need large liquidity buffers. There are two options, either you use POL (another innovation by Olympus) and you have IL + forego yield, or you buy strategic assets and bribe for rewards. These strategic assets are notoriously down only and require labor-intensive management. Although the treasury team has done excellent work since its inception, due to the current design, it is handicapped by the assets it can hold, the liquidity it needs to provide, the multi-sig setup and the governance framework it has to operate in.

4. There is ever increasing risk:

  • As voiced so eloquently by Nicnombre in his recent TAP-25, we are unfortunately facing increased risk. Not only from a regulatory perspective, but also from smart contracts. Again, by design, the treasury needs to integrate with a myriad of protocols and their contracts. There have been precedents in the past where millions were lost in presumed ‘safe’ protocols, even by this very DAO. Furthermore, the largest treasury asset, DAI, is pushing the boundaries of what is considered safe, by buying more and more treasury bonds, opening up significant regulatory risk.

5. Either there is no vision or people don’t get it:

  • A common critique is that Olympus doesn’t have a long-term vision. It doesn’t do marketing, it should be out there more. While we (the people writing this) don’t agree with this and realize how hard it is to communicate this properly, we conceive that it is extremely hard to convey the mission of a decentralized floating currency since it attacks many of the foundations whereby people operate in this industry. Add on to this the reputational dent Olympus has, and you almost have a sisyphean task to convince people of your ideals.

  • Maybe the largest outcome of this is that it doesn’t excite people anymore. When starting to write this proposal, we reached out to respected community and DAO members and found that while everyone believes in what Olympus is building towards, it lacks excitement. Not only to buy into this vision, but also to build it out. No developer wants to write yet another allocation contract to manage a cumbersome treasury. They want to innovate and expand the possibilities of this new technology. Similarly, community members want to look forward to the next generation of products, a new innovation like bonds, POL, RBS, …  An industry member who captures this well is Frax, who always seems to be one step ahead with new and exciting ideas. Olympus has lost its spark, regardless of the merit of its original vision.

6. OHM has a reputation problem

  • As someone who has been active in this industry for a long time who talks on a daily basis to people, it is very clear to me that OHM as a token has a burned reputation. Not only do uninformed people only remember the initial hype, they also somehow think something went horribly wrong and have this belief affirmed while looking at the chart. Countless attempts by community members and myself to point to the rebasing, the warranted APY’s at the start for bootstrapping and matching the exceptional growth,.. fall flat. No serious investor will ever touch OHM again while this persists. I have it on good authority that one of the largest funds cleared OHM of its books because of this very reason, even though they talked to the Olympus core team in person weeks before.

Proposal

Let’s preface this proposal by laying out our intentions. We do not want to rush this through governance. What follows is our proposal for an ETH-centric future. This does not mean it is set in stone, and we have deliberately chosen to leave certain parts open for the community and DAO to help out. The goal is to have a much more detailed OIP, which would leave no stone unturned and would give a complete view of the long-term vision of an ETH centric future. The authors of this proposal have been holding a substantial amount of OHM for the past years and have the best interest of the protocol in mind. We elect not to vote on any resulting snapshot to truly let the voice of the community be reflected.

As indicated in the introduction, we want to tailor this proposal around Olympus’s 3 main advantages, its treasury, great products and contributors. The vision is simple, rather than be a currency, Olympus should aim to create a safe and attractive alternative to LSD’s towards the user and be an asset which has additional benefits for protocols wanting to integrate it. It is important to note that we should step away from OHM as a currency and look at it as an asset. This will help to shape your mental model of this potential future.

Step 1 - Convert ALL asset to ETH, stake the vast majority across multiple LSD protocols.

  • The goal is to at all times have 100% exposure to ETH

  • Put out an RFQ for all staking protocols to put out an offer for (part) of Olympus’s ETH and to properly inform our community of their benefits and differentiation to other providers.

