Market Making Proposal from GSR

Tetranode here

I oppose!

1. Loans without collateral are red flag

2. What's the reprecussion in case they default on our loans?

3. Do we need CEX when we can have onchain with sushiswap and curve?

4. If you followed the Celsius incident, I have no faith in third-parties of centralized types interacting with us at all: https://twitter.com/BigTimeCali/status/1466556925127000065

Want cheap options on L2?

Work with Dopex

Hi everyone, Evgeny here from Wintermute.

tldr: I think there is an opportunity here to gain significantly more from this proposal by considering more MMs with strong defi capabilities. Wintermute can bring very unique value prop by providing liquidity in multichain world, not just on centralized exchanges

Let me start by saying its unfortunate I’ve missed this post 5 days ago – its tough to keep an eye on everything in defi, especially with markets being as they are. However late, I’d like to weigh in on this given we are pretty active in defi (both on trading and governance side of things) and we did quite a few of MM deals ourselves this year

So first, about Wintermute

Wintermute was founded in July 2017 by three Optiver veterans. We are active on all tier 1 and tier 2 cexes, all key defi protocols (AMMs, aggregators, CLOBs) and across other chains (Polygon, ZKsync, Avalanche to name a few) with a general focus on creating liquidity in a multichain world. We have a strong OTC desk focusing both on hnwi/family offices and services retail aggregators.
Wintermute is trading $6-8 bln on a normal day, $1.5 trl since we started counting. Significant part of it comes from our defi operations. We have been in defi since 2019 and are top MMs on DYDX and largest PMM on 1inch just to give two examples
Wintermute is backed by Lightspeed Venture Partners, Pantera, Blockchain.com Ventures, Sino Global
and others

Now back to the proposal. Factually, we’ve been approaching (and being approached by) DAO’s to become their Market Maker quite a few time this year. To that degree it’s not super accurate to say that this proposal (and AMA) is something unseen on defi. To provide an example:

https://vote.indexcoop.com/#/proposal/QmZJzVGRgsu4AZVWyr4zqeuQLYfbjmq3n7dGGJmrNNKp7b

In general, being a MM for a project is an important strategic part of our business. On a most basic level it allows us to get inventory to project’s token (and we generally expect to make money from that inventory for liquid tokens) and gives us an upside in form of options. However, we typically like to dig deeper into how we can provide value. In the abovementioned Indexcoop proposal we went beyond the usual setup and committed to provide liquidity in their index products. This deeper engagement is very much in line with our defi focus and it also helps to set us apart from other MMs who are not necessarily that sophisticated with what they can offer.

I understand that DAOs have to make certain choices and cannot just vote on everything and get into analysis paralysis. What’s missing for me (and looks like for at least a few others on this forum) in this proposal is who else has been in consideration list and how GSR made the cut. From my experience, the top firms, working in the loan+option MM business, currently are GSR, Jump and Wintermute. There are quite a few others as well. The main negotiation points for these contracts are size of the loan and strike for the options. Other things equal, MMs then try to convince the project about all the other amazing things they can do. Most serious MMs would have sufficient coverage for centralized exchanges, so it’s not really a differentiating point. For us it is:

• bringing liquidity to other chains and generally do cool things others cannot (for OHM specifically we could think about something for sOHM, gOHM and whatever other random alphabet letters will pop up in future). Think beyond scaling/L2s and even beyond EVM chains, starting with Solana for example

• being an active governance participant (without necessarily casting the votes using our loan – we usually specifically agree with projects whether it is acceptable or not (most of them say no and its cool)). We are even hiring people to focus on this full time (and welcome anyone at Olympus to consider and apply!):

https://jobs.lever.co/wintermute-trading/bc082c00-c48a-447a-a2c4-e1d19f59c76f

• anything OTC related. This is generally focused on treasury diversification or helping individuals to buy/sell OHM without significant market impact. But we can be creative and do something more complex on structured product side

• We also have at least two ohmies at Wintermute currently, which is not really a selling point but thought would be fun to mention

Also, reading through the comments, wanted to address a few points that were raised about MM model in general:

• Cex listings are inevitable if $OHM continues to be successful. Having a market maker will likely speed things up, but it’s not a 100% prerequisite. $DYDX launched without a marker maker on quite a few key exchanges despite the team being very vocal on not focusing on it (and being very much against engaging with Market Makers)

