• General
  • RFC: Q2 FY24 Layer 2 POL / Liquidity Plans

  • Edited

Summary:

As the macro shifts and rollups gain favor it becomes necessary to once again explore tasteful OHM based POL to facilitate market growth.

In support of these emerging markets, this proposal requests community approval in the creation of the following:

250k of v2/Full Range OHM/DAI liquidity on the Camelot DEX

Formation of this liquidity will create a foundation for third party CL Positions, as well as support for outstanding and growing participants in the OHM based ecosystem.

This can also pave the way for some variant of bespoke liquidity management on a chain by chain basis.

Motivation:

In Q1 FY24, optimistic community members capitalized private liquidity in support of a grassroots partnership with Peapod Finance in hopes of expanding OHM utility to the broader market. 250k of OHM was wrapped as pOHM and paired with 250k of DAI to form the pOHM/DAI Pod at the genesis of their v2 launch. It strategically positioned pOHM as an alternative POD (LP) Pairing to DAI, allowing an arbitrage path against OHM/ETH POL and OHM/USDC liquidity, while also giving pod creators (Protocols) an unpegged, fully backed option to consider.

Following the v2 Launch, pOHM TVL has grown to $3.27m, making it the largest concentration of wrapped OHM liquidity in the market today.

Source:
https://platform.arkhamintelligence.com/dashboards/view?dashboardID=a44c5363-4a35-48b3-b210-2aacc7267cab

Subsequently, pOHM has found itself as the anchor point for roughly 19 discrete Pods, all of which have been privately sourced by third parties, in the free market, with no direct protocol incentive or inflation.

Source:
https://dune.com/spoysp/peapods

The initial wrapping of this liquidity for the v2 Launch led to a 15% appreciation in OHM Price, triggering the first entry ever into the RBS Upper Cushion. This allowed for the issuance of Reserve Bonds, adding $422k DAI to the treasury’s balance sheet which became a part of backing and was rolled to sDAI.

Source:
https://dune.com/spoysp/olympus-rbs-dashboard

Proposal:

Looking to the future, there are L1’s (Berachain) and several L2’s (Arbitrum One, specifically) that have emerging economies where the presence of OHM liquidity can facilitate synergistic growth. Since there is only a fixed amount of Protocol Owned Liquidity that can be introduced into the market while maintaining existing, immutable dependencies, this proposal seeks to provide a near term framework and open the door for a more long term vision.

Phase 1:

This proposal conservatively considers the covenants and dependencies created by Cooler Loans:

Liquid Treasury Valuation - $188,866,883
5% Not Allocated to Coolers - $9,443,344
Less FY24 Proposed Budget - $8,014,344
Less Proposed Arbitrum One POL DAI - $7,889,344

As OHM in POL is not counted towards liquid backing, the Arbitrum One proposal would move 125k of DAI from reserves to the new v2 LP. This DAI amount creates no material threat to existing covenants and, if Cooler Loan borrow amounts and the DSR rate remain roughly stable in FY24, we could expect a gross inflow of approximately 3.6m DAI to reserves, offsetting this shift. A v2 pool is recommended such that a full range of liquidity can be formed and rewards do not require a discrete multisig interaction to compound (In line with our automated future).

This will create a base layer of OHM liquidity for protocols and liquidity providers to build from, also creating short term, immediate support for efforts in the space. It is also plausible that OHM/gOHM CL will form once again, connecting the existing 138k gOHM/ETH third party liquidity on Sushiswap back to the framework.

Ideally, third party CL will emerge over the top and we anticipate a reasonable outflow of liquidity from Mainnet to Arb One as retail gets priced out of Ethereum and seeks lower friction options. Lastly, this move will meet the anticipated demand created by a partnership that has already sunk substantial supply and created favorable utility for OHM.

Phase 2:

Exploration into more holistic liquidity management at a cross chain scale. If OHM based POL is a finite, but important resource, a scaling solution is needed such that it can be tastefully positioned to facilitate aligned participants.

Baseline Protocol is demonstrating what an opinionated Market Maker can look like but, they have also provided a liquidity tech stack worth exploring from the lens of pool management.

Elastic Finance recently created a $1m EEFI/OHM Uni v2 Pool and it begs the question if additional tooling would be helpful such that interested parties can build.

