• Proposal
  • OIP-18: Reward rate framework and reduction

Summary

  • introduce a new reward rate framework to guide Policy decisions and align expectations for the community
  • as part of the framework, the Policy team proposes a reward rate reduction to 0.2975%, from a current 0.35% of total supply

Motivation

When we proposed a reward reduction a month ago, Olympus was sitting at a ~$80m market cap. Below is an image showing our performance since then. This is not supposed to be indicative of future performance, but is meant to show what has been achieved so far.

Unlike last time, this time our runway is looking healthy, and at the current reward rate, we have 300 days of runway. However, there are reasons to adjust the reward rate other than the runway.

Our goal is to increase OHM’s supply over the long run, and through integrations and mass adoption become a decentralized reserve currency. However, we can’t just pump out supply and be done with it that way. Why?

Each OHM is backed by at least 1 unit of RFV, we can’t mint without that. The backing comes from our revenue generating activities, mainly bonds at the moment. When we sell bonds, we mint OHM against 1 unit of RFV and sell it at a discount compared to the market price. This indicates that our revenue depends on the market price.

So, if we were to just expand supply without taking this into consideration, we’d tank our market price, and thus our revenue. No revenue - no supply expansion and no reserve currency.

Here’s a simple example showing this.

Case A: OHM is trading at $500. We sell 20 OHM and earn $10,000.
Case B: OHM is trading at $250. We sell 20 OHM and earn $5,000.

Said differently, in order to achieve the same revenue as in case A, we’d have to sell 40 OHM in case B, so we'd receive less revenue per OHM sold in case B, or have more emissions for the same revenue.

Because of this dynamic, the Policy team carefully balances two types of emissions - emissions from bonding and emissions from staking rewards. Staking reward emissions form the majority of our supply growth. Bonding emissions depend on the total supply, demand, and BCV values set by the Policy team.

Since staking reward emissions scale directly off of total supply, it would make sense to base the reward rate itself off of total supply thresholds.

Proposal

The Policy team proposes a framework, where the reward rate is adjusted based on the total supply.

As you can see, these are ranges, and not hard values for two reasons. First, APY is dynamic and based on the number of OHM staked, in this table we use 90% of circulating supply. Second, because the Policy team needs to have the reward rate available to it as a tool.

This proposal has 2 action items that are being voted on:

  • Reward rate framework
  • Reward rate reduction to 0.2975% of total supply over a period of 2 weeks

This framework does not give the Policy team the power to change the reward rates without a community vote, it is meant to guide our decisions and align expectations.

Effect of the reward proposed reward rate reduction

As you can see, the time to double your holdings only increases by 9 days with the proposed change, because this is a 15% reward rate reduction, while in APY terms the difference is magnified due to compounding.

Vote

Option (1): Adopt framework and reduce reward rate to 0.2975%
Option (2): Don’t adopt framework and reduce reward rate to 0.2975%
Option (3): Don’t adopt framework and don’t reduce reward rate to 0.2975%

If option (1) and (2) combined have more than 50% of total votes, the reward rate reduction will go into effect, but the framework requires option (1) to have more than 50% of the votes.

The proposal will be on the forum for at least 5 days, pending feedback, before being put up for a Scattershot vote.

Informal poll

    I think it's a great idea to create an emissions schedule even if it is giving ranges rather than absolutes. I have to question the choice of only using two weeks to lower the current rate, that seems very fast considering the time frame of the model.

      UPDATE: The below comment was written before I fully understood the proposal. I completely agree with the reduction AND the framework now, assuming (as the proposal also confirms) any further reductions will still go through community votes.

      I think the reduction to around 0.30% makes sense. But the framework that specifies the range i.e. reduction down to 0.15% is a little too conservative imo. This would pretty much mean that on average people entering today might at most be able to go 5 to 6x on their ohm holding in a year (probably even less, since the APY calculations are assuming 1096 rebases in a year which are extremely unlikely, the average # of rebases in a year will be closer to 1061, which brings even the current APY down to around 14k). We still only have around 10k ohm wallets, and with competitors propping up left and right we should try to stay attractive for new people a little longer.

      As for price volatility, I think quite a bit of it is coming from "crypto being crypto". This will dampen the volatility to some extent but can have the opposite effect of encouraging people to speculate on ohm in the markets even more with the incentive for staking being cut down.

