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 🧠