• There have been instances where MM signed agreements with DAOs (we did), but at the end of the day your main protection is the good name of your MM being damaged from doing something against the agreement or, worse, not returning the loan. Reputation damage for us (or GSR or Jump) would greatly outweigh $20 mln

• Loan amount is a very important consideration and I’m a bit on the fence with this one. On one hand its generally quite big – $10 mln would have been enough to cover most cexes. On the other hand, we would have required full $20 mln to cover dexes (and other chains). I’m not sure if GSR is a PMM for aggregators like 1inch or Paraswap – we are and would require some inventory for that

• A related point and one which I’m also still figuring out myself is whether an option is a big deal at all, given how much dilution $OHM will undergo in 6-12 months time if all goes well. A potentially better structure (from MM perspective) would be to keep increasing/decreasing the loan as % of total tokens issued and tie the option to the total market cap instead of price

To summarize as I’ve covered a bit of ground here. Wintermute would like to get into the consideration set. We are the strongest MM in defi across multiple chains and protocols and will only grow our coverage going forward. You can potentially add a lot of value by considering more MMs (Wintermute, Jump and Alameda at the very least). Otherwise there should be a good explanation of the decision process

I will vote yes if GSR rebrands to "Climate Change" or "Longevity Research" charity.

wishful_cynic Hey Evgeny, thank you so much for taking the time to put together such a detailed post. Would you be willing to submit your own specific forum proposal on behalf of Wintermute? I think it would be ideal to let OHMies see the official "offers" (obviously the specifics can be ironed out prior to this w/ the appropriate members of the DAO) before we send anything to snapshot.

SMARF agreed

IDKFAIRL Agree with Tetranode, and will be voting against this proposal

GSR has been transparent and upfront throughout the process. I think signing with a high profile, reputable market-maker such as GSR is what is needed to take OHM to the next level

yes

All right, lets go!

Summary

Wintermute would like to make a proposal to be a market maker for gOHM. We believe that focusing on gOHM (instead of OHM) as an asset to list makes most sense as it abstracts away rebase mechanics from individual users, while being the token of choice in the multichain world.

TOKEN CONSIDERATIONS

The initial proposal is focusing on OHM as the loan contract. We think it’s a wrong setup for the following reasons:

• For centralized exchanges:

  • Listing OHM on centralized exchanges would continuously dilute cex token holders. Exchanges could of course stake OHM and distribute the proceeds to users, but realistically it would be a massive ask that they are most likely not going to bother with just to list a token 
  • sOHM would solve it, but would face the same issue - too much work on the exchanges side to integrate rebasing properly. Case in point - look at how many exchanges listed AMPL - its only FTX, Bitfinex and Kucoin. And it only happened because the first two have kick-ass CTO’s who don’t mind doing fun experiments every now and then (can’t say anything about Kucoin CTO, as I don't know them, but I’m sure they are great as well)
  • gOHM on the other hand solves all these problems. No dilution, no rebase, pure exposure to market cap which is what most ppl need in the first place. Add to this the perceived “security” of holding your tokens on centralized exchange and you have a good value prop to new user base
  • And then there are perpetuals - making perps on OHM makes little sense - they will trade at a huge discount continuously, providing an opportunity for sophisticated MMs/arbers but not really adding anything value wise. A perpetual on gOHM would make a lot more sense being interesting for both sides of the market

• For defi:

  • gOHM is an obvious choice for multichain experience, because you don’t want to bother with rebase on other chains

• For MMs:

  • Having a loan in OHM is actually not that great as our inventory continuously shrinks and in 6-12 months can go from 20 mil to a few million (even as the overall market cap increases), crippling any market making efforts. I’ve read some comments that staking should be disabled for MMs and it usually would make sense, but not for continuously rebased token like OHM where you actually want the market maker to have undiluted supply.

  • Having an option on OHM as part of a MM contract makes even less sense - yes it’s free but it's the same as writing an option expecting that 1 BTC is going to be worth $10 mln in 12 months time. Possible? Yes. Worth a lot for a market maker? Not really. There is a scenario of course where OHM slowly dies next few months, shrinking the supply and is then resurrected in 12 months time, but it’s probability is not huge likelihood to say the least

  • gOHM solves all this - it gives a stable loan that we can use across cefi and defi, abstracting away the rebasing complexity. It also allows to base the option strike on gOHM, linking it to market cap which makes a ton more sense for MM

Based on these arguments, our proposal would be to borrow (and promote liquidity in) gOHM instead of OHM

GOVERNANCE CONSIDERATIONS

I understand that there are (very valid) considerations about cexes and MMs using their gOHM inventory to vote and I feel a need to address these. In short the best insurance you have is both these actors have a lot to lose reputation wise, so best you can do is to work with exchanges / MMs who cannot be tempted to go to the dark side with even 100 mil payout from doing something dodgy.

