OlympusPro bonds trial

Hi everyone Mainbrain_ here,

I’d like to propose a fairly dramatic change to our liquidity mining framework.

It’s relatively hot off the presses, but Olympus have released Olympus Pro 13, a mechanism for protocols to purchase the liquidity that they wish to promote for certain tokens rather than rent it through liquidity mining.

I think this is a great idea, and one that we should seriously consider.

I’m going to give a lengthy chat about the why, and then the how.

Disclaimer: I do not hold any OHM, do not plan to hold OHM in the future nor have I ever held OHM.

The Context

Absolute beginner summary: Protocols often use the power of their treasury (in the form of their native token) to reward third-parties that provide liquidity on DEXes: this is often in the form of giving out token X for providing liquidity for X/ETH. This is known as a ‘pool2’ for historical reasons, and it’s a double-edged sword: it makes the token liquid, but at the cost of downwards selling pressure on token X, as people claim their rewards and trade them for ‘safe havens’, primarily to offset impermanent loss within their LP tokens that is manifested from other people doing the same thing.

More importantly, this can only ever be a temporary solution: once the rewards of token X end, there is no incentive beyond trading fees for people to continue providing that liquidity. So, it disappears. The net result is that liquidity is gone, and you’ve handed out potentially millions in token X with nothing to show for it beyond having turned a profit for some providers, and subjected token X to an absolute beating in the interim.

The Problem

Unslashed is no stranger to the idea of liquidity mining: we have an ongoing scheme that is handing out approximately 200k USF every epoch (~2 weeks) this year for providing liquidity. We do engage in pool2 rewards (i.e. rewarding USF for liquidity for USF/ETH). We’ve handed out 8,100,000 USF (~9.4% of the total supply) very early on in the lifetime of the protocol with our capital mining and liquidity mining incentives, however the ‘true’ purpose of this was twofold: to wrest control of the protocol from the founders (who have 23.3% reserved) and to advertise its launch.

The side-effect of this is fairly obvious to see on a price chart, and while it is not my intent to make this post about the price of USF, I have natural concerns about both securing the DAO (you don’t want to make it too cheap for someone to buy up enough tokens to start making hostile governance proposals and be close to quorum by themselves - see VENUS.1 link below), and maximizing the spending power of the Treasury for things other than liquidity.

For the most part, Unslashed has engaged in this liquidity rental because there was no alternative: liquidity mining, for better or worse, has been the default way of ensuring that tokens can be easily traded by third parties: I digress: it looks like there’s a different way now.

The Solution

The key idea behind Olympus Pro is that of offering bonds in conjunction with/in lieu of an emissions program. Here’s how this would look:

  • Unslashed offers some amount of USF for sale in exchange for liquidity that they want to acquire such as USF/ETH.
  • Olympus advertises these market/s on the Olympus Pro website, and Unslashed integrates the market into the Unslashed webpage. All necessary audited contracts and infrastructure has already been built out by Olympus.
  • Interested counterparties can trade the desired LPs in exchange for USF, receiving a discount that defaults to 5% (i.e. selling $95 of USF/ETH ​for $100 of USF).
  • 3.3% of the purchased USF is kept by Olympus as a facilitation fee, and retained by their Treasury in perpetuity.
  • The remaining purchased USF vests over the course of seven days (as a default) and can be claimed over time (i.e. 14.28% can be claimed after one day).
  • The liquidity tokens are sent to the Indexed Treasury.

The net result is that the Unslashed Treasury has bought liquidity outright in exchange for USF, where it can be treated as a revenue-generating asset (from swap fees). Short of a governance vote from the DAO to sell, exchange or otherwise dispose of these LP tokens, this can then be considered a permanent liquidity floor for the token.

It’s worth pointing that the default figures presented here (5% discount and 7 day vest) are configurable by Olympus, but are subject to the amount of USF being offered to bond: I’m looking for some clarity from Olympus as to what exactly constitutes ‘enough’ to change these numbers (and by how much), but the key idea remains the same.

My take is that Unslashed needs to ensure that the USF that we do spend for liquidity isn’t going into the grinder.

