Summary
OlympusDAO is currently in a unique position to be able to deploy a stablecoin to fully leverage its loyal community and strong balance sheet to 1) Enhance risk-adjusted yield of its treasury; 2) Seize the DeFi reserve currency narrative; 3) Improve OHM liquidity and utility; and 4) Create extrinsic value for OHM holders beyond Treasury backing.
The goal of this RFC is to begin a DAO-wide discussion on the feasibility of creating an Olympus-backed stablecoin. For such a launch to succeed, new mechanics and structures would need to be implemented that would have a major impact on all of Olympus and which entail new risks as well as new opportunities for OHM and all stakeholders, which includes TempleDAO.
As a TempleDAO community Logician, I'd like to focus first on the Why of an Olympus stablecoin rather than get immediately lost in the implementation details. Once we can get an accurate gauge on the Olympus community sentiment, I will present more implementation details on the How and potential next steps for us to take as the Olympus community.
Reduce Opportunity Cost From Current Yield Spreads
The Olympus Treasury is currently denominated in DAI and any idle funds are deployed in Maker’s DSR contract which yields 5% APY. Toward the end of 2023, the spread between DSR yield and typical farm and borrow yields elsewhere has widened substantially. As market optimism has returned, yield farming reward token prices have gone up as well. The current spread between lucrative yield farms and borrow rates hover around 10% across deep pools that can accommodate a large stablecoin position. This 500-1000+ bps spread imposes a potential opportunity cost of up to 8 Mill USD/yr in interest income based on the current 80 Mill+ of idle DAI sitting in DSR.
By launching an Olympus stablecoin, part of this opportunity cost burden can be reduced and the additional value transferred over to OHM holders in the form of LB growth or transferred to holders either directly or indirectly.
Establish the Native DeFi Currency Narrative
At its launch, OHM was touted as the DeFi reserve currency of the future. Many factors have played a role in why Olympus has not yet succeeded in establishing OHM as a reserve currency, but foremost among them would be the price volatility of the OHM token and the fact that OHM is not pegged at $1.
Because it is challenging for a token to exhibit currency-like features and also accrue extrinsic value, it would be more efficient to establish a two-token system like many other Protocols have successfully done where the currency utility is established on the stablecoin token, and the network value grows on another token. For Olympus, the new stablecoin would be the utility token, and value would accrue to OHM holders. Due to its strong balance sheet and existing mechanics, Olympus is well-positioned to bootstrap liquidity for the new stablecoin. Much of the new value created from bootstrapping liquidity would flow back into Olympus instead of out of the network.
Promote Extrinsic Value & Partnerships
The last and arguably most important point about a potential Olympus stablecoin is the potential reinvigoration community growth and facilitate creation of extrinsic value beyond liquid Treasury backing per OHM. This can be done by onboarding external capital which may include non-Olympus users holding the Olympus stablecoin for yield. Partnerships with other protocols would become far easier by introducing the ability to list some of their tokens or products as collaterals to mint the Olympus stablecoin provided that a prudent risk parameter framework can be established. Stablecoin governance tokens such as MKR or FXS usually trade at large premiums to their net treasury assets, and there is no reason to believe OHM would be any different should it serve the same role.
Conclusion
While there are many potential models for creating a stablecoin (such as the Inverse Firm model), the goal of this RFC is to open up the discussion to ascertain whether there is appetite and enthusiasm in the Olympus community to work toward the launch of a stablecoin as the first major new initiative in the OCG era of OlympusDAO.
If discussions here were to prove fruitful, I would be more than happy to elucidate further mechanistic details in the Comments section on how the new Olympus stablecoin product could work and how it might affect interest income, partnerships, and impact on the Cooler loans. The undertaking of a new stablecoin launch is challenging, but I believe that the rewards are worth the risks and that the future of Olympus would shine much more brightly should we succeed in the endeavor.
