I took this past weekend off. This was for the first time in probably 12 weeks. I started working on Olympus full time back in January. For the first few weeks I worked 8 hours a day; as the community started to form that turned into 12 hours a day; since launch I’d say it’s been at minimum 16 hours a day. Every day, every week, since March.
It’s easy to read that and think “wow, that’s obviously not good.” And I’d agree with you, though probably not for the reason you’d expect. You’d think that’s bad because you’ll get tired; at least, that’s what I thought. And so I kept waiting until I got tired. And you know, it never really came.
But that doesn’t mean all was well and good. Exhaustion builds up quietly, but far worse, so does tunnel vision. When you spend all day, every day, looking at something through a microscope, it becomes difficult to see the big picture. And that’s how I feel: like I’ve been too busy in the weeds that I forgot about the garden.
Now, if you haven’t seen, the Olympus DAO is coming along amazingly. We have such a smart and dedicated community that is truly stepping up to the plate to make this project their own. It makes me incredibly happy, excited, and optimistic about the future of Greece. And so I spent my weekend thinking about how I can help you all succeed.
What I bring to the table
Lately I’ve worn a lot of hats. I’ve been playing dev, marketer, growth lead, executive, a hint of community manager. I’ve had amazing help from our core team, but there’s just so much to do and I generally jump to go do it. I’ve lately realized that often the more you try to do, the less productive you become.
I think what I bring to this organization is vision. I can see a picture, clear as day, for what this thing can become. And I think that vision is great. I think it would create an era of cooperation, prosperity, and balance for DeFi and for the world. The hard part has been sharing that vision. These are complex topics, and it’s hard to synthesize them into something cohesive. But, as Teddy Roosevelt said: “Nothing in the world is worth having or worth doing unless it means effort, pain, difficulty.” So, that is what I will try to do today.
The End State
Our ultimate goal is create a better currency experience for the digital age. But ser, how? What is each piece of Olympus for? What would they look like at scale? Here’s how I see it:
Staking
Staking is your risk-free rate of return for the economy. This is very similar to the Federal Funds rate that the Fed controls. The staking reward rate dictates the return you can get on your capital without taking on any risk. In an efficient economy, any activity that yields more than the reward rate will get done, while anything yielding less will not get done. Based on historical data, a healthy long term reward rate is around 15% APY.
The DAO will use this rate to control the economy at a high level. Things are getting too heated? Euphoria running amuck? Let’s raise the reward rate. Economy looking lethargic? Not enough is getting done? Let’s bring it down.
Bonds
Bonds serve two main purposes; to build the strength of the currency, and to allocate resources into the economy. Thus far we’ve only looked at it the former, but as time goes on the latter should become more and more important.
Building up the currency is the easy one to understand. As we bring more assets into the treasury, the treasury becomes stronger. It takes more and more capital to outmatch it. This is the dynamic that we want; the treasury should be the strongest player in the game, able to do whatever it wants, because what it wants is what all the players in the game want. In this sense the treasury is more of a referee, and you want the referee to have the respect of players on both teams.
Allocating resources is the harder one to understand, but it’s far more interesting. Getting it requires flipping your viewpoint. Instead of thinking about a bond as the treasury selling OHM for DAI, think about it like the treasury buying DAI with OHM. Our treasury currently drives demand for DAI, to the benefit of DAI and Maker. Now, what if instead of DAI we are accumulating RGT. Now we are driving demand for RGT, to the benefit of Rari.
This demand that we can manifest through the treasury constitutes an allocation of resources. On an economy level, the central bank would have the ability to provide funding to companies and protocols by purchasing their assets in secondary markets. We provide liquidity, and they provide ownership.
Bonds also provide opportunities for productive financial activity. These are fixed income instruments that can be played off of each other and off of the broader market. Rate arbitrages, cash and carry trades, and fixed income investing should provide steady returns to participants and keep treasury markets running efficiently.
Hades
Hades is a feature set integrated into bonds and soon staking. It allows the user to assign their OHM to a different wallet without sending a transaction that can be easily found and traced on a block explorer like Etherscan.
Hades provides a built in layer of obscurity to financial activity on Olympus. Right now this layer is quite weak; it does its job well, but only because no one has tried to break it. It is still easily thwarted by a bit of chain analysis. However, it doesn’t need to be. Should the DAO choose to do so, Hades can be expanded to include the entire Tornado suite. This would mean full on-chain privacy through our dApps.
Why is this good? Privacy should be a basic feature of a currency, not a product built on top. Privacy should not draw attention, it should be an expectation and a norm. People should be able to spend, transact, and live without scrutiny from others. Olympus can provide that.
