[ABIP-14] [RFC] - 3²,3² Open gOHM bonds up to 33% of treasury

Note: This is a proposal that has not been discussed internally either yet. I am putting this out there as a game theory / discussion excersice. Since this proposal is also something that will divide the community, the vote (if this goes to vote) will require 75%+ threshold.

Please comment, discuss and game this.

Summary
Open up gOHM bonds that have a floor min price defined against them. Increase gOHM to 33% of treasury.

Maintain OHM at 33% of treasury.

Motivation

One of the differentiating factors for Abachi is how it treats yields and its choice of OHM. We want to be able to grow the protocol and want to offer incentives in OHM to do so.

Treasury is currently holding ~6500 OHM. This is a big feat considering it puts us at top of the list of protocols aligned in the Olympus ecosystem. Objectively, when measuring against FDV and OHM holdings per token (ABI), we are currently #1.

  • We are not an official partner (we are frens)
  • We have no obligation or promise to keep or sell OHM (yet we didnt sell)
  • Olympus DAO currently does not have any governing or token holdings of Abachi but we are now growing in governance power as an independent protocol.

Since our first proposal we always thought OHM would eventually come down in price and be less volatile in price action, and we recognised its power to be used as a means of incentives back in December last year. In a world of self dilutory token economics, we can actually pay yields in a currency that is backed and highly liquid. While OHM did not visit its RFV and that metric was taken out, our initial thesis was correct.

Currently OHM is trading close to its liquid backing, and below its actual backing. There is a slight risk due to inverse bonds being invoked (treasury starvation) however at 450% APY its ideally suited to be used to pay out incentives when we grow our lending pools. Instead of paying in ABI we will pay out in OHM (or combination). We get to pay yields and still keep a portion.

Increasing OHM holdings will also allow us to open up our own inverse bonds in the future if need be. These will allow the community to bond ABI in to get OHM back. The OHM to be paid back would be adjusted from our emissions. Increasing holdings of OHM therefore increases our capacities to do so.

33% and 3²

We want to maintain a treasury at 33% gOHM exposure, via bonds only. (No market buying). Currently we are at roughly ~11% of the treasury in OHM.

There are a few possible scenarios here:

  1. gOHM bonds are a huge success and we hit 33% right away. In this case the extra yields on top of 33% after each epoch will be:
  • Routed to lending pools.
  • Routed to Inverse Bonds.
  • Added to LP pool for ABI/OHM on mainnet

A portion of these will also be kept in the treasury so that the auto compounding of OHM does not stop. This will be a policy decision however we aim to keep at least 100% APY maintained at all times.

To offset the success of bonds Abachi will also have to increase the current APY. This would allow us to increase the APY (even though we are probably decreasing it in the short term via ABIP-12)

Once the treasury reaches 33% any extra bond sales in gOHM will be converted to stables or ethereum that add to backing liquidity in the treasury.

  1. gOHM bonds are not a success. In this case we still see some arb happen between the bonds offered and the market rates of ABI. One could buy the 150 ABI per day and sell into the market for a slight profit. This is still a net positive for Abachi as long as the 33% ratio is maintained. From the 3 epochs, we will have recovered the price. However to dampen the sell pressure, it would be proposed that the treasury actively monitor any arbs and add the gOHM acquired to ABI/gOHM pool on Sushiswap. With the OHM yields coming in, we can then incentivize these Pools.

  2. gOHM tanks in price rapidly. In this scenario, the treasury will take a hit, however Olympus DAO currently holds a massive amount of Eth and Stables and a minor position in BTC. In the longer run, the worst case scenario is a treasury distribution, which mitigates losses since its already trading close to liquid and below actual backing. As long as the protocol exists, it will still serve us for yields and incentives.

  3. Olympus DAO removes the APY. This is a worst case scenario where the yields drop below 100% or if they are removed altogether. We will need to reassess and liquidate the gOHM positions (via inverse bonds or market).

  4. Most probable outcome is that gOHM bonds bring in some but not a lot of OHM especially in current market conditions. In this scenario, our assumptions will remain the same as mentioned in scenario #1.

The difference being, we would not increase the current apy until we see capacities being hit. (150 ABI bonded per day regularly).

Methodology

  1. Open up v1 bonds with fixed min price of 2% below market. This may need to be adjusted as market price changes, we have the means to do so by offering new bonds each week.

  2. Set in place a capacity for these bonds to NOT increase current OHM emissions. This would put us at roughly 150 ABI that can be bonded in per day. This ofcourse increases as more more gOHM is bonded in (remember 3²?)

  3. Realise a portion (propsed 25%) of the gOHM into Stables via Vesta Finance at 400% collateralized position as per the GMX/GLP proposal and add to the index pool to hedge.

  4. Realise any excess portion remaining after routing of the gOHM to incentives in ETH/DAI.

  • Agree
  • Disagree
  • I have no idea, I want number go up

0 voters

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Going through it, reading through, it makes sense. Of course there is a risk associated to it, but I believe in the long run it can be beneficial for us.

