[OHM] - OLYMPUS DAO Collateral Onboarding Application (MIP6)

it doesnt want to back itself with a fraction of itself

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there, had to be simple explanation, because u can’t collaterize yourself which is wut u do everytime you sign for any loan cc or any other contract… i see it now

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I don’t know much about Olympus DAO and will reserve judgment.
But I will say that there is not necessarily anything wrong with a collateral partially consisting of Dai.
We already have such collateral, for example DAI/USDC Uniswap LP tokens.

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I see a lot of “OHM is a Ponzi” and “It’s a systemic threat to DAI” etc but no explanation given by those making these statements on how it is these things?

I will try to address some of these statements.

OHM is a Ponzi

No it’s not. A ponzi scheme draws participants in by rewarding early members with the money given by newer members. There is no true profit in a ponzi - only “membership fees” disguised as profit. Obviously this is non-sustainable as there is only X amount of people on the planet to make members.

When the last member joins, there is no more “profit” to onboard and the scheme collapses.

  • OHM is a fully backed reserve. The protocol can only mint 1 OHM if it is fed 1 RFV (Risk Free Value) token. This token can be FRAX, DAI, ETH - more assets are added to the treasury after being voted on by the DAO.

So, 1 DAI : 1 OHM. This simple rule means there is intrinsic value backing every single OHM created (unlike Bitcoin which has 0 intrinsic value apart from its community belief). This means OHM can never drop below 1 DAI in value.

However, LIKE Bitcoin (and unlike stables that peg or closely follow the dollar price) OHM’s upper price has no top and is decided by the market.

This is where its unique bonding mechanism comes into play.

Bonds are issued by the protocol whenever it see’s wild speculation by the market on its token value.

For etc if the market decides that OHM is worth 800 DAI the protocol will offer bonds below market price at (for example) 750 DAI. These bonds are how the protocol captures REAL profit (unlike a ponzi) because the protocol is the only institution that can mint new OHM.

So, if Chad buys 1 OHM at bond for 750 DAI the protocol gives him 1 OHM and creates 749 new OHM which it stores as new supply.

How to control inflation? Well, that new supply is rewarded to stakers (3,3) who keep supply off market to draw from these high yielding rewards.

Over time as supply thickens, the yield APY drops (akin to the Bitcoin Halvening) making new OHM supply more scarce.

Stakers (3,3) even harder as they continue to keep compounding which drives speculation etc.

It’s how commodity-backed money used to work before the gold standard was abolished in the 70’s.

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Spot on.

If you are “In DAI we Trust” then you should be naturally “In OHM we Trust.”

If you choose USDC over DAI - NGMI.

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I think most saying “ponzi, ponzi, ponzi” don’t truly know what/how a ponzi works…and happily pay into pension pots lol

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On ohm, the treasury is accumulated by an ongoing token sale to reward the early members 5 digit APY’s, lured by the same just mentioned apy promising insane rewards. cheating people that don’t understand the concept of M2 and M3 money supply. It is a ponzi.

APY is a meme.

When you take time to investigate and read docs…you will discover APY is a range and it decreases over time as OHM supply grows.

The documents never once say “it’s guaranteed.”

This was one of the first things I looked at because I too was like “this sounds scammy.”

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Fren, i’m trying to have a productive convo - can you you tell me how it is a ponzi ?

I’m also a DAI bagholder :smiley:

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Why do people still buy government bonds offering similar or lower returns? :thinking:

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Done…now awaiting your detailed response on how it IS a ponzi?

ask him for example

or him

An easy trap to fall down is one I saw above: “it’s only partially collateralized, and therefore bad.” This assessment is valid in some circumstances, but invalid in the case of OHM.

Generally, when talking about collateralized assets, it is in reference to stablecoins. The fact that 1 USDC is backed by 1 USD is a good thing, because we need it to be worth 1 USD. If USDC were backed by less than 1 USD it would be bad, because then there is a risk that 1 USDC is no longer worth 1 USD.
OHM does not need to trade at any given price. It behaves more similarly to assets like ETH and BTC. If you want to make the backing argument here, it doesn’t work very well. Yes, OHM is only partially backed but wait, ETH has no backing. Obviously a terrible collateral, right?

OHM’s backing, partial as it may be, is especially valuable in this case because a large portion of it is DAI. When this forum deliberates on new collaterals, the conversation at the forefront should always be “how could this make DAI fail?” The most significant risk any asset carries is that liquidations overwhelm the market and Maker is unable to take in enough DAI to settle vaults.