Reserve and Liquidity Management
This is one we haven’t gone into much, but its where some of the biggest possibilities lie. We should play very conservatively in this field because it can make or break the project. However, the bigger we get, the more we can do while remaining conservative.
Through reserve management, we can directly allocate resources from the treasury, while also gaining yield. Let’s say a partner project is in need of liquidity. We feel confident in their ability to repay, and so we loan them some of our reserves. We have assisted them while generating a return for ourselves.
Through liquidity management, we can directly affect our own markets. OHM is trading a bit too low against DAI? Let’s reweight the pool back up. Another token we are paired with is pushing up faster than it should? Let’s reweight it back down.
These decisions require a robust framework to remain consistent over time, but when you own the dominant pool for an asset, you control its price. The more pools we have, and the greater our ownership of each one, the more control we, through the treasury, have.
Lending and Credit
Here’s another one we have yet to explore. Native lending and credit markets are entirely possible here.
We could issue under-collateralized loans while working within the confines of our minting requirements. Right now we mint 499 OHM for every 1 that we give to a bonder; what if instead, we gave them 2? We still retain 498, while they’ve now received a loan for 2x their principle. The tricky part here is, of course, ensuring the loan is repaid. This will need to be solved before we can approach this, and we shouldn’t touch it until our market is extremely liquid and efficient anyways. However, we can pull on things like staking or bonds to ensure repayment. And the bottom line stands: even in the case of default, the system is still working as intended.
We can also do native self-repaying loans, a la Alchemix. This type of system fits incredibly well with sOHM. What’s more, we can do this without an al token. Think self-repaying loans, but you borrow the asset itself. Instead of depositing DAI to borrow alUSD, it’d be the equivalent of borrowing DAI. The possibilities here are expansive and quite exciting.
Finally, we have borrowing and leveraging the backing of tokens. I like to think of the end game here as this: imagine holding a Bitcoin, and knowing that there is $10,000 waiting in a bank account for you to borrow against that Bitcoin at all times. You’ll take on no liquidation risk and pay no interest to borrow that money; it is held on your behalf, and it sits there waiting for you to utilize it.
Some lessons I’ve learned
Part of my tunnel vision has been an over-emphasis on making everything work perfectly internally right now. We’ve been playing with system parameters, seeing what they do to the market, seeing how they effect the treasury, with the intent of perfecting each piece before moving to the next.
A lot has been learned from this. A lot. But its time to leave that phase behind. Bonds have proved to be a solid mechanism, and we should lean into that. Staking has proved to be less than ideal. We should remedy that. Here’s a few lessons, how I think they should be applied, and how I see us moving forward from here.
Incentivized behaviors need to be productive
A significant issue I see is that staking, the most compensated behavior in the network, is only loosely beneficial. The intent of the high compounding staking rewards is to keep supply locked off the market. Rewards are high to bring in demand; they compound to keep players in. This frees the market up so the protocol can dominate the sell side and grow through the bond market.
This dynamic has not been as strong as intended. Our hypothesis was that high staking rewards would provide adequate incentivizes to hold, greatly reducing downward price pressure on OHM. Unfortunately, we learned that even thinly-traded OHM can put pressure on price. Since we have so much liquidity, low volume buying can’t push us up as much as a few sellers can push us down.
Potential Solution
Offer high rewards only to stakers who actually lock off the market. If that is their job, they should be held to it. If they are not interested in committing to it, they should be compensated less. Locked staking would be well accomplished through the same mechanism as bonds: you commit to a term, you’re promised a return, and you vest into that return over the course of the term. Locked staking would allow price to stabilize and rise much easier, which strengthens our narratives and encourages further investment.
Hard-coded constants are bad
This goes along with the last one. The high staking reward rate is an issue right now. The real problem is not that its high, it is that it is not tied to anything. There is nothing that can bring it down except intentionally bringing it down. This is a problematic dynamic, because no one wants it to go down, even if they know it should. If it is tied to something, it’s not as big a deal if it goes down because everyone understands how and why.
Potential Solution
Tie the staking reward rate to the bond price. The higher the bond price is, the higher the rewards are. This 1) makes rewards dynamic, 2) lessens pressure during downtrends and increases pressure during uptrends, and 3) ties rewards to a growth metric, aligning the incentivizes of stakers with those of the protocol.
Constant change becomes unproductive
The most important characteristic of a network such as this is that is it predictable and consistent in behavior. The actual policies are likely less important than the frequency with which they are changed. Like the Joker said, “no one panics when things are going according to plan.” Over time, the market will adjust to the system and things will move forward. Change too often, and the market can never find its footing.
