To address the current risk profile and prepare for the imminent launch of Olympus’s Cooler loans, this proposal seeks to reduce the collateral factor on FiRM’s gOHM market from 75% to 70%.
Background:
Cooler Loans stands to bring credit-market liquidity for OHM/gOHM. gOHM holders will be able to borrow with a fixed rate, fixed duration and without liquidations until maturity. In preparation for launch scheduled for the end of August, a significant amount of the Olympus’ treasury has begun moving away from OHM-paired LP’s in AMM. Moving forward, OHM liquidity will be supported by both “Minimum Viable Liquidity” (MVL), which the Olympus team has reported will be enough to cover a “reasonable amount” of price impact, as well as Olympus’ flagship RBS system.
As it stands, Cooler Loans are likely to permanently alter OHM liquidity and potentially the viability of FiRM’s gOHM market. By proactively addressing future liquidity challenges and potential risks now, we aim to strengthen the market’s stability by issuing the following plan:
Implementation Plan:
Upon successful community governance voting, CF for the gOHM market will be lowered from 75% to 70%.
Once the first proposal is successfully executed, a subsequent proposal will be posted after a period of observation and assessment of the on-chain liquidity for OHM and the protocol’s performance with the initial changes.This second proposal may seek to further reduce the CF of the gOHM market to 65% and will include any other changes necessary to secure the markets (namely reduction in supply ceiling and daily borrow limit).
No new liquidity will be issued to the gOHM market so long as the liquidity picture remains unchanged. Furthermore, any new liquidity made available by borrowers repaying their loans will be promptly removed from FiRM. Any deviation away from this policy will be at the discretion of the Fed Chair.
Rationale:
By reducing CF we aim to minimize the potential for liquidation attacks and irresponsible borrowing behavior as a result of Olympus’s move to Cooler Loans. These gradual adjustments will allow borrowers to adapt and the protocol to smoothly adjust to changing market conditions.
Risk Mitigation and Community Involvement:
De-risking the gOHM market in the wake of the Cooler loan announcement is crucial, and we acknowledge the importance of community input in this process. We will actively engage with the community to consider alternative proposals and suggestions to enhance risk mitigation strategies for this and other markets. As we move forward, we aim to be prepared to navigate the competitive landscape following the launch of Olympus’s Cooler loans.
First let me say I’m a big fan of the FIRM product and a committed OHMIE.
I’m having a hard time understanding why this makes sense right now.
There is still significant POL compared to ohm volumes and there is also 13m in RBS in absorb any selling. On top of this there is standing buy orders to front run the treasury conducting market operations. Once cooler launches there is obstensibly going to be a fixed floor which will almost certainly be higher than today’s price. Any sell pressure should be a thing of the past until we get back to a premium and things potentially get a little more volatile as people play the ranges.
I think post cooler, I personally see a major need for services like FIRM because the LTV of gOHM is 95% of liquid backing. If the premium brings the price to let’s say 120% of LB using FIRM should give you a bigger borrowing base. This is attractive for a variety of reasons and I expect people will want to take advantage of this as the market goes more risk on. Firm is a much better option with fixed rates than fraxlend.
It would be really great to see this change held until cooler launches or phased in over the next 4 weeks. I totally understand the nature of what’s going on with CRV but OHM isn’t a speculative coin where 50%~ of supply is held by one person. OHM is backed and trading at a discount to backing and the risk profile is significantly different imo.
Thank you for your reply @Sohmie , your input as a borrower is valuable to the team. I think you bring some valid points about OHM liquidity, RBS systems, and cooler loans. I must admit the sharp decline in OHM liquidity took me a bit by surprise and brought us to re-evaluate the market parameters we had implemented.
The Olympus team has been a top organization to work through these issues with addressing all of our concerns about liquidity. Here are a few takeaways from the conversation:
-As their team reduced PoL approximately $20M worth of OHM was burnt during this period which has significantly shrunk the market cap since we launched the market
-MVL or minimum viable liquidity will be set by the treasury team leading up to the cooler launch and our liquidity concerns as a lender have been brought to their attention.
-As you’ve stated RBS is effectively liquidity, even though it’s not in an AMM pool. RBS has capacity to buy all ohm in circulation at these prices with no issues. Lower capacity is $13m without regenerating which is something they would certainly act upon if depleted (seems unlikely).
-Lastly, cooler loans can be used as effective liquidity for a liquidation, seizing gOHM and borrowing DAI through cooler.