  • After a sufficient period, the community shall vote on the allocation in the staking protocols and the framework upon which this can be changed

  • Any other assets should be acquired through other means (Borrowing using (staked) ETH as collateral, BLV, … )

  • Especially for stablecoin liquidity, which is vital to harvest volatility, acquiring stablecoins is key. In the short term we see lending markets as a way to keep full ETH exposure, but BLV can be a great avenue long term, further highlighting the usefulness of the current Olympus suite of products.

Step 2 - Reconfigure RBS and BLV to support this new era for Olympus

  • RBS should now be denominated in ETH. The dynamics of this are as follows. When ETH drops and OHM lags, we sell OHM to buy more ETH. Similarly, when ETH rises and OHM lags, we buy OHM back with ETH. Ultimately, this means that the ETH backing each OHM will slowly rise over time (much like the RBS system has done for the past months). Due to the dampening effect of RBS, OHM will be an exceptional asset to borrow against compared to most other asset classes.

  • BLV can be used to build up stablecoin liquidity, which is key for the operation of RBS. This allows the protocol to keep a strict 100% allocation into ETH and keeps existing parties fully on board (Lido and Liquity). It now will provide even more utility to the protocol, since it will give it access to stablecoins and/or other assets in the future to build out liquidity.

Step 3 - Focus attention on building products.

  • In the past year, great products have been built out, such as RBS and BLV’s. However, with this new wind should also come a new look on how to operate within the DAO. Small product teams should create multiple MVP’s of potential implementations using OHM. Experimentation, intellectual curiosity and a deep understanding and knowledge of DeFi has always been at the core of Olympus. Let’s use this to innovate using OHM as the core. This can be done under the wing of the DAO initially, with them spinning out if successful (much like Bond Protocol’s example). This keeps developers engaged, willing to work for Olympus, while giving them potential upside towards the future if and when they create a successful product. We see this as a big win/win for all stakeholders and follows the example of many DeFi giants who have build out a proper portfolio in this same manner.

  • In this spirit, the current DAO assets should be safeguarded for this innovation, and we expect some organizational restructuring would benefit the DAO. One example could be subDAO’s or working units, but we leave that up to the more organizationally inclined.

Step 4 - Rebrand.

  • Potentially the most controversial step of all, and we are 100% open for community feedback on this. We think the history of OHM is that of a currency. By proposing this pivot, we recognize that it will be extremely difficult to re-educate people about this new direction for Olympus, much like it has been equally hard to convince people to give Olympus a second look after it’s initial hype cooled off. Especially with institutional investors, it will be extremely hard to execute this pivot successfully under the current Olympus banner. 

  • The new token will likely create a much larger splash, excitement and genuine interest from industry participants which we can leverage to set this new vision into the spotlight. After all, how often does a new project start with 200 million TVL?

  • This doesn’t mean the Olympus brand and OHM should go away. Rather, we propose to repurpose the OHM token for potentially a currency build on top of the new, ETH-denominated token. 

What are the benefits of this proposal?

  1. A new, fresh perspective and start for Olympus

  2. Less dependency on treasury management

  3. A proper alternative to (staked) ETH

  4. Much lower Smart Contract and Regulatory risk

  5. Olympus’s product suite will be used to their full potential

  6. A stable yield generating source in ETH staking which could also fund DAO expenses

  7. More experimentation and innovation coming from the DAO

  8. Much less treasury management and a clear understanding of the backing of the token

  9. More robust backing in ETH as opposed to a USDC wrapper (DAI, Frax,..)

What are we still missing?

  1. What additional elements could we add to the offering which would make OHM even better of an asset to have compared to ETH

  2. How does this all work with lending markets?

  3. Is this grand enough of a vision, or are we too swayed by the recent liquid staking hype?

  4. What would the new token design look like?

  5. Whatever you can think of, let us know!

As said, this only serves as a rough framework, and we would encourage everyone to think together with us. Let us know if you want to help out crafting the OIP, if you see obvious drawbacks to the outlined strategy, and/or you have an alternative vision for the future of Olympus!

