- Edited
Summary
The initial core contributors to FIAT DAO are seeking the formalization of a DAO-to-DAO partnership with Olympus through a treasury token swap, as well as commitment to prioritized co-development. We are building a protocol for leveraging fixed income assets, like OlympusDAO v2 bonds, and are excited by the design space possible with OHM’s “exorbitant privilege” as a reserve-backed asset.
You can learn more about us through our Linktree and our recently published whitepaper.
Background
FIAT DAO was launched as an answer to a perceived need for affordable, cost-efficient leverage and secondary liquidity for DeFi fixed income assets. The protocol will allow users to bring accepted collateral and mint $FIAT, short for Fixed Income Asset Token, against it, with the expectation that $FIAT behaves as a stable value asset in secondary markets. Successful execution of the concept will unlock a variety of use cases for DeFi fixed income assets:
Releveraging: Users who are able to sell, borrow against, or mint further assets with their FIAT are in a position to then deposit more collateral into the protocol with the proceeds. Depending on the slippage along the way, such pathways could be repeated multiple times, allowing users to create levered fixed yield positions multiples greater than that of their original asset’s coupon.
Secondary Markets: All assets collateralized in FIAT will be valued in (relative) real-time as a function of their underlying asset’s volatility, the secondary value of $FIAT, and the asset’s time to maturity. This means that any two depositors of collateral can compare their assets and conduct swaps, with any delta in value being covered by the lower-valued party sourcing $FIAT off of the secondary market.
Interest Rate Derivatives: All collateral deposited into FIAT will have an attached coupon that, presumably, compensated for the time value of money at the time the respective bond was minted. Over the duration of the bond, however, it could be the case that prevailing interest rates in the open market change, impacting the value of the collateral even if the underlying asset were to experience zero price volatility. $FIAT-margined interest rate derivatives would provide a mechanism for hedging this risk.
Motivation
One of our primary innovations is the concept of “hedge vaults.” In order to accept fixed income assets denominated in non-stable assets like $OHM, it is imperative that the protocol is capable of hedging downside volatility for the asset’s duration. Hedge vaults allow for such protection to be acquired and distributed at the protocol-level, with each approved collateral type having its own specific process flow(s) for accomplishing it.
We’re eager to pilot the concept in the early days of the protocol in collaboration with OlympusDAO for $gOHM bonds in order to offer high loan-to-value positions that reduce the burden of the lockup period for the holder. We believe that, should the pilot prove successful, FIAT DAO can help facilitate the introduction of longer-term bonds as well as emulate the model for Olympus Pro partners.
Proposed Terms
The terms of the DAO token swap would be as follows:
FIAT DAO
Assets to be Provided
- 0.5% of FDT supply to swapped for OHM immediately
- 0.5% of FDT supply to be vested linearly over the next year to Olympus
Commitments
Development resources for OHMptions minimum viable product as described below
Collaboration on treasury bond concept
Eventual support for Olympus Pro v2 bonds
Commitment to retain the swapped OHM
Olympus DAO
Assets to be Provided
- 0.5% worth of FDT supply in OHM provided immediately to Fiat DAO
- 0.5% of FDT supply to be vested linearly over the next year to Olympus
Commitments
Implementation and prioritization of OHMptions minimum viable product as described below
Commitment to the exploration of the other described areas of collaboration subject to further governance votes as required
Commitment to retain the swapped FDT
Rationale
Under these terms, FIAT DAO will be providing 1% of $FDT supply to Olympus DAO at a 50% discount to prevailing market prices. OlympusDAO would be entrusted with half this amount liquid from the commencement. The vesting schedule on the other half would be faster than that of seed contributors (two years) as well as that of initial core contributors (three years). FIAT DAO is further committed to providing development resources for two key integrations which are expanded upon in the “Development Commitments” section.
FIAT DAO will look to accumulate $gOHM in order to have a material say in OlympusDAO governance. FIAT-OHM bonds are our ultimate priority in the future for this partnership. Providing liquidity for $gOHM will also be considered a viable treasury strategy for the DAO.
Additional context around this offer should also be considered. To date, FIAT DAO has allocated 0.5% of its token supply to the OlympusDAO community via the Jubilee event that took place throughout November. Moreover, another 1.1% of token supply is being distributed via liquidity mining rewards to providers pairing FDT against wsOHM and gOHM on Sushiswap - not to mention the further 0.5% of supply set aside for Olympus Pro. OlympusDAO will have thus received, either directly or to its community, 3.1% of FDT supply under the terms of this proposal.