These liquidity concerns were properly addressed and mostly alleviated in my opinion. However FiRM has a slightly different risk profile than traditional variable rate protocols in DeFi. In the event something goes wrong with RBS, the Implementation of cooler loans, or some form of exploit we aren’t able to react as effectively as variable rate protocols who can quickly entice paybacks by hiking interest rates.
We believe that by lowering our CF slightly we’ll be more cushioned vs competing lending protocols in the event of a failure. Simulations show that lowering CF by 5% grants us an additional cushion of 4.6% for max price drop since last update without the risk of incurring bad debt, lessening the burden/reliance on RBS or the cooler loan system.
With all of this in mind, I believe INV holders deserve to vote here. The RWG has regarded all of this information and recommended what we believe to be a reasonable 5% reduction to collateral factor at least until the post cooler loan landscape is more clear and the product has proven itself in implementation and production.
Providing an update here… our friends at Olympus provided detailed insights and explanations to address the concerns raised by the our team regarding liquidity and potential risks in the gOHM market. The Olympus Team clarified the relationship between RBS and Cooler loans, explaining how Cooler loans would provide additional liquidity options and act as a safety net for borrowers. They highlighted the flexibility of liquidity, stating that while AMM liquidity might be lower, non-AMM liquidity, particularly through RBS, is higher thus providing coverage against liquidity risks. Furthermore they have the ammo to refill RBS and effectively buy back all OHM in circulation at current prices, ensuring there is no risk of bad debt for borrowers. The team also mentioned the ongoing discussions about liquidity positioning and their commitment to transparency, promising to address concerns and socialize changes to ensure sufficient liquidity in the market.
Overall, the Olympus Team reassured the Inverse Finance team about the effectiveness of RBS in maintaining liquidity and mitigating risks. They provided concrete data and logic to support their claims and demonstrated the protocol’s preparedness to manage liquidity concerns, especially with the impending launch of Cooler loans. Their responses gave us a more thorough understanding of the OHM ecosystem.
I will keep it short, I see no reason for this given the market position and mechanics of OHM as well as its clear value prop and mechanic drive price stability.
I would either vote no or abstain as I believe it is unnecessary
As I’ve said on discord to multiple folks. This change is not the best timing and will have counter impacts to what the goal of this proposal is. If FIRM wants to derisk pre cooler they should but they should wait until Olympus has set the liquid backing for cooler which is likely to be higher than current price given some of the consolidation of assets that is occuring.
Once the liquid backing is announced price of gOHM is going to follow fairly quickly. Given no additional liquidity is available there won’t be an increase in risk.
Given everyone is waiting for cooler if you lower the collateral ratio now my bet is people hold the line and all of the troves end up getting 5% riskier as people wait for cooler as there’s nowhere else to refinance to and you can currently buy 3000 of value for 2825 while being able to likely have a credit facility of 2950 through cooler. It makes little sense to unwind positions before cooler unless a protocol like firm forces it.
OHM is historically a very stable asset due to its design (far more so than majors such as ETH and BTC), and will only become more stable as cooler loans approach. There is currently $31.4m of OHM liquidity, and a further $3m of gOHM liquidity across all chains. This is significant, enough to absorb liquidations of all positions on FiRM if necessary. On top of this, there is RBS with capacity of over $13m which will absorb any selling that causes gOHM price to drop.
Given the impending launch of cooler loans, which will grant ~2880 DAI loans per gOHM, if there is indeed a situation where bad debt is accrued on the gOHM market due to insufficient liquidity, the DAO would have the option of seizing the collateral and utilizing Cooler Loans rather than on-chain liquidity to liquidate. This is of course assuming a successful launch of Cooler Loans.
Given this, I do not see changing the terms for all current gOHM borrowers (the CF% reduction) is appropriate. This proposal (changing CF to 70%) would liquidate 2 users currently borrowing on the gOHM market, and the next proposed reduction (to 65%) would liquidate a third, if do not manage their loan in the interim. A scenario we should look to avoid unless absolutely necessary.
On top of this, I believe that FiRM can safely take on new loans against the gOHM collateral. There is still a lot of demand, at least between now and the launch of cooler loans since the next most popular platform for borrowing against gOHM, FraxLend, recently had an interest rate spike after a large withdrawal of FRAX. I see no reason to stop OHMies from refinancing on FiRM up to the DAO approved supply ceiling of the gOHM market of 5m.