Proposed Timeline

1. Phase 1: Research and Analysis of RFC (Duration: 30 days)

  • Engage with the Olympus DAO community

  • Quantify the impact on existing projects

  • Explore technical feasibility of proposed solution and get developer feedback.

2. Phase 2: OIP creation and voting (Duration: 30 days)

  • Taken into account all feedback, come up with a hyper detailed OIP

  • Include all impact on existing projects, finances and operations

  • Have 1 vote on the entire setup. If failed we bury this vision

3. Phase 3: Execution and Transition If voted for by community (Duration: 120 days)

   - Create a structured roll-out plan

   - Push out RFQ for ETH staking protocols and execute this process

   - Test run ETH RBS and lay out initial product pipeline

Conclusion and Voting Options

We encourage everyone to voice their opinions, and we want this to be a collaborative process. In the case there would come an OIP out of this proposal, it will entail feedback from the community.

1. Approve: I support the exploration of transitioning towards a full ETH backing along with the proposed steps

2. Reject: I do not support the transition and prefer to maintain backing and vision.

The voting period will be open for the outlined 3 weeks.

Thank you to everyone for helping review this text before publication.

Continue with exploration of transitioning treasury to ETH

Love the vision, love the idea, agree with a majority of points!

My opinion is that if we do this, the first product considered built is a native "flatcoin" (this could be $OHM after the rebrand). If we can ship it out of the gate with the overhaul, even better, as it will allow Olympus to keep much of the narrative to offer a predictable, sovereign currency.

I think it would be interesting to watch a fresh "stable" OHM with a low marketcap, tight range RBS and initial liquidity created via a BLV with the rebranded coin. Debt-backed RBS anyone? Top of RBS range rewards backers and a stability pool? Just thoughts 🤗

    Thanks for such a well expressed, considered and measured proposal. I'm going to need more time on the actual substantive part of it, and will need bigger economics brains than I to weigh in, but in the meanwhile I have to acknowledge that this at least raises many of the issues I've been seeing with Olympus for some time.

    In particular, the comments around the vision and Olympus' Brand perception, resonate. I believe Olympus and many active OHMies do have a largely aligned vision, but the Cooler proposal, the reasons behind it, and the way it was rushed through, have done much to damage and confuse this. I also believe the deployment of the treasury in the manner proposed by Cooler negates much of the building that has gone on in the past 18 months, which you acknowledge. Olympus needs to create a thriving ecosystem for the long-term not have a monolithic solution to a bear market, which is frankly what Cooler seem to me to be.

    If this proposal does nothing other than give OHMies time to reflect together on that vision then it has done a very useful thing.

    I strongly disagree with the Rebrand however. It is much easier to change perception of a brand with high awareness, than it is to gain awareness of a new brand and create positive perception of it. OHM's visual identity and the positioning outlined in the brand book are strong - they have just been insufficiently activated across the broader finance market. Olympus can and should do better in this space. The best product does not win.

    I have advocated for some time that we need to 1) properly segment existing OHM holders to understand their needs & motivations 2) understand the perception of Olympus amongst non-holders to determine what products suits the current audience and the potential audience. (Shout out to Jelle whose current survey will provide valuable insights there.)

    Again thanks for the proposal, I hope other OHMies at least see in this that the Cooler proposal needs to be slowed down and that some alignment on vision, and an understanding of the market, needs to happen before any substantive changes are made either in this direction, Cooler, or another.

      I enjoy the fuck it we ball energy. will have to let this marinate. salient points

      @Quilters you need to think BIGGER! There seems to be no reason we can't launch this in addition to continuing having OHM

      Why not have Cooler centric OHM and also launch this project as another product of Olympus - this Phaeton project could also be partially backed by OHM or have its main liquidity pair as OHM (3,3)!

      If ppl don't build on top of OHM we can do it ourselves by launching new experiments like this one

        So I think this solves a good bit of problems and am mostly for it. I do wonder how loan facility things will work. I guess they would have be lent out in Eth instead of stables. I think most would prefer to receive stables when they borrow. If a stablecoin called ohmUSD was made and backed by like 10x value in Eth then we could have some stables available but there could potentially be not enough available to fill the demand and people will be forced to borrow Eth instead.