        Great proposal! Framework is a great way to add scarcity to the coin. Lower reward rates also come with OHM become more healthy in terms of growing marketcap not only through printing machine, but also from price increase.
        I spoke with a lot of people, that chose high APY degen farms, masternodes and staking coins only due to thought "if I will have 250% APR on a coin, I will not lose during the price decrease", which usually just ends up of price reduction to -95% in the long term, because of lack of liquidity. Such solution allows incrementally increase the growing value of the protocol long-term. The current problem is the whales cashing out every profit, lower APY allows to have much more stable (or even growing) price, which actually attracts new people to the protocol. And this is the only thing that is needed.

          nakamomo6 If you look at the ranges, we're already past the threshold for the new range (0.1587% - 0.3058%), which is 1m total supply.

          zulqarnain Value accrues to sOHM holders not just through supply expansion, but through integrations and broader adoption.

          TrevorMidasInvestments Definitely, I agree with everything you said. Along with this, with lower reward rates, bonds become more efficient and integrations also become easier.

            Great proposal, but I personally feel like it’s a bit too soon to change reward rate especially with how healthy the protocol is. Currently supply is a still pretty concentrated to a small number of wallets. Keeping things as they are for a little longer would be beneficial for decentralization and attract more new ohmies. Also when was the last time ohm only had 90% staked. I feel like that’s kind of misleading since it would most likely be closer to 92% bringing apy down to around jk.

            Is there some reason why this proposal doesn't attempt to synchronize the existing supply/rate with a bracket that would place it at the same supply/rate point?

              I do like the proposal and the framework, healthy growing > degen apy all day. That being said, I think an adjusting level of rewards based on sOhm owned by every address could help too. Let's say higher apy for ohmies with 0-50 sOhm, medium apy for ohmies with 50-150 sOhm and lower apy for ohmies with 150+ sOhm (just placeholders, I'm sure the policy team could find better ranges), that way, as stated by dns above, we reduce price impact for whales taking profits and keep attracting fresh money into the ecosystem.

                Selling less for more? Genius, absolutely genius.

                Is this proposal an alternative to locked staking? It is a better idea.

                I see that as OHM surpasses 1B will there be enough incentive to bond or stake? Since there will be many competing yields from other protocols.

                I feel that if OHM is to become the reserve currency, the targets for total supply are too low. Since the total market cap of crypto already surpasses 1T, what will it be in 10 years?. Maybe the proposed yield curve should be dynamically related to "total crypto market cap", rather than some arbitrary framework.

                  dns This makes sense to me. While I agree with the framework proposed and it is needed for the long term sustenance, I feel that a lot of new Ohmies who recently joined would be hit by this framework. If the issue is about whales who are creating sell pressure, then set different reward rates for different sOHMs. (How to implement it is a different issue, as one can distribute their sOHMs to multiple addresses, so that they are always below the threshold and earn max rebase). Those who joined in March or pre-IDO have had the dual benefit of acquiring OHM at low price $4 per OHM and high APY ($100k+ for 3+ months). This has enabled the early adopters to grow their stash of OHMs. However, the newbies who have just started would be hit the most. I've a feeling that the reward rate reduction is happening too fast and could turn away several new OHMies.

                    I think that the idea itself has merit over time in the interest of creating a sustainable protocol over time.

                    My concern here would be for the people who joined Ohm within the last couple of months - a number of folks joined at 600/700, or even 450 as shortly as 2 days ago, and having seen the biggest liquidation in the protocol's history to date which took the price all the way down to $300, I believe that there are a number of recent additions to the community (including myself, being cognizant of my bias), who are relying on the high APY / >10K% staking rate to allow us to recover over time. If this change was to be implemented with 3+ months of notice, I would be significantly more comfortable with it. When looking to build faith in a community / protocol that can already seem a little bit "too good to be true", this sort of a reduction would definitely not look good to recent additions to the community in my opinion.

                    At a high level, I think that this is a completely reasonable change to implement, but not right away; there's still a lot of folks joining Ohm and capital flowing in, and it seems sustainable. I would also worry that in the case of a price spike from supply reduction, which is certainly possible, we could see a number of "whales" immediately liquidate given the rapid increase in their shares' value. We saw what impact a single $1.5M liquidation had on the share price - imagine 10 of those.

                    Thanks so much for the thoughtful proposal folks. I would propose a 4th or 5th option which is (1) or (2) but implemented in a couple of months.

                      Something like this needs to eventually be implemented, but 1) I think it's too soon and 2) a longer amount of time needs to be given to the community to debate and discuss which method should be used

                      Noob questions… Another reduction will extend runway? May also discourage new investment v. New high profile competitors… may encourage initial big wallet dumps in that two week window? Is the project ready for these scenarios? Will it in any way encourage long term growth and (3,3) v. Big run-ups and big exits? How can project emphasize benefits to stakers? Is the expansion period timeline on track to be on the wane? Can Ohm counteract any short term negatives with marketing?