First of all, I don’t think there is a difference, governance wise, between OHM and gOHM when it comes to cex listing. They could wrap OHM into gOHM just like any normal user could and you would have no say in it. 

This problem is far from unique to Olympus - exchanges like Binance and Coinbase already hold massive amounts of defi tokens, giving them a free hand on voting on proposals. However they still haven’t used this power (to my knowledge). One of the reasons is most of the proposals currently ongoing don’t really matter to them. Another is - potential backlash from the industry, which would be very real for some of the big names. Exchange wallets are extremely well marked, so the moment they would vote for a single proposal with gazillion tokens they do have, everyone will know. In general I think it’s very unlikely that cexes will exercise this voting power for any one protocol, let alone doing something outright controversial/evil, like changing protocol management or making changes in smart contract to rug pull everyone.

MMs are a bit more tricky. Without cexes it would be trivial to call out a MM who would cast a vote using the token inventory. Once the first cex lists gOHM, a “bad” MM can then deposit to an exchange and withdraw to another wallet they control (exchange playing a role of mixer) without DAO realizing. Same scenario is valid for staking by the way - nothing prevents MM from sending OHM to cex, then moving into a separate account and stake from there receiving free OHM. At the same time, the loan amount is still not significant enough to overwhelm voting. At the end of the day you’d have to rely on MM to be good on their promise not to vote.

Wintermute + Olympus DAO

Wintermute is the leading defi Market Maker, active across multiple chains and instrument types. As such we would welcome an opportunity to link ourselves closer with Olympus DAO and ensure liquidity for gOHM tokens across all relevant markets, whether it is cefi or defi. 

We realize that cex strategy goes beyond listing and supporting the price, but much more importantly should be focused on guiding the exchanges to do right by Olympus in terms of listing the right token and doing governance in the right way. At the same time, we want to focus our resources on what we do best - providing liquidity across multiple chains on defi, making sure that gOHM price is the same on eth, polygon, avalanche or any other chain and seeding liquidity to AMMs where needed

PROPOSAL

To approve Wintermute as an official market making partner of OHM, and to authorize the transfer of 750 gOHM from the community treasury to Wintermute for market-making purposes in the form of a loan

Wintermute will endeavor to:

• Guide the discussions with (pre-approved) centralized exchanges and provide liquidity in gOHM on day one and going forward

• With regards to defi:

  • Ensuring that AMM pools on new chains have at least $3mln in liquidity in a single pair containing gOHM

  • Provide quotes on aggregators (i.e. matcha, 1inch, paraswap etc) across all supported chains

  • (optional) - support listing gOHM perpetuals on dydx and/or perpetual protocol

Wintermute agrees to either return the full 750 gOHM loan amount to the community treasury at the end of the 12 month contract period OR exercise the repayment option, allowing Wintermute to purchase the gOHM token amount specified below on the respective option expiry date at a Strike Price

The Strike Price would be determined as highest of:

• $69,420

• TWAP price during first 7 days of listing on a centralized exchange (list of applicable exchanges pre-approved by DAO) * 1.5

Should Wintermute choose to exercise their gOHM option, the loan balance will be returned to our treasury in the form of either ETH or DAI, assuming DAI price of $1 and using ETH coinbase price at 23:59:59 UTC on the expiration date of the agreement

As always, we welcome community feedback and an opportunity to work together with Olympus DAO!

I'm voting against. Support the idea of getting more access to Ohm via CEXes, but this is not the way. Reasons:

1. Given the inflation in Ohm a $20 million loan is essentially a direct payment. While we can sort of dismiss this with the reputational risk GSR would take on staking it, the reality is it would be so easy to sell on CEXes and buy and stake in a different wallet without detection that it would be foolish for the DAO to consider it any other way. 20 million is far above market for such services.
2. Giving a huge subsidy to a single player is not in the spirit of DeFi or the Ohm community. The best outcomes come from open competition. The best proposals would be open and offer objective criteria for entrance and continued participation.
3. The opportunity cost is relatively low, Ohm will likely get listed by CEXes relatively soon anyway, it is one of the highest market cap coins not already available. The standards for accepting a proposal should be high.