This has probably been our biggest issue thus far, and its occurrence was rooted in the fallacy that policy can be adjusted to help the market in the short term. We cut back on bonds a few weeks ago because the market seemed to be weakening and, in theory, less bond capacity would mean less sell pressure would mean a stronger market. What we did not account for was that 1) change confuses and erodes confidence, 2) bonds didn’t drive the market enough to make a real impact, and 3) bonds are how the market measures the growth of the protocol. As a result, this change likely made things worse, not better, than if the market had been allowed to sort things out on its own.
Potential Solution
A policy state tied to long term goals and metrics. This makes it harder to justify changes for short term purposes. Additionally, policy adjustments occurring incrementally in an automated fashion. No change should happen quickly. Variables should move up or down slowly, so that the change can be anticipated and reacted to by the market over time, and the effect can be studied more closely.
Policy should be tight
Preface: Loose policy means low bond pressure, high rewards. Tight policy means high bond pressure, lower rewards. Loose=liberal, tight=conservative.
One of the things I found most interesting was how effective loosening policy was. We performed this experiment in mid-April; bond capacity was lowered, staking rewards were raised, and we rallied almost 100% in the following week. This, to me, was a demonstration that policy has a strong effect on the behavior of the market.
However, aside from offering a great case study, this did not benefit the system or the market. Once policy has been loosened, the market adjusts to that loosened state. To have the same effect, you need to loosen even more, and each time it becomes less effective. This is the same problem that has riddled central banks for the past 15 years. Policy is the central banks grip on the market: the looser the grip, the weaker the control.
Potential Solution
Keep policy tight. Allow the system to suppress the market. Prioritize treasury growth over market trends. Keep solace in the fact that governance has the ability to make the market spring back, but it chooses not to. Suppression brings the market into a fundamentally undervalued state, which keeps demand steady and allows the market to remain fundamentally undervalued while still growing. Give up that suppression, bring valuations more fair, and you lose that steady demand.
Trust the Market
This goes along with a lot of these things. The market is not a child, it does not need a babysitter. You cannot protect it from itself. It will move up, it will move down. No one and nothing can stop it, you can only loosely regulate it.
Potential Solution
Consistent policy over a long span of time. A willingness to allow upturns and downturns to occur unimpeded. A prioritization of treasury growth above all. A focus on building outward rather than adjusting inward.
The Path Forward
It’s time to start building out instead of up. It’s time to set a protocol state and leave it. No new features, no new parameters, just a sleeping giant humming along. I’ve said before that we would prioritize partnerships and integrations when the time was right. Well, I believe that time is now.
Integrations
Let’s get OHM offered on money markets and other DeFi applications. Let’s ensure OHM is usable as a capital asset and denominating currency. We want to lend with OHM, borrow with OHM, farm with OHM; all those fun things you do with your favorite coins.
Partnerships
We want to make Olympus the center of DeFi. The central bank needs to exist at the base layer of everything. Let’s turn DeFi-generates into Ohmies. I think that the best way to do this is via the last point (integrations), and the next.
Pools
Let’s build up liquidity with OHM as a counter asset for many different pools. We want to put OHM in the same position as USD, BTC, and ETH; as a default currency to pair your token with.
How do we do this? Through incentives, of course. We can offer something that none of those do: help building your pool, and demand for your token.
We can offer dual-incentives for pool bootstrapping; instead of having to pay the cost of both sides of the pool (i.e. xx-ETH), projects can come to us and we’ll help out. Demonstrate that things are going well for your project, that there is real demand and product-market fit for your token, and we may even add bonds for your pool. This will lock that liquidity in and keep demand flowing for your token as well as ours. These are strong opportunities for symbiotic relationships in which both sides win and grow together.
With large and strong enough pairs, OHM starts to become a real currency. Our inflation becomes bullish for DeFi instead of bearish for OHM. Staking rewards become new capital to go allocate into this token or that, rather than solely held or sold. We want to think about selling OHM like we think about selling USD: that is, we don’t. Instead, we buy things with it. We will buy ETH with OHM, we will not sell OHM for ETH.
Recap
- Tunnel vision is bad, grinding too long becomes unproductive, take care of yourself
- The vision I have for Olympus is f**king cool (at least imo)
- Each piece of Olympus serves a need for a macro economy
- We’ve learned a lot in the past few months
- One of those things is we should lock in features/policy for a while
- There’s still lots to build, but right now we should focus on partnerships and integrations
- We should aim to become a primary asset to pool with for other projects
- We can form strong mutually beneficial relationships doing that
- Post about locked staking
- Post about expansion plan