                      EDIT: To overly clarify, I'm not against this proposal - I'm all for it, as I completely understand how the current APY is unsustainable and I do believe in the protocol's long term vision. More so, I was hoping for more clarity on the motivations and reasoning behind the proposal, the timeline, and the calculations behind the numbers chosen for the framework - as I believe more information will help calm the fears of new OHM holders.

                      This Twitter thread has definitely helped.

                      Even better is this Twitter thread, which adds a LOT of great context - a must read prior to voting.

                      ==== ORIGINAL POST ===

                      zulqarnain

                      Completely agree with 0.15% being a bit too conservative and staying attractive for newer OHM wallets.

                      I'm struggling to understand (1) the exact problem we're solving with this proposal, and (2) why do we need these changes now? All messaging thus far has been, "We're in a supply expansion phase", and Olympus continues to show MASSIVE growth month after month with incredible results in areas like: bond revenue, number of ohm wallets, runway, etc.

                      Perhaps I don't have the full picture or need more context, but I'm not seeing the benefits here - especially for newer users. Are we beginning to move out of the supply expansion phase? Are we trying to avoid whales accumulating too much too quickly and dumping the price? What is the goal here?

                      A great first impression and new user experience is CRITICAL to the long term health and growth of the protocol. Taking a look at the numbers, about 45% of OHM holders joined Olympus in the past month alone (Jul12-Aug12). Given the recent and sudden price drops, how can a majority of these holders NOT be in the red? Reducing the rate is going to have such a negative user experience for such a large portion of our user base who would have to wait even longer to simply break even and get out. Imagine the effect on the protocol as these users tell their friends about this experience.

                      As a user, my safety net against worst cases like bank runs, whales dumping price, etc - is the fact that the APY is high and will make up for and overcome the losses "eventually". Without adding a mechanism to reduce volatility, my safety net VERY QUICK (2 weeks!) becomes significantly weaker and motivates me to actually hold less OHM in order to diversity the risk a bit more.

                      More information on the overall strategy and how/why the reward rates were calculated would be helpful to understand the motivation behind this proposal a bit more.

                        I'm confused by the proposal, because it seems to be talking about several things, and I guess I'm too smoothbrain to figure out why they relate to each other.

                        If the goal is to reduce volatility, I feel like this isn't needed. The protocol already did the smartest thing I've seen in DeFi in this regard, which was to control essentially the entirety of the liquidity, and thus benefit from fees during times of market flux. I don't see how this proposal helps really, or that it's required from the perspective of revenue.

                        If the goal is just to have a 'scheduled' decrease in emissions based on the supply, and that's all, I don't have any particular argument against it, other than the one already made by others about the very newest Ohmies being the ones to eat the biggest part of the shit sandwich.

                        There isn't a 'best' time to do this type of change, so being super clear why this is a net gain for (3, 3)ers is very very important.

                          Feel like the framework isn't really necessary and sets arbitrary limits. Seeing that rewards emissions can be changed as needed I struggle to think we can predict what Olympus will look like at 5 million Total Supply let alone 100 million or even 1 trillion. Would the framework box us in to unnecessary limits? What would happen to sell/buy pressure as we approach each a reward rate change due to supply change? I think the framework is a good idea for a "rough" estimate but shouldn't be hard set.

                          silent_mastodon I don't think new people will be eating a "shit sandwhich". The proposal should reduce sell pressure and also reduce the amount of OHM created. Ask yourself, would you rather have 100 OHM worth 10 dollars or 10 OHM worth 1000 dollars? I believe the strength of the token due to the emission change will out weight the gain from a high APY.

                            shadow I voted #1 but if there is a way to keep rewards for a little while as there are still more people joining first due to rewards but then learns more about ohm and becomes supporters and loyal advocates to help usher in a truly decentralised ohm.

                            Thank you working on this framework and rate proposal. I know it’s not easy putting these together. My only concerns would be new ohmies onboarding with the reduced rate and losing the appeal of the protocol. I know the high APY is not what defines Olympus but it’s a great marketing point for a curious investor to look into and dive deeper. In the age of ever increasing Defi protocols, Olympus must maintain the edge for the bootstrap phase. I do think it’s a little too early for this. Maybe delaying it until we have more funds in the treasury (higher RFV) and utility for sOHM is my suggestion.