Understood.
"It will describe each step and process for implementation, to be followed verbatim unless and until a future proposal affects changes."
This is intentionally precise so I wanted to make the implicit explicit rather than having any more subjective run around. Been enough of that already. Either way, happy to carry out the will of the community once terms are understood and decisions are made.
My considerations are as follows:
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.
I don't have strong view on the tenor arguments either way but 12 month seems to have been strongly supported
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.
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…
Background: This is a formal proposal version of a previous RFC you can find here. Proposal options have been structured taking debates into account.
Proposal: Conduct three votes (seen below) and initiate a moratorium on re-locking of any assets while proposal remains undecided.
Vote One:
Offer Cooler Loans with capacity for all tokens
Offer Cooler Loans with 69m DAI capacity
Offer Cooler Loans with 33m DAI capacity
Do not offer Cooler Loans
Vote Two:
Offer Cooler Loans at 3,000 DAI per gOHM
Offer Cooler Loans at 2,850 DAI per gOHM
Offer Cooler Loans at 2,500 DAI per gOHM
Offer Cooler Loans at 2,000 DAI per gOHM
Vote Three:
Offer Cooler Loans at 0.5% P.A.
Offer Cooler Loans at 1.1% P.A.
Offer Cooler Loans at 2.2% P.A.
Offer Cooler Loans at 3.3% P.A.
Timeline: These three votes should be held in tandem in coming days (I defer to the DAO here). If vote one does not conclude with option four, the following steps would be taken:
Cooler Loans enter a second audit.
Volatile assets are reduced in proportion to capacity (i.e. 33m DAI would be capacity for 18.5% supply, so 18.5% reduction); illiquid assets prioritised for reduction over ETH.
RBS is tuned to ensure lower cushion >= loan-to-collateral.
Simple front end is developed.
Cooler Loans are deployed.
Clearinghouse is deployed and installed to kernel.
Having taken the time to read all the input by many stakeholders in this forum post, I wanted to add my 2 cents as well. I won't rehash most of what has been said already since walls of text generally don't really help, yet want to point out some points which are not sufficiently covered in my opinion.
1.
Even without taking into account that the proposal would result in the discontinuation of the DAO, any limited capacity above current market LTV's is undemocratic and goes against most of the principles Olympus has been operated with to date. It would result in a situation where only a subsection of the holders can 'cash out' at RFV. It would also result in a short spike in price, while ultimately going back to the current state because the capacity has been filled. Unless there is a strong conviction that only a subset of people would use this loan and would voluntarily leave 170 dollar per gohm on the table, this option is not a feasible one.
2.
Overall, the fact that we've been trading under our NAV has been an ever-growing stain on the project, the token and the DAO. Overall, outsiders and especially institutional investors see this as a validation that either:
- The project has been burned by its success and (according to them) downfall
- The DAO isn't providing any value and if anything is a detriment to the token
- There is no redemption at NAV, which justifies the discount
- There is no market for a token like OHM
While I'm convinced that the road we've been taking over the year (Implementing RBS, creating projects that drive utility) is the right one, I am conscious of the fact that the longer this situation exists, the worse it will get.
3.
I personally do not believe people will pay back their loans, since most will use this as a redemption against the treasury. Thus, the interest rate, in its current design of it being harvested when paying back the loan, would never be called upon anyway. If anything, a high interest rate would deter people from paying back, in the case OHM would trade at a premium. On top of this, in the current design, the interest rates go back to the holders anyway.
An improvement in case of unlimited capacity would be to take the interest rate up front and use that as a working budget to maintain the website, secure the contracts and water the plants till the projects eventually doesn't need maintenance anymore.
Overall, I do think the current design is a clear choice between continuing on the journey we've set out a year ago or calling it a day. In my opinion, voters should be given a version of this proposal which could co-exist with current projects and the DAO should investigate measures to bring us to NAV in the short term since this clearly resonates with a lot of holders.
Gm and thanks for putting this together @nicnombre
I generally agree with expanding lending capacity but disagree to the extent being proposed. I think we can achieve the same goals with less capital but before I go into this, I want to align on the benefits of Cooler Loans.
Benefits
First, this solves a real pain point for users. There’s about $10M in debt against gOHM with some markets charging up to 10.5% APR. Most markets are maxxed out in capacity which demonstrates demand for leverage amongst ohmies. Expanding capacity at competitive interest rates will allow these borrowers to refinance. You don’t need full consolidation to achieve this, however.
