Lets start with some basics.
- Admin key ‘lost’. Honestly this is a key sticking point. Get off that contract. Don’t care what anyone says 1 key here and the entire system compromised. This one point alone is sufficient to deny this MIP6 application.
- Oracles going to be a key issue. I don’t see how this is overcome in the short term.
I actually looked over the documentation linked here.
Some interesting quotes to take into account the realities of this.
- " OHM is backed, not pegged.
Each OHM is backed by 1 DAI, not pegged to it. Because the treasury backs every OHM with at least 1 DAI, the protocol would buy back and burn OHM when it trades below 1 DAI. This has the effect of pushing OHM price back up to 1 DAI. OHM could always trade above 1 DAI because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1.
You might say that the OHM floor price or intrinsic value is 1 DAI. We believe that the actual price will always be 1 DAI + premium, but in the end that is up to the market to decide."
Hence by definition the system is ‘capturing’ value when OHM is > 1 anyone who buys OHM above 1DAI in price is basically giving their money away to the system.
OHM to pay out its high rewards is a rebasing token. So for each 1% you think you earn by the rebase the price in the LPs is dropping. So far money is moving in filling the coffers, LPs and causing postiive rebases. Just look at the reasons for buying and the whole return statements in the document. 2%/day APY and up to 100000% APYs - seriously folks this is the new monetary policy that you want the world to be based on?
Lets forget about every other asset in this system and just look at using DAI to back OHM 1:1 - if you thought about this system from just being one kind of stablecoin OMH being backed by another stablecoin DAI - you’d just say this is a rehypothication of DAI to OHM.
Ask yourself what is the product being offered here.
The document has the answer:
" Is OHM a stable coin?
No, OHM is not a stable coin. Rather, OHM aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, OHM provides free floating value its users can always fall back on, simply because of the fractional treasury reserves OHM draws its intrinsic value from."
‘fractional treasury reserves’ and no it isn’t a stablecoin because unlike DAI and Maker that did not seek to profit from DAI PEG running high (which we do to some extent with PSM tin/tout but not to the extend OHM is doing) we try to keep the PEG at 1+/-tin/tout this protocol seeks to profit from this price disparity. BTW: This whole 1OHM = 1DAI idea flies flat in the face of another statement made in that document.
" Dollar-pegged stablecoins have become an essential part of crypto due to their lack of volatility as compared to tokens such as Bitcoin and Ether. Users are comfortable with transacting using stablecoins knowing that they hold the same amount of purchasing power today vs. tomorrow. But this is a fallacy. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of dollar also means a depreciation of these stablecoins.
OlympusDAO aims to solve this by creating a free-floating reserve currency, OHM, that is backed by a basket of assets. By focusing on supply growth rather than price appreciation, OlympusDAO hopes that OHM can function as a currency that is able to hold its purchasing power regardless of market volatility"
Yet as quoted OHM is backed by 1 DAI + ‘something’ which related to a staking, bonding model of behavior that is supposed to manage value accrual to the system beyond 1DAI per OHM.
The big argument for OHM is that Bitcoin and ETH basically are backed by ‘nothing’ so hell why not OHM.
Maker stands in stark contrast to this and other models by being fully liquid in the collateral, and DAI backing value is overcollateralized. Maker offers clients the ability to borrow a token that yes trades with $1US value (I know there probably were a lot of debates why this value was chosen and not some other defining value basket and defer this argument for another thread) but is fully backed by collateral value exceeding the DAI notional value in $$. This system is not fully backed especially at these 20x book valuations.
What I see this OHM system doing is presenting the user with massive returns, to get them to buy OHM at prices far over what the backing value is at the time, so the system can bank some of this value difference which is only going to buy back the tokens when the OHM value drops below 1DAI. This is straight up a hype value sink designed to trap people high and exit them low.
Not one single person in their right mind should pay more than 1DAI/OHM and if I were to add if Maker decides to onboard OHM it should basically treat it as a stablecoin. 1.2OHM can maybe borrow 1DAI because that is what the actual OHM system says the intrinsic value is, in fact that system is designed to move that value eventually to that 1OHM = 1DAI + ‘this not so defined’ something. Right now you could basically look to buy OHM at or below book value and maybe try to play a speculative game but in the end the way this system is constructed is that if you are paying more than 1 DAI per OHM you will eventually find yourself diluted so that eventually 1OHM is basically worth 1DAI. Now will the rebasing returns you got actually offset the OHM reduction in value. Depends on when you bought and whether the system is still getting inflows or outflows.
Ultimately the individuals earning the maximum value are the early stakers while as time goes on there will be less and less pie to share and the OHM price will start dropping. Look at the parabolic rise in those charts at some point all liquidity would run out and the fuel to sustain the growth and hence the returns is going to stop and this will lead to a supernova type collapse that the system is designed to handle,
BUT ONLY when the OHM price is below 1DAI/OHM.
So I am not going to say ponzi. I am going to say unsustainable by design. I am also going to say there are significant issues not to onboard OHM at a minimum that would need to be cleared up.
Also like @monet-supply suggests we can certainly onboard this and put a very high LR and even a higher LF to buffer the system here against losses. In the end I have another concern and this is regulatory.
I am not saying OHM is some illegal ponzi, but what if MakerDAO didn’t see through an addition that basically rug pulled using DAI and trapped a whole bunch of people in something. I can see such an event would be like a light to the regulator mosquito - urging them to bite us.
I have often had this concern about what happens if a blacklisted address were to drop wBTC or ETH into the protocol and mint DAI. As far as I know Maker can’t do one thing about this and in this sense Maker becomes complicit in criminal activities and brings the protocol under huge scrutiny. It is why when we weigh collateral additions via MIP6 the community and DAO has to have significant scrutiny.
One thing I have wanted to change with MIP6 proposals is that at least one CU should have to co-sponsor them. This way we have some accountability and control within the protocol CU structure over what proposals are even submitted and these create a lot of churn and discussion eating up valuable community productivity. I want to see these but I also want to know at least one CU is in favor of them because they are good additions already basically vetted by at least one person in the protocol before put up for consideration by the community.