Olympus DAO

View discussion on this OIP on the forum post: https://forum.olympusdao.finance/d/1020-oip-76-create-inverse-bond-policy-lever

Introduction

Ohmies know that OHM is backed by the assets in Olympus treasury, and that the treasury backing of each OHM has increased considerably since launch. OHM trades at a premium to its backing because the market understands that the treasury, revenue, liquidity, products, services and ecosystem integrations will continue to grow.

It’s important to signal that backing per OHM will continue to increase, regardless of market trends.

To ensure backing is always able to increase, the DAO Policy team proposes to add inverse bonds to the treasury toolbox. Inverse bonds are exactly what they sound like: bonds, but inversed. The inverse bonds will be initialized if OHM trades below backing, defined as the market value of our treasury assets (not including the OHM side of LP), divided by the circulating supply of OHM. When initialized, users can send OHM to the treasury in exchange for an asset held by the treasury. Similar to how bonds work today, the discount for these bonds will change over time and the market decides acceptable discounts. Also like normal bonds, inverse bonds themselves don’t impact market prices.

It bears specifically mentioning that this is not a static, “direct redeem” mechanism. Inverse bonds will remove sell pressure from the market, but in a way that will at the same time increase the backing per OHM. Inverse bonds increase the backing per OHM by reducing the amount of OHM in circulation, while paying out less than each OHM’s backing.

Motivation

The Olympus smart contracts guarantee that 1 OHM is always backed by at least 1 USD in stablecoins. On top of that, Olympus pioneered protocol owned liquidity, where Olympus owns over 99% of all the OHM liquidity. This means that there will always be deep market liquidity for OHM.

Currently, the standard bonding process only increases backing per OHM when the treasury can sell bonds above backing price.

Inverse bonds add another mechanism that in certain market conditions will allow OHM holders to sell their OHM at a premium, without affecting the market price and while simultaneously increasing backing per OHM.

By introducing inverse bonds, Olympus is also able to maintain the bonding process throughout all market conditions.

Illustrative Example:

OHM price is at $100, Backing is at $120. You see that the inverse bond price has ticked up to a 5% premium. That means you will be able to sell your OHM at $105 to the treasury, instead of $100 to the market. The inverse bond price would not be able to exceed $120, because at that point it’s a net drain on the treasury.

Proposal

Authorize the policy team to:

• Create inverse bonds as a market lever
• Launch inverse bonds if OHM begins to trade below its backing. Note that it is not a tool to peg OHM to that value. The lever brings OHM out of circulation and burns it, which increases the backing per OHM on every inverse bond executed.