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Agreed definitely a risk associated which is OHM. However as these yields compound, the ability of Abachi to pay out emissions increases a lot too.

This does however bring into question, oh a DAO is paying out in another DAO token. This however is not true. OHM is not a DAO token, its a currency.

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Looking at defi projects throughout the space. If we do think DeFi is here to stay, we are back to where we started in 2020 (in terms of valuations).

Abachi is now in an ideal place to position itself for the longer run.

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I think this dip is quite an interesting situation. I am not sure I’m ok with having a 33% treasury in OHM, but I think this may be the best price to pick up some OHM. Inverse bonds are open and we are below liquid backing. So our risk is pretty much covered.

Of course that depends on if we do want to deploy into OHM rather than into other productive assets like GLP or GMX here. The whole argument is around two points:

1- how much yield we need to pay out, and
2- whether OHM is an attractive enough currency to pay yields in.

I’d much rather invest into GLP, and pass on the yields in ETH rather than spend time educating & convincing non-DeFi natives why OHM should be an attractive currency to earn yields in.

So this proposal overrides the original 50/50 (OHM/stables) to 33/77 (OHM/other)…?
Over how many days will the bonds vest over?

Ok so I’ve had a chance to run some math and dig further into this. I think I got a bit ahead of myself, but I think eventually I got it. @electo I have a couple reservations:

  • I understand that ABI/gOHM bond capacity will be kept at parity with our current OHM yields (earning 36 OHM = 188 ABI/day as of this writing). Would like to know rationale for this limit.
  • Olympus has just put up a proposal for discussion to knock the reward rate down to 0.1185 which will reduce our daily OHM yield to 27 OHM/day, limiting us to 140 ABI / day. At this rate, we’ll need between 155 days (sellout daily, 35k ABI minted) to 240 days (33% daily sell, 19k ABI minted) for our treasury to reach 33% gOHM (21k OHM / $285k value). That’s too slow to be meaningful.
  • Plus with ABI bond emissions, comes inevitable sell pressure. meaning we’ll start to give out more & more ABI per gOHM, inflating supply and thereby cancelling out the effects of daily mint limits + ABIP-12. It will also not be helped with the fact that gOHM tends to go up against ABI if OHM price holds (and we’re already betting on that). This opens up a downward price spiral as we experienced in earlier bonds. So we’ll need to offset that potential sell pressure somehow. Whether we do it via ABI/gOHM LP or via gOHM inverse bonds, I suspect we would end up giving back most if not all of the gOHM in the process, and tank ABI price for nothing.
  • Or we could chuck $100k into gOHM and reach 33% gOHM in 110 days purely on yield, while Olympus can afford to maintain the APY + IB.

The purpose of this exercise is to generate yield to pay for fiat bonds, right?

If we’re looking to raise $5m and intend to pay 6% APR, that’s $300,000 over the course of a year. Given our current OHM yields, we stand to make $380k anyways (at 380% APY and 100k in current OHM holdings). That’s all BEFORE any income from BNPL which should ideally be more than 6%.

We could deloy a bit of treasury stables for incentives before BNPL + OHM yields step in to offset them. BNPL should crossover by 8th month (2x 4 month BNPL) while OHM should crossover by 10th month without any more exposure to gOHM.

Correct. This will over ride 50/50. With this proposal, there will be no set limit on the treasury for the OHM it holds, but anything above 30% will definitely be rebalanced into stables or paid out via yields.

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Ameer - You make excellent points here. Can’t claim I know the correct answers, but thinking wherever most consensus goes we can follow. Let me try and answer points also

  1. Agree with you, this is a number purely based on ensuring we dont over expose to gOHM in a bear market. BTC / USD does better in those. But I am open to suggestions on this, and I think policy will be needing to revisit this now and then.

  2. Saw the proposal and I have commented on it. Not a fan of seeing this proposal. Love the math you provided. 240 days imo is not slow considering if we go bear we will be in it around a year or so. But agree this needs some fine tuning for numbers. The 33% is also subjective, since treasury also holds ETH and BTC where value fluctuates. Maybe we need to set a limit on $ value.

  3. We discussed the sell pressure on ABI, however the ABI being offered here are not “new” mints. However the proposal is to remove that pressure in the the “traditional” incentive way, which is to feed lending pools at 60% APY with ABI. That approach will provide much more sell pressure. Most defi yields tend to 0. Lets however model this. I do see what you are saying. Maybe we can find a better balance. The idea is to deliver APY via OHM which they can sell. But we also need to cater for the bond creation. Maybe no bonds needed initially.

  4. Do not want to do any more treasury operations with OHM right now. There is clear consensus on that with a lot in the community. We need to see how the policy and revenue realisation on Olympus occurs. Right now, its bleeding treasury, but we hold because gOHM goes up. However with proposals this may change and we may need to exit if OHM loses its core premise.

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This is still in consideration and will go to voting next week.

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