Prospective Partner Integrations
FIAT DAO sees three primary integrations to be built with OlympusDAO:
Short-Term: “OHMptions”
Medium-Term: Olympus Treasury Bonds
Long-Term: FIAT-OHM Bonds
FIAT DAO would be in a position to aid in the prioritization of these development goals.
OHMptions
FIAT can offer leverage against $gOHM bonds for the duration of their maturity by accepting it as collateral. In order to provide the highest loan-to-value ratio possible, it is important to account for the volatility of the underlying $OHM. This can be accomplished via the concept of OHMptions.
OHMptions would allow a user to redeem their $gOHM bond for some portion of the principal they provided originally. This would amount to a premium being paid to the treasury. OHMptions could be represented as an ERC-20 token if the main attributes such as maturity and exercise price are standardized, or as a hybrid token if issued with attributes specific to the $gOHM bond they are issued for. Depending on this choice, secondary markets not only for the $gOHM bonds but also OHMptions could evolve.
A user who deposits both a $gOHM bond as well as a commensurate amount of OHMptions into FIAT could effectively free the value of their collateral at the exercise price and access high loan-to-value ratios against the position. Should an OHMption be exercised, the $gOHM is returned to the Olympus DAO treasury and burned, while the treasury retains a profit equivalent to the premium paid. Notably, whether the OHMption is exercised or not, either scenario is positive for OlympusDAO.
As mentioned above, should this implementation prove successful, it would a) be repeatable across all Olympus Pro partners, and b) be similarly used for OlympusDAO bonds of longer duration in the future.
Olympus Treasury Bonds
BarnBridge SMART Yield presented a model in which one entity puts up its assets as yield for a counter-party’s larger principal, on the condition that the yield earned by the aggregate amount goes to the former. This model can be replicated by OlympusDAO insofar as its stablecoin reserves could be offered up as yield for external entities. Within the context of the DAO’s ongoing accumulation of Convex tokens and Curve Finance voting power, such an offering could allow the treasury to earn subsidized variable yields.
In practice, the treasury would offer a certain fixed rate to external users. Users who participate would provide their principal to OlympusDAO for the duration of the bond. OlympusDAO would take the principal given and the yield offered, and then earn yield on the aggregate amount. OlympusDAO earns a positive yield if the amount earned by this total sum outweighs the assets committed for user yield.
For example:
OlympusDAO offers 5% annualized yield via a zero coupon bond.
User A brings $1M to the platform and receives an IOU
OlympusDAO yield farms the $1,050,000 for the year-long period
User A redeems their IOU for $1,050,000 at maturity and OlympusDAO retains yields earned
For users to be interested in treasury bonds, however, will require them to get more utility than single-digit yields on stablecoins. Were FIAT DAO to accept such treasury bonds, the program would prove more popular and potentially constitute a viable revenue stream for the treasury at scale.
FIAT-OHM Bonds
The end goal of a FIAT DAO / OlympusDAO partnership is for FIAT to be viewed as a suitable treasury asset for Olympus, as FRAX and LUSD have been deemed to date. Such support would allow FIAT DAO users to recursively mint FIAT against their gOHM bonds and then sell FIAT to OlympusDAO for more gOHM bonds. OlympusDAO would see relatively high fee revenue from such a pool as well as benefit from the implications of rapid OHM expansion, especially when paired with the aforementioned OHMptions concept.
While supporting FIAT-OHM bonds would obviously be an OlympusDAO task, facilitating the releveraging process via a one-click interface would be a development priority on the FIAT DAO roadmap.
Proposal
Approve the implementation and prioritization of minimal viable product for Ohmptions as described above and the exploration of the other areas of collaboration subject to further governance votes as required.
Approve Treasury swap of OHM for 1% of $FDT supply at a 50% discount, with 0.5% of the FDT vested immediately to Olympus and 0.5% FDT to be vested to Olympus over 12 months.
Olympus will provide 0.5% FDT supply worth of OHM vested immediately to Fiat DAO.
Both Olympus and Fiat DAO commit to retain the swapped tokens.
A 7 day historical TWAP from the date of announcement of this proposal will be used for conducting the swap should this proposal be approved by community governance.
Please join Fiat DAO along with contributors from our partnerships team for an AMA here in Olympus Discord on Monday the 18th at 8:30pm UTC (3:30pm EST).