Olympus is a significant DAI holder. The OHM-DAI Sushiswap pool, which is owns, is the second largest on-chain liquidity source for DAI on Ethereum (almost first!). Its reserve holdings exceed balances on many bridges and protocols.
Both of these serve to mitigate the risk of OHM as a DAI collateral. Any time a liquidation need occur, there is a massive pool of liquidity to source the repayment. Another thing that is possible, but would require coordination between our communities, is an Olympus repo market in which it backstops liquidations with its own reserves in times of stress.

All of this is to say that, in my opinion, OHM’s partial DAI collateralization makes it likely the best DAI collateral you can find.

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Personally I feel that OHM trades at a very high premium to book value, but as mentioned above many assets have no “intrinsic backing” and can still make suitable collateral due to other factors like market liquidity and future growth potential.

Pros for accepting OHM as collateral:

  • There’s strong demonstrated borrow demand, as seen in Rari capital pools where users are frequently willing to pay double digit interest to borrow against their OHM
  • OHM is a big DAI user, and while this doesn’t outweigh risk considerations I think it makes sense to favor projects that are supportive of DAI in general
  • OHM has significant DAI liquidity that is unlikely to be removed in times of stress (because it is owned by the protocol rather than users), which helps reduce downside risk

Risks of onboarding OHM / blockers:

  • OHM currently only trades on a few DEX venues with no CEX coverage - this could make it more difficult to create a safe oracle price feed (generally Maker is not willing to use Chainlink feeds)
  • Significant admin priveledges are controlled by a multisig, with many of the signers remaining anonymous and without public reputation on the line. In a worst case scenario tokens could be minted or treasury assets removed, rendering the outstanding OHM tokens worthless
  • OHM trades at a very high multiple to book value (20x or more), which suggests greater downside risk if market enthusiasm for OHM declines. Maybe Maker could account for this risk by adjusting liquidation ratios or capping the OHM oracle price depending on price/book value ratio.

Personally I think it should be possible to onboard OHM as long as we have suitable risk parameters. For example one of the Rari pools gives sOHM a 33% LTV (equivalent to 300% liquidation ratio) - this gives a lot of room for accommodating downside risk before MakerDAO would lose money. I see the admin and oracle risks as the biggest issues standing in the way of integration for the time being.

If any OHM community members could clarify the multisig admin powers and any limits/safeguard in place (eg timelocks, mechanisms to cancel malicious actions, etc) this would be helpful!

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In that case it makes sense to consider 1 DAI as the maximum amount you can mint using 1 OHM. Though it wouldn’t be possible to liquidate such loan, so perhaps something like 2-3 DAI per 1 OHM will work better.

Seeing a lot of new user accounts commenting here. Not hugely surprising considering the subject. Please keep the following in mind:

  • Keep the conversation constructive.
  • Focus on why onboarding OHM is good for Maker in a practical sense.
    • Why will people use this to mint DAI?
    • What risks are there, and how can they be mitigated?
  • Don’t assume that anyone responding speaks on behalf of MakerDAO, literally no one here does that. The proposal will follow the same process as all the others.
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The relevant starting questions in my mind (and we likely don’t know the answers to all of them yet) are:

-What do we estimate for demand?

-Can we liquidate reliably in times of market stress?

-Can the issuer rug pull through extreme dilution or freezing/burning the asset?

I look forward to a good discussion.

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Currently, the treasury backs every OHM by about$34 of what the protocol refers to as Risk Free Value meaning there are 79m$ worth of stable coins for a current circulating supply of 2.3m OHM. So, if the protocol were to go down the road of valuing OHM as something less than market value, I think this is the number to use.

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Hi folks, Ohmie and Maker user here (I use Maker to bond Dai borrowed from ETH to OHM, and keep several ALCX vaults with Dai). I see this as a great move that benefits both DAOs, reasoning below.

Pros for Maker

  • Helps Dai stability by allowing it to borrow backing from other decentralized algostables without direct exposure (OHM will continue to expand its bonding program to a variety of good collateral stables and reserve assets like LUSD, FRAX , wETH and eventually Fei, Rai etc).

  • Helps users like me who avoid keeping 100% realized profits in Dai due to its centralized backing risk from USDC.

I think this is a great opportunity for Maker to diversify backing of Dai away from centalized USDC, and think the objections raised so far around “ponzi schemes” and partial Dai backing make little coherent sense. OHM follows the well known central bank model to create a liquid reserve asset that other DeFi liabilities can be traded against, the people who have called it a ponzi scheme seem to not understand economics in general, let alone cryptoeconomics.

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