Market Making Proposal from GSR
Algar that is an interesting question, while there is no exact answer as it depends on the price action itself, it is a significant multiplier that could be much higher than 5x. A sushi AMM is not very capital efficient as you provide liquidity across all possible prices while a centralized market maker will concentrate its ressources in a band around the current price.
To summarize what I take to be the dilemma: using sOHM seems preferable to using OHM in that we don't have to rely on a CEX to provide staking services, and sOHM does not itself confer governance power. But staking the DAO's OHM will reduce APY and lead to dilution of current stakers.
Seems that we need to run the numbers to determine just how much APY would be reduced by using sOHM. We would also need to change the terms of the repayment, as the amount of sOHM would grow over the period of the loan.
gsr_nyc may i know who is performing credit check on GSR? My company had interacted with GSR before. Even though they have been in the market for a while, iunderstand that their balance sheet is not as strong as major FIs. This was the reason why only a very small credit line (around USD 3 million) was given to them. I also saw quesion on interest rate that GSR will be paying for this borrowing. I will like to find out the terms of lending as well. I agree that if they want to be MM for OHM, they should buy and hold a substantial amount from the market. What olympus dao can do is to lend them ohm on last resort.. overnight or just for a short period of time. This reduces credit exposure to GSR. Keen to hear your thoughts and clarifications.
Lastly, again on a philosophy front, should we really get involved with traditional FIs? And if so, will this be the first and the last?
Jawesome @EconomistBeard What penalty do we have if we find staking by MM or any of the CEX partners?
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jft agree. Start with smaller amount first. And monitor GSR's performance if you like.
Is there a reason to why GSR couldn't purchase the liquidity, the protocol is decentralized? If it is a matter of sizing could we not do an OTC deal for them; with an agreed-upon discount as part of the partnership.
As others have mentioned, an interest-free loan of this size in the wild has the potential to present a few negative externalities for the long-term health of the protocol.
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I think this proposal raises some fundamental questions for the DAO given that the DAO will be entering into binding agreements with third-parties, and the legal/procedural aspects of this are unclear.
My questions are:
Process/Legal
1. Does Olympus have an traditional arm (foundation/offshoot) that handles legal agreements with third parties? Who is negotiating on behalf of DAO token holders?
2. If this entity exists, where is it domiciled?
3. Does the DAO have legal counsel operating on behalf of the DAO (through this legal entity)?
4. How are agreements like this handled at other DAOs, and what learnings can we take from these other agreements?
5. How will the DAO have recourse if the deal is not honored by GSR -- especially the terms around the strike price?
6. Are there methods for enforcing the terms of this agreement via a smart contract, even an escrow or earnest money deposit? If possible, we should be looking for decentralized mechanisms to manage agreements rather than traditional approaches.
Benefits/Drawbacks of Working With Market Makers
1. How does this agreement, and push to facilitate trading of OHM at CEXs, fit within Olympus' mandate to become the reserve currency of DeFi?
2. Will this agreement provide sufficient liquidity at CEXs that is worth the risk of providing GSR with the loan?
3. What can we expect from an additional liquidity perspective from this activity?
4. I've seen other DAO tokens, YFI listed on centralized exchanges (at very low liquidity levels) in the past, with presumably, no involvement from the DAO in these activities. Why should Olympus enter into this agreement as opposed to simply letting market makers and CEXs gather inventory on their own to market make and provide liquidity to CEXs?
GSR As a Partner
1. What is GSR offering as a partner that is superior/inferior to other options? What terms/etc were considered and rejected from other market makers?
2. Does GSR have experience working with other DAOs and what has this experience been like -- positive or negative?
3. Can GSR provide some references or third parties who can speak to their ability to work with other decentralized communities?
Side Note/Snark: Why isn't GSR refer to the community by its proper name: Ohmies? And what does it mean that GSR didn't get this basic fact right in developing/drafting the proposal? (It's a small thing, but calls into question their understanding of the culture and expectations of community members).
I hope these questions can be answered both in the forum and upcoming AMA.
Wartull for GSR to have skin in the game, they should really buy and hold a substantial amount of OHM instead of borrowing all the liquidity.
VerteMorte Rule number one of market making, never risk your own money
EconomistBeard there's also no credit proposal paper. This is not how lending is done in real world.
gsr_nyc could you share any credit assessment paper that you have on GSR please?
EconomistBeard that i cannot stand for.
By the way, GSR is also the market maker for crypto exchanges set up by banks. So when they say they see dex and decentralisation as the way forward, I'll take it with a pinch of salt. Looks like they are hedging their business risk both ways. Partnering with banks and dex protocols. Whoever dominates in the future, they stand to benefit. There's no real idealism here, only profits.
VerteMorte people really need to understand that many people don't dislike centralization and having exposure to CEXs is a net positive for the protocol. you can debate the specifics of the deal, but on balance it is good
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Wartull you don't necessarily need a perp to short. the proposal also doesn't contain the exchanges that they're interested in market making on. there's several exchanges that allow shorting spot on margin
I'm not saying that shorting is bad; by all means efficient markets are better. But there doesn't seem to be a gain in any of these. Olympus is already shelling out nearly 100mil in incentives with Proteus to go cross-chain. What's the point of having liquidity on centralized exchanges if buyers don't gain any benefit of being on-chain, which, once again, is staking, governance, and collateral (e.g. Rari, Abracadabra, etc)