Liquidity Solution B - Olympus Pro

Proposal Discussion
1

Governance Proposal 1

Silo Liquidity Solution B

Authors: Chutoro, Wchood

Related Discussion: see here

Submission Date: 15/12/21

TL;DR
Olympus Pro is a platform built on Olympus DAO that will allow Silo to lock SILO-ETH in exchange for SILO bonds at a discounted rate. However, Olympus Pro requires minimum emissions of $500k/month - at current prices this equates to an increase in circulating supply by 1.5m SILO per month (~18% per annum) and charges a 3.3% fee on the bond payout .This will provide Silo with protocol-owned-liquidity (POL) which is constant, reducing our reliance on external liquidity providers (LP)

ABSTRACT
High slippage is a consequence of low TVL and disincetivizes large players and other interested protocols from investing in or utilising a token. Currently, the largest market for SILO is Uniswap which has a 2% spread of ~$2000, indicating a $2000 buy/sell will shift the price by 2%.

Having POL through Olympus Pro will provide price stability to SILO and allow retail and other investors to invest efficiently without worrying excessively about their price impact.

Olympus Pro allows Silo Community Treasury to deposit SILO-ETH LP Tokens onto the platform in exchange for discounted SILO bonds from Olympus reserves. The SILO-ETH LP Tokens will be locked in an Olympus smart contract indefinitely where Olympus will receive the transaction fees. Olympus requires monthly emissions of $500k/month SILO and charges a 3.3% fee on the bond payout.The SILO that the Silo treasury will receive can be used for other future proposals.

MOTIVATION
This proposal aims to solve early liquidity issues for the SILO token. The liquidity will be protocol owned meaning that it does not rely on external LPs.

It also provides an additional revenue stream in the form of discounted SILO tokens. These can be used to further development of the protocol as a whole.

SPECIFICATION & RATIONALE
Specification
To explain the process, we will use an example of $500 SILO and $500 ETH from the treasury funds and assume that Olympus has a SILO-ETH LP market that provides SILO bonds at a 10% discount with a 7-day vesting period (A $1100 face value bond will cost $1000 at 10% discount rate; 1100/1.1 = 1000):

  1. $500 SILO and $500 ETH is exchanged for $1000 SILO-ETH LP Tokens
  2. $1000 SILO-ETH LP Tokens are deposited into Olympus DAO which will be locked and added to an AMM to provide liquidity indefinitely
  3. Community treasury will receive $1063.7 SILO (1100 - 1100 * 0.033 = 1063.7) over the 7-day vesting period
    • $36.30 (1100 * 0.033) of the Bond Value is a fee paid to Olympus treasury

In this scenario, $500 SILO and $500 ETH ($1000 total from treasury) is exchanged for $1000 SILO-ETH LP tokens. The Silo treasury will also receive revenue in the form of discounted SILO bonds

Rationale
Technical: Olympus’ policy and engineering teams will provide market expertise to Silo core team.

Social: SILO will be featured on the Olympus Pro X market place where it will gain exposure.

Financial: Olympus creates a new revenue stream in the form of discounted SILO bonds.

Governance: Since the liquidity is locked in a smart contract, it is my understanding that they will not be considered for governance votes.

BENEFITS

  1. Provides liquidity that is sustainable and does not rely on external parties.
  2. Olympus will provide exposure to the SILO and technical expertise to the Silo core team.
  3. Discounted bonds provide a new source of revenue that can be used to further the protocol in other ways.
  4. Costs such as impermanent loss are borne by Olympus since they technically own the LP Tokens
  5. Olympus native token (OHM) does not need to be purchased

RISKS

  1. Relying on a third party protocol exposes us to smart contract risk outside of our control
  2. SILO-ETH LP Tokens are locked in an Olympus smart contract meaning SILO does not benefit from the transaction fees
  3. Olympus requires emissions of $500k/month (at current prices, 1.5m SILO/month or 18% inflation annually) which will heavily dilute circulating supply

VOTING
Yes - You are in favour of partnering with Olympus DAO and understand that $500K monthly emissions of SILO (~18% inflation per annum at current prices) are required. We will convert 50:50 SILO and ETH from the treasury into SILO-ETH LP Tokens to be deposited into Olympus Pro.

No - You are not in favour of this proposal.

See below for other governance proposals:

5 Likes
2

I might stand corrected, but isn’t how Olympus Pro (OP) works is that its the users themselves create the SILO-ETH LP tokens which they then exchange with the SILO Treasury for SILO bonds. OP takes a fee and the SILO grows its Protocol-Owned Liquidity?

No matter the case, although I am a fan of Olympus Pro and see this as a long-term solution, I do not think this is suitable right now. I say this because we need to build up initial liquidity first before we pursue OP so people can supply large amounts of liquidity while having the least amount of slippage possible. Maybe we could do Tokemak or a good old fashion liquidity mining program temporary to bootstrap liquidity and then pursue Olympus Pro.

3

Agreed with first paragraph.

Have added a proposal for direct liquidity provision that could work as a temporary solution whilst Olympus Pro/Tokemak/another more long-term solution can be decided upon.