          Deez I think it would be interesting to watch a fresh "stable" OHM with a low marketcap, tight range RBS and initial liquidity created via a BLV with the rebranded coin. Debt-backed RBS anyone? Top of RBS range rewards backers and a stability pool? Just thoughts 🤗

          Interesting idea! Another one which a DAO contributor mentioned is a stable OHM value with all yield + RBS returns flowing to another token which could be airdropped to current holders

          thomasscovell If this proposal does nothing other than give OHMies time to reflect together on that vision then it has done a very useful thing.

          This is indeed the main goal: Kickstart thinking about the future and building this vision together

          Mark11 you need to think BIGGER! There seems to be no reason we can't launch this in addition to continuing having OHM

          I'm all for bigger, bolder and more innovation. Reason we didn't go for a completely different approach is that this proposal can be used as a basis to ideate upon, happy to hear some crazy ideas!

          4848 So I think this solves a good bit of problems and am mostly for it. I do wonder how loan facility things will work. I guess they would have be lent out in Eth instead of stables. I think most would prefer to receive stables when they borrow. If a stablecoin called ohmUSD was made and backed by like 10x value in Eth then we could have some stables available but there could potentially be not enough available to fill the demand and people will be forced to borrow Eth instead.

          There are some interesting ways for lending and borrowing which could be used. I don't think a Cooler setup would work well together with this proposal, but am happy to be proven wrong if someone has some creative ways.

                  I’m in favor of this.

                  Having been involved with Olympus marketing, it has become clear to me that, for Olympus to take significant ‘mindshare’ again, a new bold vision has to be followed. I believe that leaning into ETH will do exactly that.

                  I see two visions at play here:

                  1. The Cooler proposals argue (as I interpret them) for rapid decentralization and autonomy, regardless of the impact on product positioning.

                  2. This RFC creates (in my opinion) strong product positioning but lacks a path to rapid decentralization and autonomy.

                  Here's my idea of an ETH-backed OHM that has decentralization and autonomy as core values:

                  • Reconfigure only RBS, but let products be developed by other DAOs.
                  • Focus attention on implementing on-chain governance
                  • Create a strict plan towards autonomy.

                  A way to do this is by for example using the $12M in annual staking rewards, and allocating a % of that to DAOs who want to implement OHM / built OHM products. Allow OHM holders to vote for which DAO should receive what.

                  Instead of Olympus building out more products, adding more complexity to the protocol, and thereby making it harder to eventually become autonomous, the DAO should have autonomy and decentralization as its main focus. A strict roadmap to autonomy is necessary.

                  --

                  Some other thoughts & feedback points:

                  Product Positioning: I don't think we have to completely deviate from positioning ourselves as a flat coin. It should just play a bit more of a background role. As I see it, when OHM Mkt cap starts to grow significantly against ETH's, and RBS capacities increase, both ETH and OHM would get consistently less volatile. The end goal can still be a blockchain-native currency, it just has a different roadmap. Although it will be very difficult to position that in a clear and effective way.

                  Rebranding: Not a fan of this one. I think we should embrace our imperfections, Olympus has a remarkable story. Even with a rebrand, I struggle to see how you would get rid of the bad brand image. I think our actions will speak louder than words. i.e. if you're anti-OHM, but OHM continues to gain market cap, mindshare, and adoption, then at one point, you'll have to let go of your ego and truly seek to understand its product. Being able to mint ohmies that way, creates a community with extremely strong convictions.

                  I think this conversation is a great conversation starter.

                  This vision creates a future we can all be excited about.

                  • Jem likes this.

                  Departure into the unknown - with 200m at stake.

