@OlympusDAO Liquidity Bonds versus Liquidity Mining:
2 ways to bootstrap token liquidity but with different financial and psychological implications for token holders.
A thread exploring the cost of acquiring + maintaining liquidity through two different methods.
2 ways to bootstrap token liquidity but with different financial and psychological implications for token holders.
A thread exploring the cost of acquiring + maintaining liquidity through two different methods.
1. What is Liquidity Mining?
Token XYZ launches, offering high APRs in XYZ terms.
This encourages yield seekers to create Liquidity Pools or LP tokens on a DEX like Uniswap.🦄
APRs are kept high to compensate liquidity providers against "impermanent loss". 📉
Token XYZ launches, offering high APRs in XYZ terms.
This encourages yield seekers to create Liquidity Pools or LP tokens on a DEX like Uniswap.🦄
APRs are kept high to compensate liquidity providers against "impermanent loss". 📉
2. What is impermanent loss?
It is loss borne by an LP token holder when price of two tokens diverges from the point an LP token was minted.
Much longer discussion here.
TL;DR: there’s plenty of risk here so be aware liquidity providers.
It is loss borne by an LP token holder when price of two tokens diverges from the point an LP token was minted.
Much longer discussion here.
TL;DR: there’s plenty of risk here so be aware liquidity providers.
https://twitter.com/jonwu_/status/1389782646000078850
3. . What is the problem with Liquidity Mining?
A. Impermanent loss risk compensation is high
B. LP rugging risk looms.
At some point the high APRs offered have to be lowered, when this happens mercenary capital will sell LP tokens of XYZ and remove their liquidity.
A. Impermanent loss risk compensation is high
B. LP rugging risk looms.
At some point the high APRs offered have to be lowered, when this happens mercenary capital will sell LP tokens of XYZ and remove their liquidity.
4. What are Olympus liquidity bonds?
Olympus liquidity bonds offer LP token holders an incentive to sell LP tokens because the @OlympusDAO protocol is willing to buy such tokens at a discount to market price of $OHM.
The result is Protocol Owned Liquidity (POL).
Olympus liquidity bonds offer LP token holders an incentive to sell LP tokens because the @OlympusDAO protocol is willing to buy such tokens at a discount to market price of $OHM.
The result is Protocol Owned Liquidity (POL).
5. Why do people sell LP tokens for bonds?
Bonds are "usually" available for a discount to the price available on a DEX.
Olympus bonds vest over 5 days.
A typical $OHM bond buyer is essentially giving 5 days worth of liquidity in exchange for getting $OHM at a discount.
Bonds are "usually" available for a discount to the price available on a DEX.
Olympus bonds vest over 5 days.
A typical $OHM bond buyer is essentially giving 5 days worth of liquidity in exchange for getting $OHM at a discount.
6. How is bond discount determined?
Bond discount is determined by the market and fluctuates because of Debt Ratio.
——
Bond Price = 1 + BCV * Debt Ratio where
- BCV = Policy recommended input, stands for Bond Control Variable
- Debt Ratio = Bonds Outstanding / OHM Supply
Bond discount is determined by the market and fluctuates because of Debt Ratio.
——
Bond Price = 1 + BCV * Debt Ratio where
- BCV = Policy recommended input, stands for Bond Control Variable
- Debt Ratio = Bonds Outstanding / OHM Supply
7. What is the benefit of Protocol Owned Liquidity?
A. Psychological assurance that liquidity is deep and benevolent because it is protocol owned, so it won’t rug.
B. Fees. To date Olympus has earned over $2 mm in fees from its LP positions while spending 264k OHM on it.
A. Psychological assurance that liquidity is deep and benevolent because it is protocol owned, so it won’t rug.
B. Fees. To date Olympus has earned over $2 mm in fees from its LP positions while spending 264k OHM on it.
8. What is the delta between Pool 2 cost of acquiring + sustaining liquidity VS Olympus liquidity bonds?
Hard to compute.
However, considering POL offers revenues to protocol + psychological comfort to token holders, one can argue that:
Olympus Liq bonds > Pool 2
Hard to compute.
However, considering POL offers revenues to protocol + psychological comfort to token holders, one can argue that:
Olympus Liq bonds > Pool 2
• • •
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