NipseyHodl

  • Mar 8, 2024
  • Joined Aug 13, 2021
  • Voting against the configuration as I see this is game-theoretically suboptimal.

    In a limited capacity outcome, all else equal, holders benefit in backing appreciation. Borrowers, however, benefit from both backing appreciation AND returns on borrowed capital (dual value accrual). This splits community into "haves" and "have-nots"; since interest is collected on repayment & Cooler has built-in roll functionality, this inequality can be continued in perpetuity. Here is how I see the payoff matrix between borrowers and holders:

    1. In $69M cap + 0.5% interest rate scenario, borrowers benefit bigly (3), holders lose out on $69M capital allocation (1).

    2. In $69M + 3.3% interest rate scenario, deal is less sweet for borrowers (2) but still competitive to any other lending market. They also benefit in backing increase from 3.3% interest, as do holders (2). There is a way to further optimize this in favor of holders which I’ll share below.

    3. In full capacity + 0.5% scenario, facility is open to all so everyone has same payoff (3,3)

    4. In full capacity + 3.3% scenario, higher interest rates are less attractive to borrowers but benefit holders (2,2).

    The current configuration is not a Nash equilibrium (as the holder and borrower have a better payoff state). I don’t see how the protocol can continue to function under this fundamental dynamic of unfairness.

    So what’s the solution? Full capacity is one solution that solves this unfairness. However, the implications are not fully thought out and this will fundamentally change OHM’s intended use case from the direction we are headed now.

    Another solution can be a variation of borrowers paying holders. In this case, value transfer flows from borrowers directly to holders rather than to the protocol. This removes the dual value accrual property and creates incentives for holders.

    Other solutions probably exist that get us out of this sub-optimal state.

    I’m interested in exploring all of these pathways but think prudence and careful consideration must be considered. I will go on record to say that the artificial urgency created by the community for this proposal is impulsive and reckless.

    To address remaining parameters: 

    • I care less about LTV as it’s useful insofar it’s accretive to protocol & remaining backers. A low LTV balances lender risk and borrower appetite.

    • I’m for shorter tenors to increase observation frequency and flush non-believers as soon as possible. A smaller aligned community is better than a large non-aligned community. 

    • I want to find ways to realize revenue upfront. Value should accrue instantly rather than taking on time risk.

    • My considerations are as follows:

      1. Interest rate:

        -It seems to me the justification for 3.3% comes from that if there is finite amount to borrow i.e. $33M - then those who borrow can get the benefit of the cheap loan and also the benefit the invested underlying treasury. Holders who do not borrow (or do not get to because of capacity) miss out with no benefit. The particular decision for 3.3% seems to be based on the recent updating of the proposed DSR rate - the mantra 'why shouldn't the treasury just put the DAI in the DSR and then we can all enjoy the rate together.' In the medium term the DSR rate will come down and we will agane have to come back and discuss rates - which will be irritating. If we are to adopt the logic of the 3.3% rate we should consider what a ongoing rate is appropriately adapted to meet the concern of the borrowers free lunch maybe 1.1% or 2.2% would serve better in this role. With that said the 3.3% rate will be better than the current situation of paying other protocols for something we can do ourselves - but would not move the needle on mind share, building or OHM as a desirable treasury asset.

        -Unsurprisingly then I support 0.5% rate. The main reason for this is that in order to win we need others to build on top of OHM. This low rate in the current climate will make it irresistible to build on top of and integrate OHM, it makes OHM a unique asset in defi and does this by leveraging our competitive advantage - our treasury. The most popular building blocks for Ohmies will be OHM compounding - lead to trading above backing (monetary premium) and network growth. No one is building or indeed is planning on building on top of OHM - this has the potential to change that calculus. In terms of the borrowers vs non-borrowers arb, I actually see this as a positive because it will compel participation in the econOHMy and if you don't want to then big deal you lose 1 or 2 percent when rates come back down (sooner than you think). The rate also compounds for example if my product is 2x OHM exposure and pay down my debt with alUSD 0.5%x2 is 1% and 3.3%x2 is 6.6% (as Potted points out https://twitter.com/pottedthings/status/1669720228337442816). If you must justify it to ourselves in another way then we should see this as the best marketing budget you could ever buy, because if the objective is to trade above backing then it is symbiotic for non-borrowing holders even if they get a technical clip.

      2. I don't have strong view on the tenor arguments either way but 12 month seems to have been strongly supported

      3. The $3000 LTV will make a lot more sense once we have completed migration imo and I would support it if we can get clearer data (ETH pumps in the interim). If my choices are more builders on top of OHM or less exposure to ETH upside I will choose the former.