Ultimately, post Cooler POL is bound by circulating supply and treasury reserves. Since supply is actively managed by RBS but also largely fixed unless we are in either cushion, we are mostly bounded by the treasury growth at 5% (DSR) + 0.5% Cooler Lending Interest. This creates a tangible liquidity budget we can, and should, consider in our future planning.

Summary of Requests:

  • Formation of 250k of OHM/DAI POL on Camelot
  • Tangible support of synergistic partners
  • Individual educational awareness around ongoing business development that has proven successful in increasing OHM Market Share.

Will allow his RFC several days of discussion and subsequently move towards OIP and snapshot.

Obviously a huge supporter. Phase one with Peas was all community driven. Phase 2 should have some formality with OHM to ensure we continue to be the primary pairing asset. As BTC reaches ATH and money flows into Alts awaiting ETH ATH we should be in a position where the 19+ pods all grow pushing the OHM price up with it activating the flywheel..lower gas on Arb and then other faster l1/2 should put us in a position to see some great growth.

Full support. Utilizing excess reserves to decrease the friction of accessing OHM is a no-brainer. If passed this will greatly benefit ecosystem users and builders.

100% support this effort. Love to see continued attention at bringing OHM to places where it is most needed.

Couple of questions have already come up on Discord so thought I'd copy the answers here to keep information aligned:

Hey there! Great questions. I'll take them in order:

DAI was picked for a couple of reasons. One, community has already approved exposure to DAI and in the spirit of KISS (Keep it Simple, Stupid) this is just an extension of that approval. tl;dr is the most safe asset without changing exposure the protocol has already taken.

A v2 Full Range LP was requested such that there doesn't need to be any management. Today OHM/ETH is a v3 Pool that is accumulating rewards and have to be (And are not) manually compounded. A v2 Pool is simple which we need for this layer of baseline liquidity. No management required and no additional effort from the already existing systems. It doesn't create any new friction.

The selection of Camelot is purely strategic but not for the reasons stated (Voting and Bribes). In the spirit of not creating another Balancer situation where we have liquidity that is isolated from routing and causes second order problems because of it, the idea was to place the liquidity adjacent to where it is likely to see the most use. The demand against this liquidity out of the gate is going to be people providing DAI, taking OHM and likely wrapping it into PODS and should mirror the behavior we saw on Mainnet. CL will form over the top of the base layer. While this liquidity doesn't exist for any one use, it would be obtuse not to consider the direct use that will be there out of the gate. I think it's important that we build for what exists, not just because it's what subjectively feels good.

tl;dr - Trying to make this low friction and avoid past mistakes.

    • Edited

    Jem brought up some important points that will impact scope a bit:

    "Just as an FYI, if you want to put this forward, you need to consider the technical and financial requirements on implementing this. RBSv2 and the underlying OCA system are not cross-chain (it was planned, but cut as a result of cooler loans and automation). Work would be needed to make it cross-chain and introduce the ability to manage POL on other chains/L2s, integrate with governance, etc.

    So by financial requirements, I mean the cost of having a developer/developers implementing it"

    Will rough out a Scope of Work with Lien (Who was looking into this) to price it out and get a budget added to the ask such that we can close the loop on OCA.

    Short term, this would be done without the OCA piece and it just creates a 125k Gap for the DAI/USDC/ETH(TBD) that moves cross chain until it's completed. IMO, this isn't a hard blocker but needs to be considered, budgeted and planned for being fixed.

      Relwyn if we look at doing this would we do this in a generalized way? Just thinking ahead to other l2s/l1 we may ultimately want to have minimal amounts of POL

        Shpadoinkal

        This will basically serve as a POC as it should show us what the actual costs look like. For example, on Arb One, the bridge is already live so that doesn't have to be considered in the cost but integration into OCA does.

        • Jem replied to this.

          Relwyn Once you have the cross-chain infra setup in OCA, it should be minimal work to replicate on other chains.

            Jem I think this is something we HAVE to do then....

            I'm all for cross chain liquidity - imo this should be implemented via OCG and not over a MS deployment - hence I would broaden the scope of work to build out this piece of infrastructure too.

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