So here's the thing. I purchased OHM because Olympus is a well defined and fascinating money experiment. So far it's worked out great! If I want to speculate on any non-stables, I just do it myself. I really don't need the protocol to speculate for me. IMO, such speculation would be a big departure from OHM's fundamental charter and would significantly increase the protocol's governance surface area and change its risk profile. Personally, I'd be far less interested in Olympus if that were to happen.

Now, I'd understand if Olympus DAO members are looking to diversify the DAO's OHM holdings---selling them to build up a rainy day fund. That makes sense to me, but it's not what's being proposed here.

    occam I understand your general concern. Perhaps it may help to think about it like this.

    Why does anyone ever value anything based on nonstable assets? E.g. a central bank might have gold on the balance sheet, or corporate bonds, etc. A company like MicroStrategy has lots of BTC on the balance sheet. In none of these cases does the institution have any codified plan for how to sell the nonstable asset into something stable. And yet the market clearly takes net asset value into account when pricing e.g. the bank's currency or a share of MicroStrategy. Why? Answer: because net asset value has the potential for productive deployment. E.g. the bank has the potential to use their gold to buy back their currency if price slips. Same with MicroStrategy and BTC. Or maybe MicroStrategy decides to increase dividend if BTC moons.

    The situation is the same for us and ETH in the treasury. We don't need some codified plan now. What matters is just the potential for productive deployment in the future. E.g. suppose we decide to stake the ETH and sell our staking rewards for stables to increase RFV. Or suppose we decided to institute an ETH dividend for sOHM holders. Or suppose we use ETH to buy back OHM (this would be a natural move if ETH price rises so as to overshoot our 5% allocation target). There are all sorts of possibilities out there and that explains why it makes sense for the market to trade net asset value. Some of these possibilities involve selling ETH for stables, some don't.

    Are we now engaged in ETH speculation? Well, capping our exposure at 5% and not minting off ETH means the degree of speculation is quite low.

        mudshrk

        1) "Are we now engaged in ETH speculation? Well, capping our exposure at 5% and not minting off ETH means the degree of speculation is quite low."

        *** Everything about OHM has seemingly been well thought and moved forward cautiously - with treasury acquisitions providing ongoing return, not speculation. It feels like the Simpson monorail sales man stepped into Ohmville and said, "You know what you need, ETH..."

        *** As Occam states, he, I, or any Ohmie can, and likely does, speculate in a variety of ways. Should our treasury speculate? Should we buy magic beans that be worth something, or nothing, and we don't yet have a plan, but we will figure something out and just owning beans is cool and other people place some value on beans, so gotta buy beans...

        2) "Stablecoins have worked out fine so far, but in order to move forward, an introduction of a non-pegged asset as backing is necessary. The asset we choose should be something that adds value to the whole ecosystem, irrespective of its price.

        With that in mind, and given that our fates are already intertwined as we live on its chain, acquiring ETH seems like a logical first step towards our vision. This would also be a way for us to reduce our dependence on USD and USDC, as well as to demonstrate the alignment of our values with those of the Ethereum community."

        *** What quantitative evidence do we have that buying ETH will "move us forward" or "add value to the whole ecosytem"?

        *** ETH price seems like it is supported by inflationary USD and USDC so how is buying ETH reducing OHM's dependence on USD and USDC? Does buying ETH protect Olympus from USD inflation?

        *** How does buying up to $950,000 USD worth of ETH bonds (around 450 ETH which wouldn't even qualify for whale status) "demonstrate the alignment of our values with those of the Ethereum community"?

        *** Can someone tell me what are the values of the Ethereum community to which Ohmers are supposedly aligning?

            billygoat33 I think the plan has always been to eventually add BTC, ETH. Even back in Zeus' first medium post.

              mudshrk

              Thanks for your comments. Thing is if I wanted to invest in a holding company/DAO, I would invest in a holding company/DAO. While I trust the Olympus DAO to make make good decisions about the Olympus Protocol, I have no reason to trust that OHM holders have the expertise necessary to make good decisions about which non-stable assets to buy, when to buy and at what price, when to sell and what price, etc. I say this as someone whose ETH holdings are orders of magnitude bigger than his OHM holdings. So it's not that I dislike ETH. It's that I dislike complexity and governance sprawl.

