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.
RFC: Project Phaeton: A new vision for Olympus
- Edited
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.
- Edited
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
I am so bricked up by this.
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.
- Edited
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 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:
- Allow us to tap into the massive ETH community, and get a lot more mindshare
- Cater to people who want to speculate on it in USD terms
- Cater to people who want a lower volatility ETH with better yield opportunities
- Cater to DAOs who want to lower their volatility by changing their liquidity from ETH to ethOHM
- Allow us to be sustainably autonomous (not backed by a centralized asset)
- 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.
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.
unbanksy33
"OHM as liquidity rails for all LSTs" 100% for this. With leveraged LST products beginning to proliferate (collateral for loans and LST-backed stables), it will be even more important that there is adequate liquidity for liquidations. newOHM could fill that market demand quite nicely. (Current OHM can too with BLV)
Have decided to reject this proposal:
a) this isn't the right time for this. Cooler loans situation needs to be resolved first.
b) this needs to be a significantly scaled back experiment. May be a sub-DAO with seed funding from Olympus.
Hello everyone,
Very busy week on my side but I'm happy that there has been some discussions on this topic!
Let me try to respond as best as I can.
0xRusowsky 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).
One challenge which people have relayed to me privately is that you again add some contract/organisational risk on top of it. (Much like why people still want to hold stables instead of OHM despite its great on-paper features.
0xRusowsky this proposal loses the reserve currency narrative
I sadly indeed think we should part with this ambition. The landscape has significantly changed and the world is simply not ready for this at the moment.
0xRusowsky Why would ETH maxis sell their ETH for ETH-backed OHM?
Mainly to let OHM be the vessel which brings more ETH exposure over time as opposed to just holding ETH or Staked ETH. The DAO should try to create products which make this possible (as it has done with RBS already)
unbanksy33 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%.
With a true 1 to 1 backing the 'dampening volatility' part is not very true (at least compared to ETH). Imagine RBS pegging OHM to 1 ETH, for the sake of simplicity. OHM would very likely lag behind most major ETH movements, yet it also can add volatility since it's not super closely pegged. So therefor there will be situations where ETH drops 10% and OHM can drop even more (10% ETH drop + RBS cushion). This will become especially the case when OHM and ETH are seen as equal.
unbanksy33 1. Why newOHM is superior to USDC
To me personally this is a faulty comparison since USDC is a currency and newOHM (I like the ring of this ticker) is an asset. I strongly feel we should step away from any currency ambition since this already has been done many times (DAI can be created w stETH, LUSD is a superior decentralised currency with v minimal opex, Dinero brings an extra twist to the currency game etc).
unbanksy33 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.
This I agree with. In my discussions over the past week some have pointed me to the fact that if you hold a basket of LSD's, it is a double edged sword where the risk of ruin might be lower (if 1 LSD protocol get's exploited, we will never hold 100% of it), but you increase the chance you'll be hit by a potential exploit by exposing yourself to multiple protocols. The yield from those options + RBS + newproject should offset this imo.
unbanksy33 RBS simulations will need to run to confirm this.
Super hard, especially since we don't know the liquidity that will be out there. For RBS to work, you can't have an newOHM/ETH pool on-chain for example. If you have this + a stablecoin pool, your delta between OHM and ETH (on which RBS operates) will be arbed away by MEV bots, negating any effect RBS will have. By monopolising that redemption against ETH you can extract that value from the inefficient market.
unbanksy33 Your proposal mentions a basket of LSTs yet such products have seen limited adoption
There is also UnshETH (https://unsheth.xyz/) with 31m in assets. I agree that just being a basket is too light, but this would also allow for potentially a gov token to have some utility. I can foresee a situation where an LSD protocol would want to bribe to include their asset in the index to boost adoption, much like stables have been doing for years with Curve/Convex.
unbanksy33 Idea: newOHM as its own LST
I have to think more about this but think it adds some extra risk. Could be interesting as a v2 + diversification option.
unbanksy33 Idea: OHM as liquidity rails for all LSTs
My initial proposal (which was way too long) went way deeper on this front. I think there could be an interesting avenue to pursue here that makes things way more robust for all LSD's (much like frax's LSD pool attempt). BLV's could bring additional yield opportunities to current LSD holders who want to earn extra yield while providing liquidity. When I find the time I will go deeper into this.
unbanksy33 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.
I think a better question is to think about the general organisation of the DAO. With a smaller treasury and less overhead, the OPEX should be something which could be decreased significantly without compromising on innovation. So ideally there would be an opt-in procedure with newOHM and OHM co-existing.
z_33 Have decided to reject this proposal:
a) this isn't the right time for this.
When would be the right time in your view?
Hi there, regular ohmies here with no finance background. I want to make a comment about Cooler loan and this propposal.
The OP thinks that they are at odds, but actually I was all for Cooler loans to increase my ETH exposure. If Cooler loan is offering borrowing in ETH that leaves me with the exposure that I wanted plus allows me the autonomy to allocate some of that backing into other more risky strategies. In all Cooler can exist in a ETH centric Ohm but the APR shouldn't be too high, it's ETH not inflation USD.
Very hard to judge this without a clear model for what happens to OHM… Tantalising ideas though.
Quilters With a true 1 to 1 backing the 'dampening volatility' part is not very true (at least compared to ETH). Imagine RBS pegging OHM to 1 ETH, for the sake of simplicity. OHM would very likely lag behind most major ETH movements, yet it also can add volatility since it's not super closely pegged. So therefor there will be situations where ETH drops 10% and OHM can drop even more (10% ETH drop + RBS cushion). This will become especially the case when OHM and ETH are seen as equal.
Can you expand on this?
If OHM is backed by ETH, RBS absorbs strong volatility unless the walls break right? Only when the wall breaks, it could see higher volatility than ETH (against USD).
Also, why do you believe the currency narrative should be left on the side when we have newOHM?
I view it like this:
Currencies need to be deeply liquid and give a predictable idea of a user's long-term buying power. newOHM has a stronger value proposition to protocols to match their token with it = deeper liquidity. newOHM will see higher volatility than oldOHM in USD terms, but in buying power terms it might not be as extreme. Lastly, as newOHM scales in market cap against ETH, stabilizing both assets in the long run. A positive feedback loop, that increasingly allows more risk-averse investors to join newOHM and ETH as they scale.
Is this reasoning correct? If not, do you mind explaining why?
Not sure if this is the place to broach this subject but as we are discussing the future of Ohm it makes sense.
To what extent is Ohm considered as something that only takes up a small percentage of portfolios by the Ohm team?
I can say that it takes up X<5% of my crypto holdings. This makes sense because its (primarily) a risk-off asset, and I am primarily a risk-on investor. Converting the treasury to ETH but maintaing the emissions model would only make it a little more risk-on.
I am fairly confident anyone/thing with any real "Size" would only be prepared to invest an even smaller % of their holdings in Ohm. This is not a bad thing, its just the nature of the beast.
A clearer vision and messaging of that vision in these terms would probably be helpful for those who are transitioning out of old ways of thinking about portfolios into the new way.