Exchanging USF for USF liquidity in this way is good for our users: those who buy our tokens to hold in the long-term (they always have a way to enter or exit their positions), and it’s also good for the protocol, for three reasons:

  1. Permanent liquidity helps to ensure theres deep enough liquidity at all times
  2. As alluded to above, the swap fees drawn from the purchased liquidity enriches the Treasury and
  3. Provides minor diversification of the treasury as it will now have some ETH exposure from the LP tokens.

The Concerns

All of the above is not to say that I don’t have some concerns: some of which we’ve imposed upon ourselves, some of which are more ‘market-forcey’ in nature. They are:

  • We need an answer to the question “why would I sell my USF/ETH in exchange for the USF token?”.
    • What kind of discount would we need to offer for this to be appealing enough to convince people, given that the Olympus setup is such that the buyer would have to wait seven days for the bond to fully redeem? This isn’t a question that any one person can answer, but it’s something to bear in mind.
  • If we engage in a bond program like this in any meaningful fashion (i.e. offer a bond of 200k USF for liquidity), we’re effectively releasing that much to potentially be market-sold as soon as the bond period is over, rather than emitted slowly via liquidity mining (that much USF would take just ~2 weeks to emit at the current stage of our liquidity mining program).

    Do we consider this risk - that of non-trivial amounts of USF potentially being dumped in quick fashion - worth the benefit of acquiring permanent liquidity? In an ideal world the USF would only be purchased by fans of the protocol who want more say in governance but we can’t enforce this.
  • How much liquidity would we want to acquire?
    ​It’d be wonderful to have enough liquidity to guarantee as low a slippage as possible for everything, but that would pretty significantly dent the Treasury. What’s best (in the eyes of the protocol) here?

The Proposal

Before we get to the proposal, I’d like to remind you of the current LP emissions.

200k for Liquidity Providers, bonus included for not removing liquidity = 200k every epoch. An epoch is 15 days, so 400k USF a month (30 days) is going to LPs. Now, back to the proposal.

The crux of what I’m getting to is… there are 3 ways forward to accomplish this and to make it as easy as possible on all parties, i’ve condensed them into what i’m calling PEP or Plain English Proposal:

Variant 1)
Current LP emissions = 200k USF per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = 100k USF per epoch x 2 epochs = 200k USF monthly
The 200k difference will be put to use in the OlympusPro bond program for 30 days
Total amount for the 30 day trial = 200k USF

Variant 2)
Current LP emissions = 200k per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = No change to the above emissions.
Asking to use 200k from future LP emissions in the OlympusPro bond program for 30 days
Total amount for the 30 day trial = 200k USF

Variant 3)
Current LP emissions = 200k per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = No change to the above emission for the next epoch
Asking to use 100k from future LP emissions in the OlympusPro bond program for 15 days
Total amount for the 15 day trial = 100k USF
If Bonds sell out before the end of the 15 days, then…
Revised LP emissions = 100k USF per epoch x 1 epoch = 100k USF
The 100k difference will be put to use in the OlympusPro bond program for15 days

This proposal might annoy a large chunk of the current liquidity providers, but I truly believe that everyone that engages in liquidity provision knows that yield-farming in its present form is simply - as I have already said - rented loyalty that results in a slow bleed for the reward token. I don’t think any of us want that to continue for USF.

We have time to see how the initial wave of partners for Olympus Pro report back on their experiences using the bond program for their own purposes, and use that to gauge whether we want to go forward with this. However, OlympusDAO has said that the initial pilot groups get the 3.3% rate, which insinuates that if you wait too long, the fee goes up. In that light, I suggest we start this as soon as possible at the end of the current epoch, which is epoch 17.

If this proposal is accepted and deemed a success, I would be minded to put forward another proposal for a longer trial, this time of 6 epochs (90 days).

(In the nature of cryptos ethos, the above proposal was forked from an INDEXED to fit USF)

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Due to being a new user, I am limited to only 2 links per post, so creating a followup reply with the links that were unintentionally omitted.

Link to venus.1
Link to INDEX

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What would be required of current LP stakers? Do we stay in our current positions or do we unstake and move it to OlympusDAO?