                  The recent activity in the forum and discord servers clearly shows that individual parties have different perceptions of the current state of OHM. We all should take a step back and look at the big picture. Olympus is in the unique position of owning one of the biggest treasuries in the entire crypto space. Unlike others, our treasury is not full of the protocol native token but hard US-Dollars and Ethereum. The odds of any other project ever owning such a big treasury again are very very unlikely, therefore we should treat it that way. With caution and principle protection as the number one concern. A treasury should NOT be treated as one's own personal portfolio, and any allocation to volatile assets above 25% with 200m at stake is absurd in my opinion.

                  Whatever will cause the next bull run does not require $200m in initial funding. I love all the innovative ideas that people bring up on the forum, including Cooler Loans, and this one. A DeFi native currency fully backed by ETH is a super exciting experiment but in my opinion that should be run like a startup. We don't know if there is an actual product market fit why risk 200m when we could create a spin-out, raise 5m dollars, or use $5m from the treasury to run this experiment? I think that would be a much more reasonable approach to any major shift that people wish would happen to OHM. Risking this once-in-a-lifetime size of a treasury would be detrimental to the long-term future and the possibilities that might come up, which we don't know about yet. 

                    yieldohmie Departure into the unknown - with 200m at stake.

                    This might as well be the title of Cooler loans as well, don't think that is a valid argument.

                    yieldohmie our treasury is not full of the protocol native token but hard US-Dollars

                    The fact it is hard US-dollars makes the entire point of having a decentralized reserve currency invalid.

                    yieldohmie A treasury should NOT be treated as one's own personal portfolio, and any allocation to volatile assets above 25% with 200m at stake is absurd in my opinion

                    Which is why making a very clear choice, 100% ETH, always, makes much more sense than an arbitrary choice for strategic assets, certain stables over others and a plethora of weird investments into protocols which have nothing to do with Olympus or which do not even get support from this very community.

                    yieldohmie does not require $200m in initial funding.

                    It is not funding, it is backing which is an entirely different thing. The 200m will fully be used to back the new token, not 4.5 million in salaries as currently is the case.

                    yieldohmie We don't know if there is an actual product market fit why risk 200m

                    If one thing is certain after 2.5 years is that there is no product market fit for the current direction.

                    yieldohmie Risking this once-in-a-lifetime size of a treasury would be detrimental to the long-term future and the possibilities that might come up, which we don't know about yet.

                    Risk is inherent about crypto and the current state of this industry. People want volatility and a chance to have upside. The current design of the protocol does not allow this, resulting in historically low volumes and buy pressure.

                                  Quilters The fact it is hard US-dollars makes the entire point of having a decentralized reserve currency invalid.

                                  this.

                                  Also this RFC is about ''discovering the possibilities'' rather than ''immediate action''

                                    On first read… I'm actually inclined to vote for this proposal. But I won't just yet, I love that it's carefully written, lays out a realistic and long timeline for discussion and execution, so it deserves careful consideration.

                                    • Jem likes this.

                                    yieldohmie We don't know if there is an actual product market fit why risk 200m when we could create a spin-out, raise 5m dollars, or use $5m from the treasury to run this experiment? I think that would be a much more reasonable approach to any major shift that people wish would happen to OHM

                                    I do like this idea too. Time for another Olympus subDAO?

                                        I'm still soaking up the proposal and thinking through what has been laid out but wanted to drop a quick comment to say that I do appreciate the way this proposal was formatted and that there are clear next steps with iteration and consensus built in, instead of a push to rush implementation. It is helpful reading through how this proposal either supports or changes the Olympus roadmap and why these changes are proposed.

                                        I do agree about the overall exposure to USD being a risk. My line of thinking there has been that Olympus could survive the collapse of DAI if the treasury and rbs were to adopt an ETH system, but if ETH collapsed I don't see the protocol surviving long term even with a fully DAI backing. Obviously there will be more volatility in USD terms with ETH backing than with stables, but perhaps stability against the USD is a limited way of framing things.

                                        Internally there's been discussion about what an ETH based RBS system looks like for a while now, so I am in favor of exploring this option. I appreciate your willingness to accept feedback and open minded discussion points.

                                        • Jem likes this.