              Right now, the Olympus protocol is simple, and governance minimized. These are highly desirable qualities in a protocol and should not be discarded lightly.

                Brian33 I like this proposal, and I like the idea of increasing our intrinsic value. I will be voting for this proposal. That being said, how does minting Ohm against Eth affect the APY and the runway? I assume, all else being equal, it will slightly reduce them?

                    occam If I'm understanding you correctly, it seems your concern is that this proposal might be a slippery slope toward adding increasingly speculative assets to the treasury. That's a reasonable concern, and an outcome we should guard against. I assume that the logic for holding ETH is similar to the logic for the DAO holding LP tokens. The intrinsic value of the LP tokens is currently much higher than the RFV assigned to them, but they are productive assets, and ensuring liquidity is directly linked to the DAO's health. Similarly, ETH is a productive asset that is necessary for the the DAO to function. I would be more inclined to share your opinion if the proposal were to put BTC on the balance sheet, because I don't see any synergies between BTC and Ohm. But, for better or worse, Olympus DAO's fate is intertwined with that of Ethereum.

                        BrianPeace yeap runway will get eaten since we're not minting against ETH. Though given the current pace of bonding, and the fact that max ETH bonds is 5% of RFV, this shouldn't be a big issue.

                            FluctusLux yeah I would hardly call it eaten in this case, since it will be such a small impact.

                              Dropkickdarren

                              This would completely change the risk profile of OHM and would be a betrayal of the Olympus protocol's original promise that 1 OHM is always backed by 1 DAI. If ETH backing is indeed the end game, why not launch a separate OETH token that's like OHM in all ways, but is backed by ETH instead of DAI. (For example, Alchemix has alUSD and alETH). That way the Olympus protocol's ETH reserves would count toward the RFV (of OETH). This would be simple, and governance minimized, and would give users a choice (between OETH and OHM).

                                  On second thought, perhaps OHM could become a governance token, with a claim on the DAO's holdings and the token that's currently OHM could become ODAI. Just brainstorming here...

                                  BrianPeace

                                  I would be more inclined to share your opinion if the proposal were to put BTC on the balance sheet, because I don't see any synergies between BTC and Ohm.

                                  By "balance sheet", do you mean the protocol treasury, or the DAO treasury, because I think there may be some conflation between the two going on. I have no issue with some small fraction of the DAO treasury being converted to ETH, though we should have a discussion about how to do that (hopefully one not as dragged out as the one on Sushi's forum https://forum.sushi.com/t/sushi-phantom-troupe-strategic-raise/4554).

                                      shadow

                                      I am piping up a little bit about this in the Discord. I am not that active unless I think something is a mistake.

                                      IMO, adding ETH to the treasury at this point is a mistake. Market-buying ETH is a pure beta strategy. During this expansionary phase we should be pursuing alpha strategies for the treasury via partnerships that bring both revenue and stability to the treasury. Buying ETH at market does neither.

                                          occam Sorry if I was unclear. I believe OIP-15 is in regard to the bonding of ETH to the protocol treasury. That's what I was referring to. Perhaps you could clarify something for me too: When you call ETH a speculative asset, what metrics do you use to determine if something is speculative? Volatility? Risk profile? Something else? If the proposal were to actively trade ETH rather than DCA into it and hold it long term, then I would agree that would be speculative activity. Though since I consider ETH to be a safe and productive asset, I make a distinction between it's volatility and it's risk profile.

                                              Aigur Glad to see you getting involved. Even if we have differing opinions, thoughtful discussions are healthy for the ecosystem. Regarding alpha and beta: Historically ETH has a pretty impressive alpha. Of course past performance is no indication of future returns, but in my estimation ETH is perhaps the most productive asset in all of crypto, and even more value will accrue to it after EIP-1559 and the ETH2 merge. As for beta, since the proposal is to DCA into the position, hold it for the long-term, and not mint against it, beta is not a something I give much thought to. When I plan to DCA into an asset that I have no intention of selling, volatility is a very small factor in my calculations.