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Good question. These bonds can be viewed as exchanging your current LP position for USF. The follow up is… why would anyone do that? And the answer is, because you’ll get 5% more USF if you do. The long term goal is to eventually get enough LP position that the DAO owns it and benefits from every buy and sell, thus bringing value to USF.

The long-term position for current LPers will exceed that 5%, because we will never exit our position, no?

but I don’t think you answered the question - does this move to olympusdao mean all current LP’s have to exit Uniswap and move to OlympusDAO, which then buys their LP position and you get USF (but are no longer an LP)?

The role that OlympusDAO takes, is since a Liquidity Provider (LP) position varies in $ every block due to multiple factors of

  • Buys
  • Sells
  • Amount of liquidity
    Olympus is determining the current value of that LP position in $ and can be thought of giving you $100 for every $95 of LP value. If we do this over a long enough period, USF will own the majority of the liquidity and at that point, USF no longer needs to incentivize their LPs. So this has the intended effect of stopping the LP which means at the current rate, USF will save 200k USF / $120k every 15 days from the DAO.

edit

One more note above. The goal is to own the majority of the liquidity in USF. We want users to be able to enter and exit positions without major slippage, but we dont want to just keep giving away tokens at the current rate because the emission rate is too high. Below is something i’ve discussed in discord, and I think its relevant to this discussion here so im just going to copy and paste it.

Be aware, that the 300k reference is from before the reduction from 300k to 200k per epoch.

I understand this wont be apples to apples comparison, but we have a similar model to aave, where users get tokens for using using the protocol . According to https://aave.github.io/aip/AIP-16/ aave is providing 2200 stAAVE (Staked AAVE) a day (0.01375% of supply daily x 7 =0.09625% weekly x2 weeks to be 1 USF epoch = =0.1925%)

USF is providing Capital Miners 150k USF (epoch rewards+ bonus) + 100k USF going to LT thinkers vault
Uniswap LPs 300k USF (epoch rewards + bonus), which is 550k. 550k is 0.65% weekly emissions that are 7x higher than aave when the token has 0% utility.

USF is emitting 0.65% of the total supply per 15 days
AAVE is emitting 0.1925% of the total supply per 14 days

USF is 3.3x higher than current AAVE emissions.

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in simple terms: the LP providers receive OHM instead of USF rewards. The USF is send to the Unslashed treasury and later can be used to do their own LP without expending tokens? that sounds good

i dislike the ohm integration, expending dev resources on another integration for pure tokenomics. The USF team should artiifically provide LP on sushi or uni, with minimal depth of eg 1k-5k $. That is absolutely suffice for given size of project. Any whale inquiries can run over the forum. The LP stuff should be phased out ASAP

So ‘do the same thing’ on our own?

In Olympus’ model they are exchanging OHM for LPs. However, Unslashed will be using the OlympusPro framework, which means that the USF treasury will be putting up X amount of USF at a discount decided by the OHM team in return for USF LP positions. Unslashed will have zero exposure to OHM or any OHM related tokens.

i dislike the ohm integration, expending dev resources on another integration for pure tokenomics.

This is exactly why I am suggesting this model. There will be zero USF developer resources attached to this, other than perhaps adding a link on the USF website that this option is available and using the USF DAO to send OHM the initial batch of USF to tempt users into trading their LP positions.

$1k-$5k That is absolutely suffice for given size of project.

Thats a bit too low, but I understand your concern about reducing emissions.

The LP stuff should be phased out ASAP

Thats the goal of this trial. If it works, USF will eventually phase out liquidity mining as they will own <51% of the USF liquidity pool on Uniswap.

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The biggest problem will be if there is any demand when there is the option of just LP’ing. So I think best choice is going with Variant 3 trial run. I’m a shrimp though. I wonder if any whales will support this.
Edit: obviously this is necessary for long run. Not a luxury, but necessity so this should be done in whatever way that works.

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liquidity providers are dead. You will kill once again. Why do you fail the investors who trust you?

After speaking to the Olympus team, the proposal will need to be modified to be at least 30 days and $250k worth of USF at the time we start. Will edit above proposal with this addendum.