      4. Capacity I am agnostic we can always increase as high as it needs to go

      Finally fwiw (and those who have been around for a while will come as no surprise), I think this really all does highlight that we could have our cake and eat it too from the upsides and downsides of this (as much as one can) if we used our treasury & resources to standup a LST/gOHM backed stablecoin…

    • In light of various discussions, I will re-post my current calibration:

      • Low interest rate optimizes for less defaults & more repayment.
      • Higher interest rate optimizes for treasury growth & more defaults.
      • Shorter tenor should aim for more collections & assume folks don't want to default, but if they do - they can fuck off sooner
      • Longer tenor should optimize for lowest likelihood of default & also posture as a truly unique product (no other protocol could offer this; hence going against market logic)

      Given this, I personally like a few parameters (all with 69m cap):

      • 2850, 3.3%, 3 months (I voted for this)
      • 2850, 0.5%, 12 months
      • 3000, 3.3%, 3 months
      • 3000, 0.5%, 12 months

      Since the winning parameters don't fit any of my above thoughts, I voted do not approve.

      • Currently Olympus Bleeds liquidity.

        How does Olympus bleed?
        1)gOHM liquidity pools / proteus emissions
        2) Conducting treasury buybacks while having non-stable LPs up.

        What steps can policy take to stop the bleeding?

        1) Stop incentivizing gOHM-xyz pools crosschain and scrap the idea of gOHM/xyz LPs in general.

        If we have two LPs, gOHM/ETH and OHM/ETH and the interest rate for a 5 day period is 3%. Assuming price is stable at the end of the 5 day period. You have two LPs down 1.5% in value (assuming they have the same liquidity if not it's just a smaller sell from gOHM/ETH into OHM/ETH). This is just a slow bleed of liquidity from arbitrage cross-chain. It doesn't matter if the asset it's tethered to is volatile or not. if its stable-coin LPs we bleed against stables, if its ETH LPs we bleed against ETH. We need to be taking every step to stop the bleeding if we are going to exist here for 2 years with an interest rate. This is not marginal.

        Solution: Disincentivize and disband any gOHM liquidity pools and make the OHM token crosschain so people can wrap in and out of gOHM like they do on mainnet while having OHM-xyz LPs crosschain. Stop minting protocol emissions into LPs, it's just a liquidity drain. "The protocol doesn't own its crosschain liquidity" Why would the protocol not move 5-10mill worth of liquidity cross chain for itself? We risk more than this in yield farming protocols.

        2). While conducting buybacks remove ETH LPs, kill incentivizes for non-stable LP pairings.

        By not removing OHM/ETH LPs the treasury is essentially agreeing to buy ETH at current market prices.
        "But trading fees" Who cares about trading fees when the treasury is actively trying to manipulate its market to a certain price. The goal of the buybacks should be to move price with the least amount of resistance. What we saw with ohm and the dump from the day of inverse bonds was that policy pretty much actively told people to buy ohm because "muh inverse bonds" People leveraged up. They then removed liquidity and eth started to roll over and had a drop which led to people selling because OHM/ETH drags OHM down. Since there is less liquidity it's more drastic of a dump. "How do you know this is what happened" I literally sold some ohm for this exact reason at $26. The treasury is taking a directional trade by doing buybacks with volatile LPs.

        NOTE: It's important to understand by doing this we are not "Timing eth" We are simply removing extra volatility while the treasury makes an attempt to move the price of OHM. If the price of ETH goes up the treasury has more ETH backing than if we had all that ETH in LPs. If the price of ETH goes down, we don't get dragged down while trying to conduct market operations. Once at desired target simply re-add eth LP to re-capitalize on the trading fees.

        If any response to this is "it's marginal" You haven't done everything possible to stop the bleeding. We have been minting free arbitrage into liquidity pools for months, I've brought it up multiple times in the discord and the only response I've ever gotten is "it's marginal" Literally nothing policy has done has worked and it's time to stop the bleeding by putting a tourniquet on residual emissions that relate to free arbitrage for MEV bots.

        Olympus emissions should be an OPT in system. I.E. No emissions should go directly into LPs. Only to stakers.

        TLDR;

        gOHM LPs mint free arbitrage crosschain that take liquidity out of olympus

        Buybacks in their current form are just the protocol buying current emissions (gohm LP) and ETH.

        The Treasury is taking a directional trade by conducting buybacks with an eth LP. (Don't care how small current LP is if policy cared they'd take every action necessary.)

        Re-add eth LPs once the proper target for ohm has been achieved.

        Actions to take:
        Remove Ohm/eth LP during buybacks/ market operations, Disable proteus all together(It's in motion but optimism, polygon, arbitrum still paying out? Talk to trader joe to disincentivize avax/gohm pool), Make the OHM token crosschain and disincentivize the use of gOHM/xyz liqudity pools / allow people to wrap in and out of gOHM natively on each chain