Second, this should bring us back to Liquid Backing (LB) simply by opening an arbitrage between current market price (2832 DAI) and target price (3000 DAI). Moving away from lower cushion is beneficial as it reduces RBS expenditures and *may* trigger upper ranges of RBS. Again, I don’t think full consolidation to achieve this.
Third, this strengthens OHM’s narrative as “good collateral”. Today, market makers incur slippage via xy=k liquidity which reduces ROI and eliminates some arb strategies. This introduces a novel form of liquidity with only a fixed 0.5% slippage. New opportunities open up but only if traders and market makers hold OHM (thereby driving demand for OHM).
Finally, on a philosophical level, this makes explicit that backing is a utility *for* shareholders. This aligns with crypto’s ethos of building resilient systems by removing single points of failure.
Shortcomings
So what’s not to like? I see this proposal as pushing OHM deeper into a Store-of-Value narrative at expense of Medium-of-Exchange narrative. Why? Consider that today's stablecoin supply sits at $125B and OHM makes up only 0.16%. To be a common pair for DeFi requires expanding supply to match demand. Furthermore, full treasury consolidation will eliminate BLV as it may dilute backing and requires non-DAI assets to incentivize third-party liquidity.
Naturally, I’ve seen a form of the following counter-argument: the current liquidity strategy has not led to price appreciation. Therefore, we must abandon and try something else. This is short-term thinking; a balanced approach achieves both. Let’s establish facts about the current liquidity strategy.
First, I want to point out that in the past year, we’ve seen OHM liquidity reduce from 100% POL to 80% POL (https://dune.com/spoysp/top-ohm-pools). BLV and bribes will continue bringing that ratio down. This is actually beneficial for Cooler Loans as capital locked in POL can be re-hypotheticated toward supporting larger lending market capacity.
Second, there is clearly demand for OHM liquidity. stETH BLV vault sits at $3.2M and is the largest stable-stETH pool in DeFi (https://defillama.com/yields?token=STETH). OHM-FRAX is the 7th largest stable-FRAX pool in DeFi (https://defillama.com/yields?token=FRAX). This is not counting a pipeline of 9 LSD+stablecoin partners interested in BLV (which would result in +9 counter-pairs).
Third, cross-chain liquidity achieves a dual purpose: unlock opportunities for ohmies that are priced and capitalize on Arbitrum momentum. On the former, 92% of holders (34,138) hold less than 1 gOHM; high gas fees prevent participation in most trading strategies. On the latter, there’s significant demand for OHM liquidity on Arbitrum. Case in point, within 1 month of launching we’ve already integrated 2 partners.
This is by no means product-market fit (yet) but this is progress toward making OHM a common trading pair. The path forward should be to scale these initiatives rather than killing them right when things are getting good. What does this path look like?
The path forward
I see a balanced path that achieves the goals of Cooler Loans AND makes OHM a common trading pair. What does this balance look like?
First, I want to expand on what we’re trying to achieve here:
Refinance borrowing into lower interest rates by tapping into backing
Bring OHM back to liquid backing
Introduce enough volatility to activate RBS
I believe these goals can be achieved (or at least validated/invalidated) on a smaller deployment of Cooler Loans. How?
On the point of refinancing, there is about ~$10M outstanding debt against gOHM. The minimum capacity should accommodate those borrowers.
On the point of bringing us back to backing, the deep POL sitting in AMM (presently, ~$60M) works against this proposal by requiring large directional pressure to push price (~$2M to get to upper cushion). Reducing liquidity and implementing Cooler Loans on a smaller scale will bring us to liquid backing but does so with less capital.
The added benefit of reduced liquidity is more volatility. This coupled with supply locked in Cooler Loans *should* activate upper ranges of RBS.
Conclusion
To summarize: I generally agree with expanding lending capacity but disagree to the extent being proposed. I think we can achieve the same goals with less capital. This proposal should not be taken lightly and I suggest the community consider both short-term and long-term implications of the proposal as it’s currently written.
0xFelix it is already used and listed in defi. Think of this proposal as liquity recognising that ETH is a reserve asset and setting the floor on borrowing against it at 0.5%. It makes ETH more useful not less, even if it boxes out other protocol's business cases.
If competitors can compete with the interest rate they will, if they can't they won't
We don't need to live under an inefficient market system that says a backed token needs a 6% interest rate - as a community we can use the treasury to set the market rate and others can build a network of products and services around that.
