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Proposed Framework for Establishing Demand for OHM Across Chains Through Forks (Bretton Woods 2.0)
Olympus has made remarkable progress over the past 8 months towards becoming the decentralized reserve currency of Ethereum. It has amassed a treasury valued close to $1 billion, pioneered Bonds-as-a-Service, built partnerships with many of the premier DeFi protocols, and become synonymous with DeFi 2.0. The next frontier for Olympus is to move beyond Ethereum and become the reserve currency for all of crypto. There are a number of ways to achieve this goal and Olympus is embarking on multiple of these but this post proposes a complimentary playbook for taking Olympus cross-chain, taking into consideration the opportunities and challenges facing OlympusDAO today.
Problem Statement
Olympus would like to expand across chains and establish itself as the reserve currency for all flavors of decentralized finance. Beyond any mechanical challenges associated with moving OHM cross-chain,Olympus also faces a strategic challenge. Because of Olympus’s success, forks are proliferating today across many chains at a pace that’s difficult to keep up with.
Some view this as validation of Olympus, and I agree, but it also presents a challenge to Olympus’s cross-chain plans. Forks today are able to launch at a low market cap, with extremely high APYs, neither of which is possible for Olympus in its current state and both of which are attractive to new capital with a higher risk tolerance on these chains. The quality of each fork, and therefore the longevity, varies from fork to fork but, regardless of how long they survive, they all hinder, to some extent, Olympus’s plans to attract capital on each new chain that it deploys to.
In addition, almost all Olympus forks are focused on accumulating stablecoins as reserve assets. This is not surprising. Olympus has proven the model and the model works. Each existing fork plays around the edges: by partnering with different stablecoins, adjusting reward rates, playing with bond control variables, planning different yield strategies for their treasury, accumulating a small but growing portion of non-stable-but-staple assets (e.g., ETH, wBTC, wsOHM), and so on. Some of these are true innovations and, in my view, will be interesting to watch (I'm involved with more than one that I think are truly innovative). But, because they cannot mint 1 FORK unless they have at least 1 USD in their treasury, they are almost all forced to focus on accumulation of stablecoin reserves at first.
This puts every such Olympus fork in some sense in competition with Olympus. They are competing for the same reserve assets as Olympus. This is excellent for each of the reserve assets as any increased demand for DAI, FRAX, or MIM is a boon for holders of MKR, FXS, and SPELL. But, as Zeus pointed out, many different currencies competing for the same reserve assets will result in a zero-sum environment at the bottom of the monetary stack. This is similar to the pre-Bretton Woods world, where each of the world’s biggest currencies competed with each other to accumulate gold to back their currencies.
So what’s the solution for Olympus?
Bretton Woods 2.0
Exactly as Zeus suggested in this Twitter thread (https://twitter.com/ohmzeus/status/1453436412250951683?s=20), the solution for Olympus is Bretton Woods 2.0. Just as Bretton Woods placed USD as the reserve asset (instead of gold) for currencies except USD, Olympus should be encouraging forks on each chain to place OHM as the core reserve asset that it mints against (instead of DAI, MIM, FRAX, USDC, or other).
What does this mean? It would mean that the fork (let’s call it a “ForkDAO” for convenience) would commit that every FORK that it mints will be backed by at least 1 OHM in its treasury (or gOHM, but let’s use OHM as the example for the purposes of this post). It would mean that all elements of the protocol would be denominated in OHM--the primary liquidity pool would be FORK-OHM and 1 FORK would be valued, for example, as 5 OHM or 10 OHM or 100 OHM. It would mean that the protocol only generates revenue or risk free value or runway to the extent it is accumulating OHM in its treasury. It would mean creating a black hole for OHM on whatever chain the fork exists on, causing more and more OHM to be minted and bridged across. It would mean the FORK will be able to start as a low market cap, high APY option on a new chain, with supercharged flywheel dynamics, that immediately competes with every non-OHM backed fork, except carrying the unique distinction of having the support, credibility and backing of OlympusDAO.
The vision here is of Olympus sitting at the center of a network of FORKs on different chains that are 100% backed by OHM. Just as the USD sits at the center of a network of currencies that are fully backed by USD. More minting, purchasing, and use of each of the FORKs means more demand for OHM across the cryptoverse.
Challenges
There are a few immediate challenges with this proposal that may come to mind:
Bootstrapping Problem. In order to generate revenue and build runway, the ForkDAO needs to be able to sell FORK to the market at a premium that is multiples of the current price of OHM. In other words, if 1 OHM is greater than or equal to the value of 1 FORK, every time the ForkDAO attempts to buy OHM from the market, it will be unable to do so at a profit. If it is unable to do so at a profit, then it cannot bond and, if it cannot bond, then it cannot employ Olympus mechanics to distribute yield to its stakers and the ForkDAO will fail.