                                        z_33 I feel way more inclined to say that ETH-backed OHM should be the main DAO and this DAI-backed Cooler-focused one is a subDAO.

                                        Like, which of the two is more aligned with the original vision of the protocol?

                                        i.e. ship $69M to Cooler, and use the rest for an ETH-backed OHM.

                                        Although all of this should go under careful consideration first of course

                                          Thank you for everyone who has left a comment! I would like to do an open call-out to the DAO and Council to respond to this RFC as well, since I want this to be a collaborative process. Since at this moment, 80% of the people would like to explore this idea further, I think it's opportune to ideate about the possible implications of this RFC.

                                          First of all thanks for the effort and the comprehensive proposal @Quilters.

                                          I think this idea has crossed the mind of many ohmies, and sharing a proposal like this should kickstart a healthy debate around its pros and cons. Personally, I think such debates can be beneficial when facing "uncertain" times like the ones we have ahead of us.

                                          With that being said, these are the things that I like about the proposal and which excite me to some extent:

                                          • An ETH-backed OHM has less regulatory risk and is more agnostic to US monetary policy than a DAI-backed OHM.
                                          • An ETH-backed OHM can earn sustainable yield by securing the network where OHM (and the rest of DeFi) leaves.
                                          • Because of ETH's volatility, in a full-capacity cooler world, an ETH-backed OHM has greater potential to drive demand than a DAI-backed OHM. Such a system offers cheap leverage for those who want to lever up when they are bullish ETH (buy OHM, borrow ETH backing, and repeat), and it would also be great for those who are bearish ETH and want to short (buy OHM, borrow ETH backing, swap to stables, wait for price dump in USD terms). Due to its lack of volatility, I think that for a DAI-backed OHM there are far less chances of repayment and treasury profits. I see it more as a Treasury offering to holders, whereas an ETH-backed OHM could be really appealing for non-OHM holders thanks to its cheap leverage properties.

                                          Tese are the things which I am not excited about or which I'm doubtful of:

                                          • Unless you are extremely bearish USD like Balaji, this proposal loses the reserve currency narrative (means of exchange and unit of account are lost because of ETH's volatility in USD terms). Olympus was trying to fulfill this missing piece in crypto, and this proposal would mean that we accept our failure in that regard and move on to pursue a new vision.
                                          • Other than the cheap leverage theory, I don't know if there would be market demand for an ETH-dampened asset (maybe @Yella's questionnaire can bring some light here). Playing the devil's advocate, I guess the question is… Why would ETH maxis sell their ETH for ETH-backed OHM?

                                          Overall a great proposal. Looking forward to hearing other people's feedback!

                                            0xRusowsky

                                            0xRusowsky Unless you are extremely bearish USD like Balaji, this proposal loses the reserve currency narrative (means of exchange and unit of account are lost because of ETH's volatility in USD terms). Olympus was trying to fulfill this missing piece in crypto, and this proposal would mean that we accept our failure in that regard and move on to pursue a new vision.

                                            I think we should measure it in terms of buying power / goods & services. In the end, that's what everyone cares about. I wouldn't be surprised if, compared to those metrics, it actually makes a lot more sense.

                                            I also don't think Olympus failed that mission if it would be ETH-backed, it feels like that vision is strengthened. As OHM's market share grows compared to ETH, I believe it would create a positive feedback loop where both assets become increasingly less volatile.

                                            To me, an ETH-backed OHM will:

                                            1. Allow us to tap into the massive ETH community, and get a lot more mindshare
                                            2. Cater to people who want to speculate on it in USD terms
                                            3. Cater to people who want a lower volatility ETH with better yield opportunities
                                            4. Cater to DAOs who want to lower their volatility by changing their liquidity from ETH to ethOHM
                                            5. Allow us to be sustainably autonomous (not backed by a centralized asset)
                                            6. Cater to people who want to lower their exposure to the US monetary system, and increase their exposure to decentralized assets without the same extreme volatility.
                                            • Jem likes this.