We have an advantage over other protocols wanting to be the reserve currency, we have a treasury! and we should use it to box out the competition!! The best way to do that is to ensure it is regarded as a prisitine collateral with best in class rates and this proposal provides a vehicle for doing that
This is music to my ears - of course the reserve asset of defi should have the lowest borrowing rate!
I am confused how this would work - the way it seems to me is we would have the same exposure wrt to IL on the OHM as ETH
Yeah sorry I worded that badly, the protocol is still exposed to IL risk except that it is denominated in a single asset that we minted into the pool. I.e. either OHM is being bought out of the pool or it's being sold into the pool and as a result of that the protocol ends up slowly releasing supply or slowly buying back supply. One potential advantage here is that we can substitute the ETH POL for ETH BLE and use the freed up ETH for staking and/or yield strategies.
for the marginal cost of incentives to the pool.
In today's environment this is not true though true. A good example is the OHM/FRAXBP pool, which we heavily incentivize through voting power and it's still at 25% yield for a pool that essentially has 0 IL.
The only benefit of organizing it the way you described is that there would be an easy solution for retail users to add OHM to the pool. While that may have a (marginal?) increase in uptake vs. directly LPing on a DEX, it negates most of the benefits this product has, e.g. that we can do this at zero cost of capital. Why would other protocols want to participate in this if it essentially becomes traditional liquidity mining? At that point they might as well bribe Convex/Aura directly to increase their liquidity. The biggest advantage of using the BLE is that it makes incentivizing liquidity 50% cheaper for partners plus we throw in additional voting power for the first few vaults.
Now, that's not to say that we shouldn't create more opportunities for retail users to LP directly and in an easy manner. That is important and we are working with other protocols on potential solutions for that. The BLE just isn't the right product for that. It really is meant to be a B2B product that leverages some key aspects that are unique to Olympus (like the zero cost of capital).
Thanks 0xFelix
Just a little further:
I.e. we could potentially externalize the downsides of having ETH POL.
I am confused how this would work - the way it seems to me is we would have the same exposure wrt to IL on the OHM as ETH (other than the fact it is wstETH)
2) you could argue that POL doesn't scale indefinitely, especially in an environment where there are no new bond sales.
This would be a drastic departure from the current consensus for how the protocol should operate and would have the potential effect of chicken egging no new bond sales.
What it seems to me:
The biggest issue here imo is that this product could just as easily be vaults on the frontend for OHM holders rather than it being deployed from the protocol. I.e make front-end get OHM holders to deploy OHM (with a withdrawal delay period) providing them volatility exposure to ETH, pool incentives and trading fees. This would provide the upsides + drive monetary premium to OHM + provide utility + more net net liquidity = for the marginal cost of incentives to the pool.
Please don't take this the wrong way - I think this pilot should go ahead and I love we are exploring this landscape. I am just concerned the impacts of entering into long term arrangements at exactly the time we are looking to reduce/remove the staking rate. This is exactly the type of product that could present an attractive alternative for holders from staking and, imo, could scale much further and more broadly if it is OHM holders providing the liquidity.
This is a unpleasant but necessary tool - let's get it done
I'd be interested to understand more the diversify backing narrative - seems a bit pipe dreamy unless we make it very attractive at the expense of holders
Thank you for posting this, Felix. Having OHM as a borrowable asset will promote protocol health and prevent unsustainable premiums as our lending market activity increases. The ability to diversify backing while earning on the OHM that is lent out is a huge accomplishment, and I look forward to seeing the launch of this project.
The election procedure you've laid out here is great and I don't know why going through this process right now wouldn't be a huge benefit to the community.
I'm grateful for the transparency reports, but the council simply being in power while developers and internal teams churn out new features and proposals doesn't actually give us any insight into the role and day-to-day functions of the council.
What roles do Apollo, Hohmward, Jala, Shadow and Wartull perform? What do you discuss during your meetings? What are your individual motivations and vision for Olympus? What do you each bring to the council?
You mention there's a risk of candidates experiencing censorship. Were there DAO contributors who had a desire to run for the initial council that were overlooked? I'd like for them to have access to this new election system to make their voices heard.
Thank you for recognizing the hard work that has gone into the protocol and the products this past year that has impacted the Olympus Protocol as a whole.
