Summary:
OlympusDAO x Alchemix partnership to introduce new OHM reserve bonds utilizing the alUSD-3crv pool LP tokens.
Abstract:
Olympus is entering a new phase as it seeks to bolster its treasury through partnerships with other protocols. Olympus can leverage its unique bonding mechanism, in which it acquires assets through the sale of OHM, to help partners achieve sustainable liquidity for their most important pairs.
Maintaining a 1:1 alUSD:USD peg is central to the Alchemix Dai vault. To date, the peg has remained strong due to a combination of robust liquidity, market incentives and a backstop in the form the Transmuter, which ensures that alUSD can be redeemed 1:1 for DAI. Much of the ~$400 million in liquidity in the curve pool is attributable to liquidity mining incentives, with the pool earning 2900 ALCX per week.
By creating OHM bonds that would allow Olympus to acquire alUSD-3crv LP tokens, Alchemix can reduce its reliance on liquidity incentives and ensure that substantial liquidity remains locked in the Olympus treasury. Furthermore, these bonds can serve as a test run for other LP assets in the future including alUSD/OHM, ALCX/OHM, alETH/ETH, etc.
Benefits for Alchemix:
- alUSD-3crv liquidity “locked” in the Olympus treasury, forming a liquidity floor
- Reduce pool reliance on liquidity mining incentives
- Free up ALCX for other pool incentives
- Olympus will never sell ALCX tokens earned through staking; while Olympus will maintain the tokens for governance, they can be viewed as “burned” from a market perspective
Benefits for Olympus:
- Increase and diversify treasury assets
- New form of productive backing
- Treasury earns ALCX and Curve rewards in addition to swap fees
- Proof of concept
Mechanics:
Liquidity providers to the alUSD-3crv pool sell their LP tokens to Olympus in exchange for OHM that vests linearly over 5 days. The trade is attractive when these “bonds” offer a substantial discount on the market price of OHM. As rewards are claimed, they can either be staked to earn more OHM or sold (perhaps to for a now larger LP position).
The Olympus treasury holds the LP tokens and uses the underlying value to back the minting of OHM. The treasury will never sell or breakup the LP position unless price of OHM falls below intrinsic.
Considerations for Alchemix:
- OHM Price falling below 1 Dai, however unlikely, could result in LP position being removed
Considerations for Olympus:
- 3crv contains centralized stablecoins – USDT and USDC
- alUSD falling below peg for sustained period would result in loss for the treasury