• General
  • Market Making Proposal from Wintermute

Reposting this as its own topic since @wishful_cynic proposal was buried in the GSR post.
I feel this proposal is more in line with what would be beneficial for the protocol and reflects Zeus' thinking from the community call the other day:

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!

    yeah, wasnt sure whether that was the right way to approach it, but thanks for reposting here🙂

    Thanks for posting here and allowing the conversation to separate!

    Winter mute is one of the best market makers out there if not the best
    Im really keen on this proposal <3

    also the whole proposal on gohm makes sense
    but zeus did mention having sohm trade on cex rather then g ohm to prevent governance attacks?

    @Zeus would you like to expand on this? v2 will have gohm + sohm still right?
    @dr00

    Cross posting from the GSR proposal here.


    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.

      Derek Killer response - looking forward to exploring this more!

      Derek Thanks for this response! Let's chat more - I sent you a Discord friend invite as glueeater#0638 - pls accept or DM me!

      @Derek really like this idea of a structured, competitive RFP bidding process.

      I also agree with Wintermute's proposal for gOHM to be the listed asset and ultimately the reserve currency for DeFi.

      Look forward to seeing the next iteration of the MM proposal. Great work and input from all the OHMies on this!

      Are you able to confirm that Wintermute has been trading OHM since Q2 2021? I remember coming across some etherscan addresses labeled as Wintermute's account. Are you also able to confirm how much OHM Wintermute have in possession right now? I am generally supportive having MM's, but also would like to echo @Coud regarding gOHM/sOHM.

        SYoung Hi, we did not trade it most of the year. A lot of wallets in defi are being labeled Wintermute by mistake and that's one of these cases

        Not really sure how having sOHM instead of gOHM would prevent from governance attacks since you can easily convert one into another

        This is a better proposal than the GSR one.

        Using gOHM instead of OHM is also quite the obvious choice, and it would be easy for exchanges to integrate gOHM withdrawals on different chains, greatly benefitting Olympus multichain experience.

        dr00

        Puttting gOHM in CEXs is dangerous for the price of $OHM. CEX users are noobs who do not do real defi because they are lazy or because they are whales and need liquidity in 100's of millions of dollars. My fear, although completely speculative, is that when the CEX users will see a gohm price of 50K or 75K they will freak out and dump tokens. It is much better to list OHM at FTX, Coinbase and Binance and give them an API so the users can stake the OHM token. Put the onus on them to stake. About 25-50% of CEX user will never stake the OHM token because they are noobs or uncomfortable with the whole concept. Which will reduce dilution and it will reduce volatility. Tokens priced at 50K (like $BTC) tend to have a very high volatility--not just because they are nascent.

        Nascency is also an issue and I feel we should do this after the 1 or 2 year anniversary of OHM or once we reach 100% APY. Too soon IMO.

        Thinking about RFP's as i deal with alot of that as part of my work, we'd need to break down what is most important to OHM holders and have a weighed decision making process like Derek is saying. And probably include 3-4 proposals for the final round, then 1 more round with the last 2. That's how it works in my field below is an example of how a weighted decision could look like

        Example: MM Weighted Decision making Template

        Reputation: 60%

        Volume: 15%

        Terms:25%

        MM X, MM Y, MM Z

          CtrlAltElite Agree. Similar experience in my line of work too. Mainly on the responding side, but I've been a buyer before and set the ground rules. For us, it's Management, Technical, Schedule, Cost, and Terms being the three biggest scoring sections, with subsections between depending on what technicals are important to the engineering team. Technical and Cost are usually the biggest swingers at ~40% with cost/schedule/terms making up the delta. Since it's mainly Government contracts, the terms issue is low because the construct everyone operates in is similar and non-distinguishing so it usually is a pass/fail if there's unreasonable exceptions.

          Establishing a select committee to develop the RFP and make that a community vote arguably makes more sense than soliciting unstructured offers that don't conform to what the DAO wants, because the DAO doesn't know what it wants, because there is no RFP.

          1. Wintermute borrows from us interest-free, this is a great avenue for shorting
          2. The call of $69,420 is there to cap our growth, from which they can take profit into DAI/ETH
          3. As far as market-maker go, Olympus DAO already have 9-figs of protocol owned liquidity
          4. The mention of DyDx is a tell, because it's used to naked short
          5. Show me the incentives and I will show you the outcome
          6. Given the above, I find the CEX market historically -EV for onchain protocols

          OHMies, let me ask you this: what's stopping market makers from having actual skin in the game and market buying like the rest of us?

            Forgot to add: how can they call it a partnership when they borrow our DAO interest-free?

            A REAL PARTNERSHIP is a DAO-swap

            For example: FRAX Finance and Olympus DAO swapped FXS for OHM, ensuring that both protocols have skin in the game and not just lip service

            OHMies: market exposure is double-speak, DAO swaps are not… #skininthegame

            BTW this is Tetranode, the Olympus Treasury Advisor

            Ask me how I know a thing or two about being a market maker…

              I heard GSR and Wintermute said at the end of the call that a 'Both' option wouldn't work. Needs to be either or neither but not both.

              That's a tell, they're trying to move the price as they please, and they don't want another trading desk to upset their operation.