To address your concerns- Olympus has global contributors. All costs of living are not created equally, and the base comp was not guaranteed as a salary. While the number certainly isn't negligible I'd be remiss if it wasn't made clear:
-Nobody has signed contracts
-There's no healthcare
-No 401k match
-No vesting tokens
-No other benefits
-Contributors carry the full tax burden
-Variability in comp from month to month
So while there is the flexibility of working remote, there's also the demand of conforming to the groups meeting times even if inconvenient personally. Additionally most weekends you'll see contributors posting, and I saw far too many active on the holidays. There's no guarantee that you'll have the same comp from month to month, and at some arbitrary time the community could put forth an OIP that would drastically impact your ability to pay the bills. As you said, Olympus is a startup. And adding to that risk, it's a defi startup.
I think contributors still worked diligently to ship, and I'm sure you can see how it would be frustrating when you've taken on the risk, put in extra effort to try and hit the goals, and it doesn't move the needle. Here's the thing, the projects that we shipped, didn't. I think our OKR's missed the mark twofold, not only were they market based and out of contributors direct impact, they also didn't align with shipping things like RBS that, arguably, improve the protocols health.
And I think that is the biggest factor of them all. Building products that improve the protocol's ability to support OHM as a currency are not the same products you'd build if you were strictly playing a number go up game.
In other words, I believe it would be difficult to replace the team we have now for the same costs, and there certainly wouldn't be the cohesion + baseline knowledge that has formed allowing for easier collaboration and production. The contributors who are here now are here because they believe in Olympus. These comp discussions are brutal for the team and I don't think contributors would stick around if it wasn't for the deep rooted desire to help Olympus be successful.
Hi Zeke, as per usual thank you for your input on this proposal in a clear manner!
On the first point, I disagree firmly. When creating this proposal we looked at several compensation studies done in the industry which clearly showed Olympus was paying above market rate. Many of these studies were on contractor level. In DeFi especially, many companies only employ contractors, Olympus isn't an exception and the salaries you can find are generally for contractors. On top of that, the flexibility of a job at Olympus is hard to find in an employee agreement. If we are very honest with ourselves I think the majority of contributors are not working 8h+ for Olympus.
Personally and anecdotally, I floated our compensation structure to many defi projects in the space who confirmed my belief that we are compensating in a competitive manner (even without equity). It's hard to share screenshots or personal conversations since this is a sensitive topic, so disregard if you must.
Author
Agora Contributors
Summary
Deposit $2M FRAX into the GOHM/FRAX pair on Fraxlend
Motivation
Fraxlend is the largest mainnet destination for borrowing against gOHM and is an isolated lending pair market.
The gOHM/FRAX Fraxlend pair currently has:
a current approval of the Frax AMO to deploy $5M FRAX to be borrowed
a current deployment of ~$4.5M FRAX
a utilization of $3.3M
a borrow APR of ~8% over the last 30 days; and
a lend APR of ~6% over the past 30 days
More facts about the pool here.
OHM’s value as a reserve asset is greatly increased when it can be borrowed against - allowing holders to pursue other opportunities in the market while maintaining their exposure to the pristine collateral that is OHM. This will also earn an attractive interest rate on the deployment of the FRAX.
Fraxlend docs are available here.
Risk Assessment
Fraxlend is an isolated lending pair market built by Frax and audited by Trail of Bits - it has been running in production since September 2022 and has a current TVL of >$160M. The likelihood of an exploit is considered minimal.
If there is an exploit of the Fraxlend protocol it will likely affect the backing of the currently held FRAX in the Treasury & the portion of that FRAX which is proposed to be deployed in this proposal. To the extent we consider the effect of an exploit - the community should also consider that, to at least a degree, that exposure is already inherent to the very act of holding FRAX.
Given Fraxlend allows partial liquidations, the LTV of the pool at 75%, and that OHM is currently trading below backing the likelihood of bad debt is minimal.
Deployment Parameters
The proposal directs the Treasury to deploy the FRAX in two transactions two weeks apart (or other schedule deemed appropriate & communicated to the community) as soon as practicable after the passing of the proposal. The tranching of deployments is done in consideration of exploit risk.
The proposal also includes authority for the Treasury to migrate liquidity to Fraxlend V2 which is currently under audit by Trail of Bits at a rate or schedule deemed appropriate.
Proposal
For: Direct the DAO to deploy $2M in FRAX to Fraxlend GOHM/FRAX pair as described above
Against: Do nothing
This is an easy-yes for me - needed utility and a low-risk trial with a comparison measure. Nice work team!
Great to see the team is focused on developing utility for OHM. Full support and Great work partnership team!
