Olympus DAO

Summary:

Enable minting into liquidity pools to reduce emissions and dilution, and remove the opportunity cost of providing OHM liquidity.

Motivation:

To: reduce cost (dilution) to the network; increase automation; increase predictability; decrease complexity; decrease time-sensitive interaction; better attract new liquidity providers and pairs.

Background:

Due to staking emissions, providing liquidity for OHM is not an economically viable option for any third party barring high artificial incentives; a participant must earn more than they would staking to consider the activity worthwhile. As a result, the protocol serves as the basically sole LP for the token.

Olympus currently owns more than 99% of the liquidity provided for OHM on Ethereum. OHM is currently growing in supply at a base rate of roughly 470% (0.1586% / epoch). It is important that liquidity grows at the same rate as supply (otherwise liquidity is diluted and thins over time); this is currently maintained through the issuance of LP bonds.

Discounts provided on bonds create dilution in the network which, while potentially beneficial to lock tokens, is inefficient from a purely utilitarian standpoint. A better solution provides this utility in an automated, protocol-facilitated and cost-minimized manner.

Implementation:

The proposed implementation leverages the ‘sync()’ function present on xyk AMM pools to directly mint emissions into the LP (referred to as ‘mint and sync’. This allows us to, on an automated basis, maintain consistency of liquidity and supply within the network.

A good way to conceptualize this is as follows: imagine you hold OHM, and you are deciding whether to stake or to provide liquidity. You will earn 1 OHM per epoch if you stake, or you will forfeit that 1 OHM per epoch to provide liquidity but earn trading fees. Under this proposed structure, the 1 OHM you would be provided as a staker is still given to you as a liquidity provider; the only difference is, rather than receive tokens outright, they are added to your LP share. This removes your opportunity cost and puts the decision more in line with that of any other token on the market.

Considerations:

This structure requires a change in computation for staking rewards. Currently, staking emissions are calculated using the equation Emissions = Reward Rate x Total Supply. Here, this equation must be Emissions = Reward Rate x Circulating Supply. Since Total Supply > Circulating Supply, implementing this with no change to the reward rate will result in lower emissions in staking. Polling and voting will include separate choices; one contains no change to the reward rate, while the other adjusts the reward rate up to keep emissions constant.

Proposal: 1. Implement Mint and Sync with no change to reward rate. 2. Implement Mint and Sync with full adjustment to reward rate. 3. Do Not Implement Mint and Sync.