Ohmptions

Max_FIATDAO

Hey everyone, I'm Max from over at the FIAT DAO team. We are currently in the development process for our fixed income asset leverage solution and are hoping to ship sometime in January. We look forward to supporting gOHM bonds with it.

I'd like to propose a new revenue stream for the OlympusDAO treasury that would net it risk-free profit and allow for a deeper integration with what we're building at FIAT. As you may have guessed from the title, it's OHM options. Specifically, the OlympusDAO treasury could write put options for gOHM bonders who are willing to pay a premium for the downside protection.

It would look something like this:

User goes to mint bond with x% discount and y maturity date
Olympus offers a smaller discount (x-a%) that gets combined with the right to sell the gOHM back to the treasury at maturity at a strike price determined by the original bond price in Point 1
When the bond matures, the user either does not exercise the put and OHM remains in circulation, or they exercise the put and get the majority of their money back while gOHM gets burned

Let's throw some actual numbers in:

OHM is trading at $1,000 and there is a bond available for $900, i.e., a 10% discount
OlympusDAO Treasury allows the user to mint a bond at $920 with the right to sell it back at bond maturity / option expiration for $900
If OHM is trading below ~900 at expiry (see notes below), the user now has the ability to sell back OHM to the treasury to get the majority of their initial outlay back. Because they paid 920 but only can sell back for 900, the treasury has netted a $20 profit

The following items would need to be considered:

If the premium is to be a function of the discount offered, what is the right percentage value?
If gOHM bonds are capturing rebases, how does the strike pricing need to be adjusted?
Should the OHM returned via such a put option be burned, staked by the treasury, or used for budgeting?

This should result in a greater willingness to bond during periods of volatility, especially as bond discounts compress over time. Moreover, the risk to the treasury is minimal given that it's a revenue positive operation regardless of whether the put gets exercised:

Put doesn't get exercised, and the Treasury was able to charge a higher rate for the bond
Put does get exercised, and the Treasury netted a profit via the premium

Would be great to hear peoples' thoughts on the idea 🧠

User1

That is a rather fascinating idea.

Out of curiosity, why just write put options? Why not call options? Could we develop our own assortment of various financial products that also exist in the DeFi ecosystem. Perps? etc?

Would an assortment of financial products make the asset more volatile? That may pose a risk to the long term asset holder, as perhaps some may favor steady gains. (or less volatile declines).

A very interesting idea indeed.

Since you are on the topic of fixed income; any thoughts into creating our own lending platform to loan out our sOHM? At this phase, I'm not sure who would want to borrow Ohm as every epoch it does get diluted. Is there anyway to loan out sOHM and obtain the interest on it.

Max_FIATDAO

User1 I suggested put options because they are a) risk free, and b) would allow us to build interesting utility over at FIAT DAO 🙂 Call options make less sense in my opinion because over a long enough time-frame, OHM eventually should converge on lower prices.

To your point on other financial services, yes absolutely. I have another post I'll share here which will walk through how the OlympusDAO treasury itself could issue stablecoin bonds in order to profit off yield swaps (e.g. you come with 100 DAI, treasury guarantees 110 DAI in a year, it yield farms the 110 DAI in the interim).

User1

The idea of issuing put options does make sense. Though we are in an interesting caveat where we are inclined to have a positive conviction on our positions, I suspect the quantitative analysis models you render also suggest that there is an upward path for this project. And so, to be ethical, I suspect we would have to tell folks that we do have an underlying positive conviction, but are providing risk mitigation tools for people interested in doing so.

cool idea.