Very well thought out plan here. Thanks for all the hard work on trying to cement OHM in the ecosystem.
The proposed pilot programme is the first foray of Olympus in DeFi lending markets and aims to introduce and promote OHM as a borrowable asset. More specifically, through this programme the protocol would mint up to 200k OHM and lend it out (in tranches) on Silo and Euler to test demand and interest rate models.
Up to this point most integrations of OHM/gOHM in lending markets have focused on the collateral-side. With the recent changes through RBS and the resulting price stability and low volatility, OHM/gOHM are becoming preferred collateral assets to use - as the recent listings on Silo Finance and Fraxlend have shown. At the same time, it is important for the protocol to also start focusing on the lending-side of the market and to promote OHM as a good borrowable asset as well.
There are a few different reasons why. For borrowers it diversifies options to borrow “stable-ish” assets beyond just USD stablecoins. For traders and speculators it provides the option to hedge or short OHM, both of which are not easily doable today. While this may seem like a downside, shorting or hedging allows for more natural market dynamics and price discovery, and helps to prevent unsustainable premiums. For Ohmies lending markets also adds additional utility in that they can lend out OHM to interested parties on various lending platforms.
More importantly though - from the protocol’s perspective - is that lending markets allow for more efficient scaling of OHM as well as diversifying the assets that back circulating OHM. Rather than being exclusively backed by treasury assets, OHM minted into credit markets would be backed by a basket of collateral assets (or rather, a claim on those assets). As a result, the OHM supply could theoretically grow without increasing the treasury assets and/or diluting liquid backing of the floating supply.
Finally, Olympus will also be earning OHM-denominated yield on OHM that is lent out, creating a new income stream for the protocol.
Contracts
Minted OHM for lending markets will be supplied through a lending AMO that is currently under development (and will go into audit afterwards). Depending on the timeline of the contract deployment, this OIP also allows for seeding the initial OHM lending markets through a multisig in order to start these pilot markets as soon as possible. After deploying the lending AMO contracts the multisig would unwind its position, while the lending AMO scales into them.
Pilot markets
For this pilot Euler and Silo Finance were selected as the initial lending markets. Both have the option of OHM as a borrowable asset and we’ve worked with both teams to set an interest rate model that makes sense for the protocol.
Euler currently has a TVL of $189m and has been audited by several firms including Halborn, Solidified and ZK Labs, Certora and Sherlock. Collateral assets on Euler (i.e. assets that OHM can be borrowed against) are stablecoins such as USDC, DAI, and USDT, ETH and liquid staking derivatives such as stETH and wstETH, and WBTC. For more information on Euler please see here.
Silo Finance is a newer lending market and focuses on isolated lending pools. It currently has a TVL of $22m and has been audited by Certora, ABDK, and Quantstamp. Collateral assets on Silo are ETH and XAI, their stablecoin (currently backed by USDC and ETH). For more information on Silo please see here.
Capacity
The maximum OHM minted through the pilot programme is 200k. These funds will not be lent out all at once but instead will be added to the pilot lending markets in tranches, both to see the scaling of demand as well as to manage interest rates (see below). Note that any OHM minted but not borrowed will not increase the circulating supply. Only after a borrower deposits collateral and borrows OHM will this be considered part of the circulating OHM supply.
Interest rates
Managing the OHM interest rates in these pilot lending markets will be key. If interest rates are low, it would incentivize users to borrow OHM and stake it, netting the difference between those two rates. If interest rates are high, it obviously discourages people from borrowing OHM in the first place. Through the pilot programme and lending AMO the protocol could add or withdraw liquidity in order to keep the interest rates at a level where it is both profitable for the protocol as well as interesting for the borrower.
Euler and Silo both have different interest rate models. The Euler OHM market will have a base interest rate of 5% (at 0% utilization) with a kink interest rate of 20% before increasing exponentially. The Silo interest rate model is still being finalized and works differently than Euler, but at an “optimal utilization” of the market the rate would be close to today’s staking rate.
Throughout this pilot programme, the protocol will be tracking key performance metrics. Indicators of success for this pilot would be:
On top of that we will also track utilization rates, changes in circulating OHM backing (i.e. the ratio PCV-backed vs. collateral-backed OHM), and gross interest rate income for the treasury.
Depending on the performance of these pilot markets another OIP can be created to scale the capacity or to add additional lending markets.
The polling period begins now and will end on Tuesday (10th of January). Afterwards, this OIP will be added to Snapshot for a final vote.