The Wintermute proposal is closer to something the DAO should consider (in particular loaning gOhm seems like it would solve a lot of problems), but the DAO should entertain multiple proposals and ideally pick one or more based on objective criteria. Note: I work in trading but am not affiliated with GSR or Wintermute and would not participate in any program the DAO offered.

Hi all,

Derek from Reverie here. While I’m supportive of this proposal broadly, I think running a more structured vendor selection process will ultimately result in better market-making services for Olympus. I will start with some initial thoughts on the importance of Market-Makers (MM), and then propose a new approach for picking between the various proposals. 

Why hire a Market Maker?

Increasing accessibility and liquidity across DEXs, CEXs and the global OTC market can have a tremendous impact on allowing new entrants into the community. New listings on popular CEXs and higher volumes are important factors in furthering retail adoption. OTC adoption is equally important as it tends to minimize price swings with MMs working large orders through low impact algos (TWAPs, VWAPs etc..) and improve accessibility to institutions. All of these are important steps towards the maturation of OHM. In short, I’m fully supportive of MMs taking the lead to get us there quicker.

How to evaluate Market Makers?

While there are different metrics to evaluate MM by (maker volumes, spreads, duration, live quoting), the data needed to evaluate this work is difficult to access. As such, it mostly comes down to a MM’s reputation, as well as the proposal’s specific terms (loan terms, asset choice, strike price, additional services). GSR and Wintermute’s proposals are meaningfully different here. As a result, it’s worth doing a thorough analysis of the pros and cons of their approach. 

How should the community make a selection here?

As of now, Olympus DAO does not have a clean and efficient process for evaluating several vendors. This thread is chaotic: it spans hundreds of comments and includes debate around specific proposal terms, which MM is most qualified, and whether this service is required at all. As a result, tokenholders and vendors aren’t sure what happens next. 

This is problematic for all the parties involved: Olympus needs to get a MM, and the MM firms have a business to run and need to assign resources to their customers ahead of time. An open-ended process where various MM post their proposals in a disjointed manner is probably not ideal. We need a process for picking the vendor of choice. 

A formalized, competitive process is necessary

We think there’s a better way for vendor selection. There should be a formal, organized RFP process that solicits various proposals on a deadline. Compound recently went through a vendor selection process for smart contract audits. Multiple auditors (OpenZeppelin, Trail of Bits, ChainSecurity) were interested, and had a chance to go head to head, answering questions on community calls, forums, and in various calls with stakeholders. This process was productive - while it’s still ongoing, it’s likely to result  in a lower final price tag ($8m → $4m a year), more optionality, and additional clarity on what services would be provided. 

We think a similar process can be used here. The community should have an opportunity to review both proposals, offer feedback on scheduled calls and discussions, and allow the MM a chance to iterate as needed before submitting a proposal on a pre-agreed upon date. 

A formalized vendor selection process also allows new options, such as working with multiple MMs. MM are not mutually exclusive in their operations. In fact, increasing competition across multiple MMs in the market could arguably improve the benefits even further. Also, MMs usually have their own dedicated OTC relationships that should widen market growth. Going with multiple MM’s may be a better approach here. 

To summarize, running a formalized, competitive process has several benefits:

• Offers a clear process for all parties involved

• Creates more negotiating leverage for the DAO

• Allows vendors a chance to improve and iterate on their proposal

• Creates new options (e.g. going with multiple MMs)

Conclusion

We think it’s a no-brainer to use a formalized RFP bidding process for the selection of a market-making vendor. This competitive process will result in better terms and services for Olympus. An example of a formalized process we are running for Compound can be found here. We are happy to work with the community to create a structured process best-suited to Olympus.

Simple fact:

Giving naked OHMs to market makers is a free way to short

Show me the incentive and I will show you the outcome

-Tetranode

the GSR proposal greatly angers me

that's allowing them to borrow naked OHM and a free short

these market maker guys have so many words, but they are ultimately snakes in the grass that needs to be captured and extinguished

they will borrow OHM at market price, then buy back ohm after like 100 rebases for $2

if the market maker wants to list ohm, they have to buy it from the market like the rest of us

these guys are wanting $20M of free money for WHAT

If market makers wants OHM for their CEX

They can buy it off the market like everyone else

Who gives $20M of their DAO to freely short the market?