                                                  @occam raises some good questions about how the diversification into non-stables aligns with the mission to be a decentralized currency. There is a balance between purchasing power preservation and stability.

                                                  I am personally ok with the trade-offs involved with adding some appreciating assets to the treasury. The benefit is we maintain purchasing power, and the tradeoff is more volatility in market value. I don't envision Olympus replacing pegged currencies for day-to-day transactions, so I am ok with more volatility in exchange for greater long-term purchasing power. And ETH is operational capital, so it is logical to keep some on hand.

                                                  While I am generally supportive, I am curious, @shadow : What % of the portfolio will be in stables vs. appreciating assets like ETH in the steady-state? Whatever the number, what was the calculus behind why 75% vs. 80% vs. 95%? Said another way, why is 5% the right number for ETH, and how will you think about position size for the next non-pegged treasury asset?

                                                  BrianPeace

                                                  BrianPeace

                                                  Thanks for the thoughtful reply. I personally like ETH as an asset, and agree that EIP1559 will benefit holders, and particularly stakers of ETH2 (but it's unclear how it will benefit OHM if we're constantly selling our gains every time ETH exceeds a 5% treasury allocation).

                                                  When I refer to alpha and beta I am referring specifically to the strategy the DAO uses in the construction of the treasury, not the performance of the treasury assets themselves. I think the alpha we offer is the Treasury Service we can offer to DeFi. I do not think we need to chase alpha with our treasury asset selections. We are not a crypto hedge fund (unless we decide to be one). We currently don't have hedge fund managers running our treasury nor do we have the risk management tools in place to run portfolio positions that incorporate highly volatile assets. If that is the exposure we're looking for, we should buy a synthetic stock or synthetic index for a real-world fund that actively manages crypto assets.

                                                  IMO, our value proposition is TaaS, and for the time being we should be focused on building out our stablecoin reserves, finding ways to maximise our stablecoin returns (including the LP earnings on our pools) and finding partners that need our services (that is where our alpha and the OHM premium comes from). Our value proposition is the liquidity we offer through bonding and protocol-controlled value. We are a diamond-handed HODLer and LPer of targeted stablecoins.

                                                  On a related note, if we do start offering ETH bonds (which seems likely, since I seem to have a minority view), then IMO we should be staking it with Lido and letting it compound (as we've done with xSUSHI) not selling down our ETH stake every time ETH outperforms our stablecoin portfolio and exceeds 5% of the treasury balance. Let winners run- ETH vol translated to OHM vol is the price of chasing alpha. At minimum we should let the allocation float within a range, e.g. 5%-10%. Once we make a decision to include a treasury asset, we should not compromise our strategy as a long-term HODLer and LPer of those assets unless there is a fundamental shift in the asset that justifies a change in strategy.

                                                        Aigur Perhaps I overlooked it, but I don't remember seeing anything in the proposal about selling ETH. The 5% target is for boding. ETH boding will only be allowed when the value of ETH in the treasury is below 5% of RFV. My understanding and hope is that we don't sell any ETH.

                                                        I also wanted to address one of your original points about market buying ETH. The way I see it, we are buying the ETH with newly minted OHM, and it only costs us $1 to mint new OHM. Since OHM is trading at a significant premium to RFV, then we are buy ETH at a steep discount.

                                                        The last point I wanted to make is about OHM's market premium to RFV. One thing that will help OHM to continue to trade above its RFV is if the intrinsic value of the treasury is notably higher than the RFV. The long term market value of OHM would then hopefully fall somewhere between RFV and IV. If RFV/OHM reaches 1 then yield dries up. As long as it's trading above 1, then for every dollar of RFV the treasury brings in from LPs, bonds, etc. we accrue more value to stakeholders through yield and the ability to bond assets at a discount to the market rate of those assets. Bonders get discounted OHM, the protocol gets discounted assets, value accrues to all participants, and the flywheel continues.