[Tokenomics Proposal] OHM Implementation Plan
Program Name: OHM Implementation Plan
Program Champion(s): Kouros, Livethelife, Icedcool, General tokenomics crew
OP Date: November 11, 2021
Status: Forum Voting [Draft->Voting->Forum Voting->Closed]
Voting Link: Discord Vote
- First month (11/18/21) bond to Sushi LP tokens to capture the volume and fees. (10x the fees of Balancer)
- Next month(12/18/21), as the Balancer pool rewards start to decrease, we add that as a bonded pair, thereby capturing the exiting LP that would be removing their liquidity.
- Through out monitor the performance and adjust accordingly.
We met with OlympusDAO on how to implement OlympusPRO, and discussed different possibilities. We came up with the plan to, for the first month, bond to SLP to start capturing Sushi LP tokens because the pool is half the size of Balancers, with 5x the volume, and thus earning 10x the fees.
Then as the Balancer fees taper off, we would add Balancer LP tokens as a bonded pair, thereby capturing the exiting LP that would potentially removing their liquidity.
This proposal is to increase visibility and overall awareness of tokenomic activity.
As an FYI, the DEPARTMENT OF TOKENOMICS will vote in channel for soft consensus, then bring the votes that have wider impact to the forum, as Tokenomic activity impacts all BANK holders.
I really feel there needs to be more education within the dao in defi since I have not met a person yet who can explain why it’s a good thing to sell bank on the lows buy it back on the highs and trade it for an inversely related token that puts my governance at risk if something should happen to their protocol.
The LP tokens would not involve any OHM tokens. They would be BANK/ETH or BANK/stable coin. Olympus Pro to my understand standing provides a way for liquidity providers to bond (swap) their BANK LP tokens and in return receive discounted BANK. Olympus Pro (a smart contract) has a mechanism that controls the prices of the bonds over time.
This is the same way OHM bonds their LP tokens and then owns their own liquidity. Our DAO will gradually buy more of its own liquidity which will be income for our treasury. Our treasury will pay an upfront cost to buy the LP tokens in BANK (bonding). Then eventually it will be nothing but profit. #DeFi2.0
And regarding liquidity providing in general, as the BANK/ETH pair price ratio moves up and down, the liquidity provider will collect fees during each trade. Over time and especially during sideways price movements, the fees collected will be greater than the impermanent loss of ETH or BANK diverging in price from one another. We can also use BANK/stable coin pairs to have less impermanent loss if BANK doesn’t follow ETHs price movement over the next 1-2 years.
This interests me from a personal as well as a DAO view. Could somebody write an example with actual bank, eth, balancer, and usdc tokens with values/volumes in place to demonstrate what is getting done and possible returns? What has to happen for the investment to go to zero? What happens if Eth goes to 1700 for 20 minutes? Is this something that has to be watched 24/7? If there is a flash crash on Saturday morning at 2am is there a multisig that has to function?
When you are a liquidity provider (LP), you collect a 0.25% fee on every trade (0.3% on Uniswap V2) (times your percentage of the liquidity pool). Looking at coingecko, all of the bankless token liquidity pools are BANK/ETH. Crypto is volatile, prices will always go up and down over time. You have people selling and buying non-stop. Looking at the price chart for BANK over 90 days, it bounced between 0.05 and 0.15 while mostly being closer to the middle. Currently our treasury makes ZERO profits from this liquidity. Bankless liquidity providers as long as they leave their liquidity for a while, end up profiting over time. Between Aug 29 to Nov 9, the price of BANK went from 0.1 to 0.1. During that time, ETH went up about 25%. This means that there was about 2-3% impermanent loss for LPs from the ETH price change versus BANK’s price change. However, I wouldn’t be surprised if these LPs collected around 10-20+% in fees during that time. That’s a profit of 7-17+% in 2 months!
This is why people are so excited about “DeFi 2.0”. A DAO can use the same strategy as OHM, to buy their own liquidity (incrementally, so the buy in versus time to profit is gradual). That becomes income for our treasury. There is little to no risk in using this strategy (compared to simply holding BANK or ETH) as long as you hold the liquidity for a long duration (3-12+ months). Our DAO will hold this forever unless we later decide to adjust the LP tokens in our treasury. If you have more questions on how liquidity providing works, you can look up Uniswap V2’s explanation/guides. We will be using non-concentrated liquidity tokens, so these are more stable than Uniswap V3’s liquidity.
It is difficult to understand how liquidity providing at first works, but I recommend reading about it. A simplified version of it is basically that … you are setting limit orders along the price range. And when he limit order gets filled, you collect 0.25% profits. As the price moves back and forth over a long time, the prices of your assets (the tokens you are trading), remain relatively stable on average. Your fees collected keep growing and growing though. Before OHM (Olympus DAO) came along, it was rare for a DAO to own their own liquidity. Now there is a proven method of doing so though. There is a reason that Uniswap has billions of dollars in liquidity providers. Its a great way to earn money over time.