In discord, a few people had some questions that they would feel more comfortable if someone from the Olympus team could answer. Below are the Q’s and A’s from this.

Questions
1 - “Wen does 3.3% pricing increase?”
2 - “OlympusPro is risky because its unaudited. Wen audit?”
3 - “Are cascading failures within the OHM pro platform a potential issue?” (Cascading failures i believe means if something within Olympus gets exploited, could it fall over to Pro as well?")
4 - “Does anybody insure OHM and OHM Products so we can cap our downside?”
5 - “Are the bonds that Pro uses, on the same bonding curve that OHM uses for themselves?”

Answers
0 - I’m not sure how to answer a lot of the questions. It just seems like they’re not very familiar with what Olympus Pro is offering Introduction - Olympus Pro (also see pro pdf above)
2 - Honestly the OP (Olympus Pro) audit is mainly to get a higher tier of auditor (Runtime Verification) but the underlying mechanisms have already been audited
3 - If the underlying bond mechanism is broken somehow then possibly? But there aren’t any dependencies between Olympus Pro and OHM if that’s what you mean
4 - We recently onboarded somebody to look into insurance options for users, but most likely not going to have the protocol pay for it (meaning users buy insurance)
5 - We don’t use a bonding curve

Change Variant3) to cut LPs fully.

Variant 3)

Current LP emissions = 200k per epoch (15 days) x 2 epochs = 400k USF monthly

Revised LP emissions = Cut LP emission fully

Add another 100k USF from LP emission to have the minimum of $250k for 30 days

Seeing the success other protocols have with the program we pay slightly more over the run of the program but save a lot of USF emission down the road.

This way LPs can opt in right away into the Bond program. This would make it sell out faster. Overall the drastic emission cut in the future (protocol has enough liquidity and no further emission for this) should result in a positive price reaction that benefits holders the most (to which LPs if they pull their LP here count).

Edit for Var1+2 to fit the $250k +30 days needed:

Variant 1)
Current LP emissions = 200k USF per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = 100k USF per epoch x 2 epochs = 200k USF monthly
The 200k difference + added 300k from future LP emission will be put to use in the OlympusPro bond program for 30 days
Total amount for the 30 day trial = 500k USF

Variant 2)
Current LP emissions = 200k per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = No change to the above emissions.
Asking to use 500k from future LP emissions in the OlympusPro bond program for 30 days
Total amount for the 30 day trial = 500k USF

I think we should make yours Variant 4 and add it to the list.

fine with that as well

As mentioned above, Olympus Pro requires at least $250k of tokens and since USF has been up and down dramatically the last month, i’m going to say that we provide a min of 500k USF / $313642.5 as of writing to account for flucations in USF’s price.

Variant 1)
Current LP emissions = 200k USF per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = 100k USF per epoch x 2 epochs = 200k USF monthly
The 200k difference + added 300k from future LP emission will be put to use in the OlympusPro bond program for 30 days
Total amount for the 30 day trial = 500k USF

Variant 2)
Current LP emissions = 200k per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = No change to the above emissions.
Asking to use 500k from future LP emissions in the OlympusPro bond program for 30 days
Total amount for the 30 day trial = 500k USF

Variant 3)
Current LP emissions = 200k per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = No change to the above emission for the next epoch
Asking to use 500k from future LP emissions in the OlympusPro bond program for 30 days
Total amount for the 30 day trial = 100k USF
If Bonds sell out before the end of the 30 days, then…
Revised LP emissions = 100k USF per epoch x 2 epoch = 200k USF
The 200k will be added to the existing USF bond program in Olympus making the total 700k USF a month

Variant 4)
Current LP emissions = 200k per epoch (15 days) x 2 epochs = 400k USF monthly
Revised LP emissions = Liquidity Provider emissions are set to zero
Asking to use 100k USF from the future LP emissions to add to the above 400k
Total amount for the 30 day trial = 500k USF

Seeing the success other protocols have with the program we pay slightly more over the run of the program but save a lot of USF emission down the road.

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Good catch by ArzrA in discord. Changing Variant 3 from “Total amount for the 30 day trial = 100k USF” to “Total amount for the 30 day trial = 500k USF”