                                                Thanks for putting this together. I’m still thinking through this and paths forward but wanted to share my thoughts sooner to drive discussion forward. Perfect is the enemy of good; some of these thoughts aren’t fully formed, I appreciate it if you point out any weakness in my logic. 

                                                The biggest unknown to me is why would a DeFi user want to hold such an asset? Competing on incrementally better features against incumbents is an uphill battle for attention. Is newOHM just an incrementally better product or is it a zero-to-one innovation? If we can answer this question with conviction, then demand (and thereby pmf) for this asset should be much clearer. 

                                                For this reason, I’d like to first explore why a DeFi user would choose newOHM over other options. 

                                                The setup: Assume, for the sake of simplicity, a new asset called newOHM that is fully ETH-backed. This asset uses RBS mechanics to dampen ETH’s volatility and it reduces ETH’s volatility by 75%, in USD terms. This means that, in USD terms, when ETH drops 10%, newOHM drops 2.5%. When ETH goes up 10%, newOHM goes up 2.5%.

                                                I see 3 competitive offerings that a DeFi user must evaluate before selecting this new asset: USDC, index tokens and Liquid Staking Token (LST). Let’s explore why newOHM is superior to each.

                                                1. Why newOHM is superior to USDC

                                                USDC is probably the easiest. The target customer is a DeFi user who feels uneasy holding USDC for either regulatory risk or financial risk related to USDC’s parent company, Circle. Alternatives such as USDT, DAI & FRAX are no better. While this user is long-term bullish ETH, they still want a stable-ish asset to keep their onchain net worth in. 

                                                newOHM addresses this key pain point: a floating asset that is independent of sovereign monetary policy and free from de-peg risks. Its volatility is less than ETH so it’s “stable-ish” to the user. The yield generated from LST preserves purchasing power in ways the USD cannot.

                                                An important consideration arises: what is a Maximum Acceptable Volatility that makes this product appealing to the target customer? If newOHM inherits 90% of ETH’s volatility, I doubt users will accept the increased smart contract risk to rotate into newOHM. Is 50% sufficient? 25%? 10%? On the flipside, how feasible are RBS mechanics under these conditions; tighten the range too much and the resulting system may have no equilibrium (drains treasury to 0). 

                                                2. Why newOHM is superior to an index token

                                                An index token is a token that targets a specific volatility of ETH. For instance, if you want to achieve 25% of ETH’s volatility, you could create an index vault that consists of 25% ETH and 75% USDC. Why is newOHM superior?

                                                While this index token has a similar target volatility as newOHM, it lacks the value accrual that comes with RBS mechanics. In particular, newOHM stabilizes against OHM using RBS which effectively is a series of price auctions that grow/deplete treasury. So while the average volatility is equivalent to that of an index token, RBS mechanism yields higher returns (in ETH terms) that an index token cannot compete with.

                                                newOHM, therefore, outcompetes index tokens on yield, which is a major demand driver. Consider that TVL of both frxETH and swETH has grown tremendously because of marginally better yields (5% versus 3.8% for stETH).

                                                3. Why newOHM is superior to an LST

                                                Perhaps the most challenging counter-argument is why I would hold newOHM instead of [enter your favorite LST]. There are two reasons as I see it: 1. RBS yield and 2. Good collateral.

                                                RBS yield - because newOHM will have a monetary premium/discount, RBS mechanics capture this discrepancy into newOHM’s backing. If newOHM is then backed by LSTs, the additional backing increase coupled with LST yield creates the highest yielding asset while remaining less volatile than ETH. As I mentioned above, ETH staking yield is a major demand driver for DeFi users, even if it’s a few bps higher.

                                                An important consideration here: RBS simulations will need to run to confirm this. In addition, the liquidity profile between OHM-ETH and OHM-stables needs to be balanced to minimize toxic flow while allowing for efficient arbitrage. 

                                                Good collateral - given that newOHM is less volatile, it becomes a much better collateral to borrow against. As DeFi users seek to maximize capital efficiency, newOHM offers same capital efficiency as ETH but with lower liquidation risk.

