This is a mechanism to raise Protocol Owned Liquidity (referred herein as POL.) This is an improvement on the traditional “yield farming” model, because the protocol is purchasing the LP tokens from investors, with no possibility of a refund.
The purchase process is a five day vest of the reward asset. An example would be:
- Investor sees that 1 OHM-FRAX LP is worth $1000 on Uniswap.
- Investor sees OHM-FRAX LP Bond listed on the Olympus bonds marketplace for $1100 = 1 OHM-FRAX LP.
- Investor begins bond process and receives $1100 worth of OHM, over five days, which should be 10% profit.
The premium is calculated at the moment the bond process starts. If OHM goes to $0 then the investor is left holding the bag (as they already sold the LP token to the protocol.)
The traditional yield farming model “rents” the liquidity from the investors for a short period of time and pays in a reward asset generated by the protocol, generally the governance tokens. The net result is that the users extract value from the system (in form of the the reward asset) in addition to withdrawing their liquidity. This leaves the protocol with nothing to show, economically, afterwards. In essence, the protocol hemorrhages economic value in form of the reward asset without building any equity (in this case, the equity would be POL.)
After Olympus innovated this new POL raising model, they realized that this solution can be used to raise POL for other projects as well, leading them to launch Olympus Pro. Its the same concept, except the reward asset is in the partner project’s token.
Partners will deposit a finite amount of tokens for the limited-time-period bond program. For example: Sandbox deposits 100,000 SAND and once all 100,000 SAND has been given out then the bond program is terminated. In exchange SAND gets the POL (I’m assuming Olympus keeps some as well.)
The current status is that this is in the early research/testing phase.
Testing is manual, where I deploy my personal capital (and already built some small tooling for measuring performance.)
The next phase would likely be off-chain automation, with some type of node script.
Then finally we can implement a deposit “vault” smart contract and deploy on chain to open up to UbiquiStick holders (our beta testers) and then finally make it public — maybe? Or we could just gate for UbiquiStick holders in perpetuity which would be pretty dope until its reverse engineered (unless we hide the source code on Etherscan lol.)
The vision for this would be to have a bespoke vaults/products view on our dapp, just like ribbon.finance.
The backstory is that I personally have been keen on researching these for my portfolio because I’m a veteran and know that the bull markets don’t last.
The fitness function for the strategy design and ranking is to optimize the risk/reward ratio; meaning to find the lowest risk strategy with the highest returns.
Fortunately, through having had designed a stablecoin I’ve learned quite a bit on the monetary and fiscal policies of the other major stablecoins and have a good idea of the risks associated with each of their models.
I also am quite keen on Uniswap V3 LP as a yield source because:
- I consider the protocol risk to be basically zero (Uniswap has never been exploited afaik, and they have been around for a long time.)
- Most people don’t understand LP, especially Uniswap V3 LP, so there’s tons of opportunity for yield that is not being diluted.
Now with all that said, I’m currently exploring stable-stable pairs with specific price range LP. I’ve been able to get ~25% APR (tested over about half a year) with this basic setup.
There’s some techniques which will be prototyped to further boost the returns which would include active LP position management (a la visor.finance) for example, making an ultra tight price range to provide liquidity, and when the price moves out of that range, to actively move the price range to chase the market price.
I also see opportunities to build a yield aggregator on top of our basic vaults, which will always look for the highest yield opportunity across our vault suite.
Lastly, we can always incentivize people to raise liquidity for our protocol by paying out in debt tokens with a premium (so instead of 25% APR in the earlier example, we would pay out 50%, but in our debts.)