Liquidity Problem. Since the ForkDAO is denominated in OHM, the primary liquidity pool will be OHM-FORK. In order for users on the new chain to be able to buy FORK, they will need to already hold OHM unless there is a large enough OHM-stable, OHM-WETH or other OHM pool on the chain for users to relay through.
Trust Problem. Any investment that Olympus or the Olympus community makes in the ForkDAO, whether it be in time, money, branding, or otherwise, requires some trust in the team that develops and deploys FORK on the chosen chain. The ForkDAO could disappear with funds, could manage policy irresponsibly, and could, to the extent it is seen as authorized by Olympus, cause damage to the goodwill associated with the Olympus brand. This would hurt Olympus not only on the chain in question but also on Layer 1. This presents a trust problem, especially where the team is not fully composed of well-known Olympus community figures.
Solutions
These problems can be solved in the following ways:
Bootstrapping Solution. The fork will need, by necessity, to start with a much lower total supply to ensure that its spot price trades initially at a premium to OHM. This may mean, for example, a total supply of 10,000 or less tokens. Any initial funds raised by the ForkDAO (whether through whitelisted IDO, LBP or otherwise) will be raised with this total supply and premium in mind. The aFORK issued as part of the initial raise will trade on thin liquidity prior to official launch and will likely enter price exploration. At launch, a portion of the initial raised funds will be used to seed the initial pools at a spot price that reflects this premium. The remaining raised funds will be used to purchase OHM for the treasury to allow for an initial runway. This is where Olympus can help (see “What should OlympusDAO’s role be in supporting each ForkDAO?” section below).
Liquidity Solution. KlimaDAO faced this same challenge by being denominated in BCT and having its primary pool as KLIMA-BCT. Users with only stablecoins in hand would have no way to purchase KLIMA. It solved this problem by setting up a second pool (BCT-USDC) to act as a liquidity relay for anyone seeking to use stablecoins to purchase KLIMA. The ForkDAO will have to institute a similar solution, seeding a second OHM pool that’s paired with a token that has high utilization on the chosen chain (e.g., DAI, FRAX, MIM, etc.).
Trust Solution. Each and every authorized ForkDAO should have one or more trusted Olympus team members as multisig signer. This will further align each ForkDAO with Olympus and help establish some much-needed trust in the operation of the ForkDAO. Further, if Olympus chooses to provide partnership and support to the ForkDAO (see “What should OlympusDAO’s role be in supporting each ForkDAOcan Olympus do to help?” section below), it can play an active role in guiding the growth of ForkDAO.
What should OlympusDAO’s role be in supporting each ForkDAO?
Each FORK established in this way is a net benefit to OlympusDAO. Each brings immediate demand for OHM to its chosen chain. Each propagates the existence of key OHM liquidity pools. As such, it is in OlympusDAO’s best interests to ensure that each FORK succeeds in comparison to other competing forks on such chains.
This should therefore be an Olympus-encouraged and authorized initiative and Olympus can do that in the following ways:
DAO-to-DAO Swap. First and foremost, it would be essential to the ForkDAO to have OHM to (1) seed the initial OHM-FORK pools and (2) lock in the treasury so that it has runway immediately at launch. The ForkDAO can of course buy OHM on the open market using funds from its initial fundraise. But there’s a more mutually beneficial way to kickstart the ForkDAO: it could perform a DAO to DAO swap with OlympusDAO to exchange FORK for OHM on the assumption that 1 OHM = 1 FORK. This will be a net positive for the Olympus treasury because FORK will, at launch, be trading at an actual spot premium to OHM and, assuming the ForkDAO is successful, will always trade at a spot premium to OHM since each FORK is always backed by at least 1 OHM. Other than a small portion of OHM used to seed the initial liquidity pool, all OHM received from Olympus will be locked in the ForkDAO’s treasury so Olympus does not have to worry about significant dilution caused by this event.
Olympus Direction (including, potentially Olympus Pro). Second, it would be in the best interests of Olympus to provide support to each ForkDAO. In some cases, a team may come to Olympus fully assembled and ready to implement the playbook on a new chain. In such cases, all that may be required is partnership and support. In other cases, Olympus may choose to spin up a team itself to carry the torch onto a new chain if it identifies a hole that hasn’t been filled. Once this framework has been proven on the first chain, it can be repeated across chains. Furthermore, it’s possible a ForkDAO will require Olympus’s bonding expertise and this presents an opportunity to deploy Olympus Pro for the ForkDAO, with Olympus earning its 3.3% fee on bond payouts. This could further cement the relationship between Olympus and its ForkDAOs.