                                                An important consideration here: crvUSD recently launched with a novel liquidation mechanism referred to as “soft liquidations”. Does this reduce the value proposition that newOHM is a better collateral?

                                                RBS yield as main differentiation

                                                Philosophical and regulatory reasons aside, I see additional yield derived from RBS mechanics as the main demand driver for newOHM. The amount of yield generated from RBS to the extent that RBS functions sustainably is still an open question, however. If we agree with this conclusion, then features like good collateral, LSD diversification and BLV further strengthen newOHM’s appeal as an asset worth holding (but still believe that RBS yield remains the core differentiating feature).

                                                Below I’d like to explore additional ideas that may strengthen newOHM’s appeal.

                                                Idea: newOHM as a basket of LSTs

                                                Your proposal mentions a basket of LSTs yet such products have seen limited adoption. Case in point: Index Coop’s dsETH is an LST aggregator; it only has $1.5M in TVL.

                                                Why would we succeed where they failed? If the answer is that RBS provides a yield boost, I can see the case for that. Just want to make sure I’m not missing any other compounding effects. I would also ask whether being a basket of LSTs is better than becoming our own LST (see below).

                                                Idea: newOHM as its own LST

                                                I’ve already laid out why newOHM is superior to LSTs above. Becoming our own LST allows us to squeeze more yield and, potentially, redirecting extra fees toward future emissions. Infrastructure for becoming a staker already exists (https://www.geode.fi/ - kudos to indigo for pointing this out). 

                                                Idea: OHM as liquidity rails for all LSTs

                                                Most LSTs today are solving the dual problem of validation AND liquidity where liquidity is incentivized through governance tokens. Case in point: LDO’s price hasn’t changed since Jul 2021 yet its market cap has grown 38x (due to emissions to subsidize liquidity). Every LST provider has the same playbook; this includes frxETH (benefits from CVX power) and swETH (currently running an incentive program).

                                                It’s worth asking whether there should exist liquidity infrastructure that LSTs can plug into with little to no incentives. This would enable LSTs to truly focus on what they’re best at: validator security, decentralization and scale. Token emissions could be redirected from liquidity incentives to creating a healthy validator base. 

                                                In their place, newOHM becomes the liquidity rails with deep liquidity and efficient routing to all LSTs. A cool consequence is that the Impermanent Loss profile will be similar to that of stETH-ETH (kudos to Oighty for pointing this out), allowing newOHM holders to earn additional yield on top of the RBS+staking yield.

                                                Whether this is an extension of BLV or a completely new product is TBD.

                                                Idea: Asset with native leverage and shorting

                                                Cooler Loans makes more sense to me with a fully ETH-backed treasury. When you’re bullish ETH, you borrow ETH against backing and leverage into more ETH. When you’re bearish ETH, you borrow ETH and short it. This is a native lending facility baked into the asset, requiring no oracles or other dependencies. I’m not sure what the value add here is but I haven’t seen any asset do this. Worth exploring imo. 

                                                I’ll leave by saying that aligning Olympus deeper with the ETH ecosystem is a net benefit as it opens new avenues for monetization & utility of newOHM. While the current focus is on LST, it’s worth exploring how Olympus mechanics can work to make various components of the consensus layer more efficient. This can include MEV, Proposer space, Builder space,  L2 settlement and integrations such as Eigenlayer. Olympus’ increased presence and engagement on Arbitrum (110K OHM bridged!) should not be ignored, either.

                                                A comment on token design

                                                Given where Cooler Loans proposal is at, I don’t see how an ETH-backed future can co-exist with a fully consolidated treasury in DAI (at least this is my current thinking; curious to hear other takes). One way forward would be to create a new protocol with newOHM (need new name) and allow users to participate by exchanging their OHM for newOHM. Innovative bootstrapping mechanisms (e.g. reserve bonds) can be explored. Implicit in this is that those who take out a Cooler Loans must repay to participate in this new future.