For our investment to go to zero, either the BANK token or ETH would have to go to zero. Because our treasury holds ETH, this is impossible unless ETH goes to zero which is realistically not going to happen.
The fees collected from being a liquidity provider will be greater than impermanent loss as long as the two tokens are relatively stable. BANK and ETH are both stable and will go up over time. Impermanent loss is simply what happens when your liquidity trades for the cheaper token as the other one goes up. This is a very small loss though if both tokens follow a similar path over time. Assuming ETH goes up 100% and BANK remains the same price, that would be about a 5% impermanent loss. That is a large percentage, but this would happen over a very long time usually (2-6+ months). Meanwhile, you would be collecting fees the entire time.
Before Olympus DAO created this strategy of DAOs buying and then owning their own liquidity, DAOs would simply give away token rewards to attract liquidity and then the LPs would make all of the profits (collect 0.25-0.3% trading fees) plus the rewards from the DAO tokens. Then once the token rewards stopped, the liquidity providers would leave (pull out or dump their liquidity) and meanwhile sell (dump) the DAO tokens. These are called yield farmers, very common in crypto. Over time, your DAO loses money this way and sadly, the token loses value from that. Owning your own liquidity (gradually over time) makes so much more sense for a DAO.
Does this mean it is not possible to be liquidated?
That is correct, there isn’t anything to liquidate!
Also, OHM isn’t involved at all.
Really OlympusPRO is a marketplace, where they offer base tokens, for LP tokens.
So in our case it is offering BANK at an increasing rate to incentivize selling LP tokens FOR BANK.
Ie, I’ve got 10k USD valuation of BANK/ETH LP tokens(whatever mix that is). The OlympusPRO is selling BANK for LP tokens at a 10% positive rate, so for 10k of BANK/ETH LP, I would get 11000$ USD valuation out of that in just BANK.
This allows the protocol and platform to start OWNING the LP tokens, fees, and ultimately liquidity.
Does that make sense?
Let’s imagine that we had the opportunity to start bDAO all over again… Rather than find ourselves in the position were trying to rectify at this point, would it have been smart to allocate a certain amount of minted token supply to a LP at the very beginning in order to own our own liquidity from the very beginning?
Seems like the OHM strategy is the next best thing, but if we could have, should we have done the above?
We need separate classes to understand tokenomics @Icedcool
You might wanna run a marathon after teaming up with edu guild to educate more and more people about how tokenomics work (since it affects all of us). I am too naive to vote on this, lol
Well it’s a chicken/egg challenge, because when we started out the token was in price discovery(valueless) and we didn’t have any assets to pair and LP.
The community provided liquidity, and are still providing liquidity, and that is what allows people to buy and sell and sets the price.
Thus our dilemma.
Potentially what we could have done is asked a whale or investor to provide us with 100 eth or so to pair and provide liquidity that was deep. Although they would be taking on significant impermanent loss risk if the token craters.
Otherwise the community sourcing liquidity is generally what has been done, that OHM and tokemak attempt to resolve. Although a prerequisite for their platforms is the asset have a price.
I think that this may be a required… growth for DAOs? Some open questions here.
Thanks fren :). Dms always open to talk tokenomics and defi.
The tldr on this is:
First buy sushi lp tokens (sushiswap amm platform liquidity) because trading is high there THEN add balancer LP tokens to be bought as we have a platform that has incentives that will be tapering off(to keep the liquidity in the market, and capture people exiting).
Logically it seems to make sense that a DAO could just buy its own LP tokens, right? As Icedcool explained though, you run into risky situations with unknowns such as:
- How much liquidity (eth + bank) do I want to provide to the open market?
- Will the price of bank be stable enough for this position to profit? (now it is more stable, but before it wasn’t as much)
- Which platform should I use? Is it safe?
- Who is going to manage these positions?
Rather than take these risks on all at once, the Olympus Pro strategy lets the free market sell their Bank/ETH LP tokens back to the DAO for BANK plus a little on top. After the DAO buys LP tokens (through Olympus Pro’s marketplace/dashboard), the premium of BANK received for LP tokens drops (from 5% to 0% let’s say). Then Olympus Pro manages that premium/incentive of BANK received over time and eventually raises it to where another LP token holder will want to sell bank LP tokens for a profit (cover gas at least). Overall it’s a way of gradually buying LP tokens.
Also, using Olympus pro’s protocol, we can easily manage what type of LP tokens we want to buy and for what rates. There could be a way where our own DAO does some of this on our own, but for a 1% annual fee to Olympus Pro, that takes a lot of time and risk management off our hands while we gradually buy our own liquidity for the treasury. Over time as BANK becomes more popular, we’ll profit from trading volumes.
Hi, I went to do Olympus pro tonight. It has the wrong bank icon and says sold out.
Sorry, It has both visible now.
There is this one:
And this one:
The first is float protocol.
Moving to archive. Please reply to reopen.