Olympus Marketing and Support. Third, it would also be in the best interests of Olympus if each such “authorized” ForkDAO was publicly viewed as an extension of the Olympus ecosystem. The Olympus community is powerful and the support of this community will be an important distinguishing characteristic for each ForkDAO amongst a sea of Olympus forks. This support can be symbolized through purposeful branding. For example, each ForkDAO could be named after a god from the Greek pantheon (e.g., AresDAO, PoseidenDAO, AthenaDAO, etc.) sent down from Olympus by Zeus to bring enlightenment to each chain. The marketing possibilities are endless and bringing the Olympus marketing machine to bear would turbocharge the ForkDAO for success.
What about current cross-chain plans such as OIP-25?
OIP-25 was proposed on September 11th for taking Olympus from Layer 1 Ethereum to Arbitrum Layer 2 (https://forum.olympusdao.finance/d/102-oip-25-deploy-olympus-to-arbitrum). The plan involved pre-funding the Arbitrum treasury with an inventory of OHM for bond sales and staking rewards and using WETH from the Ethereum treasury to bootstrap an initial OHM-WETH pool on Arbitrum. The initial plan called for a variable staking yield based on bond sales, which would closely align stakers on Arbitrum with growth in the treasury on Arbitrum.
This is an excellent plan and I’m looking forward to seeing it implemented on Arbitrum after Olympus v2 is completed. If successful, it can be deployed across chains to create an official Olympus presence across every chain.
This is not a proposal to replace this or any other plans Olympus has to establish its own treasuries on multiple chains. This framework is a way to supplement those plans with an additional source of demand for OHM across chains. Imagine both an official OlympusDAO treasury existing on each chain as well as a FORK treasury on the same chain. Both are co-existing and complimentary to each other. In fact, an already existing OHM pool on the chosen chain would reduce the need for ForkDAO to bond a secondary pool as discussed above.
How does this framework benefit OlympusDAO?
To summarize some key benefits to this framework:
Each ForkDAO increases demand for OHM and, because the OHM remains locked in each ForkDAO’s treasury, this increased demand comes without any corresponding sell-side pressure. This demand naturally increases the runway for Olympus by helping OHM maintain its premium for longer.
Because the liquidity solution, by necessity, requires a secondary OHM-stable pool on the new chain, each ForkDAO will be creating a core liquidity pool for OHM on every chain that will only grow with the success of the ForkDAO. If Olympus ever moves to the chain itself, there will already be a deep OHM pool sitting ready that has been built at no cost to Olympus.
Each ForkDAO creates an alternative for new users to gain access to the supercharged flywheel dynamics pioneered by OlympusDAO without competing with Olympus for the same reserve assets.
A DAO-to-DAO token swap for OlympusDAO is a risk free investment as each FORK will always be backed by at least 1 OHM. This allows OlympusDAO to profit from each ForkDAO’s success and ensures both the ForkDAO and OlympusDAO to have mutually aligned incentives and interests.
TL;DR
It is in Olympus’s best interest for forks on new chains to fully back their FORK with OHM rather than with stablecoins. The cumulative benefit to both the fork and Olympus is greater than the zero-sum equation for forks that compete with Olympus for the same reserve assets.
Successful implementation of such forks can (1) increase demand for OHM, (2) attract users with higher risk tolerances that may otherwise not invest in OHM, (3) build ready liquidity for OHM across chains at no cost to Olympus, and (4) provide a (relatively) risk-free investment vehicle for Olympus.
Olympus and the Olympus community should drive this brand of forking over others by establishing and adopting a forking framework as described herein. This may involve DAO-to-DAO swaps (that result in risk-free investments for Olympus), provision of support and guidance in implementation and beyond, deploying Olympus Pro where requested to help deploy liquidity pools, and dispatching Olympus marketing and branding to help create a unified theme for authorized forks as Olympus extends its tentacles across chains.
Looking forward to hearing your thoughts and discussing these concepts. They have been developed with the input of a number of key Olympus community figures but it's still sure to be missing issues and opportunities that could improve upon the ideas here and opening it up to the amazing Olympus community is the best way to allow for such iteration.
At the end of the day, the power of Olympus mechanics almost guarantees that forks will continue to arrive on chains faster than Olympus itself can mobilize OHM to such chains. The question for the Olympus community is whether (1) to stay completely neutral and not encourage or discourage any particular type of fork or (2) to establish a framework and Olympus initiative to encourage Bretton Woods 2.0 and to encourage the type of forks that are a net benefit for Olympus.
