Bond Phalanx: OIP-94A IB Bond Market Pre-Approval

This proposal seeks to pre-approve the Inverse Bond (IB) framework for the remaining duration of OIP-94A. The goal of this proposal is to remove a step in launching new bond markets, which adhere to the IB framework and follow OIP-94A.

Definitions

Net Market Activity: Net of the dollar value of all buys and sells within protocol owned liquidity

Organic Flows: Difference between net market activity and bonds sold during the same period. This should allude to market activity beyond what may have been influenced by bond markets. Ex: -$100k Net market activity (more sold than purchased in LP) - $150k inverse bonds sold = -$250k organic flow

Organic Flows 7 day EMA: A 7 day exponential moving average of organic flows.

Liquid Backing: Value of those assets in the treasury that can be immediately, if required.

Floating Supply: Quantity of outstanding OHM not owned by the protocol.

Liquid Backing per Floating Supply: Liquid Backing / Floating Supply

Discount to Liquid Backing: The % difference between Ohm’s market price and the Liquid Backing per Floating Supply.

Market Configuration

Calculations for new bond markets will be prepared on Wednesdays and markets closed and created on Thursdays. Markets will be created with the following parameters.

• Market duration:
  • Thursday to the following Friday (expected to be closed on Thursday. Extra day is for a buffer)
  • Intra-week bond market creations that are not 1 day markets should end at the same time as existing markets
• BCV Tuning: Never
• Asset: DAI
• Deposit Interval and number of markets to create
  • When total capacity for all markets is less than $300k then 1 market should be created with a deposit interval that sets the maximum payout between $50k and $75k
  • When total capacity for all markets is greater than $300k then 2 markets should be created. One with a deposit interval that sets the maximum payout between $50k and $75k and another with a deposit interval that sets the maximum payout between $100k and $300k

How capacity is determined

The Inverse Bond framework utilizes the current market discount to liquid backing when sizing capacity for new bond markets. There are three scenarios which determine how new bond market capacities should be calculated.

• Discount to liquid backing ≤ 10% or above backing and at or below 120-moving average
  • Bond capacity is equal to the amount of spending required per day to reach the current 120-day moving average over 30 days or the number of days until the official Ranged Bound Stability (RBS) launch.
• Discount to liquid backing >10% and ≤25% and at or below 120-moving average
  • Bond capacity is equal to the amount of $DAI required per day to reach the current 120-day moving average over 30 days or the number of days until official RBS launch - Organic Flows 7 day EMA.
    • TLDR: $DAI required - Organic Flows 7 day EMA
  • Capacity should be limited to a maximum of 2x the amount of spending required per day to reach the current 120-day moving average.
  • Example:
    • On June 1, the 120-day moving average was $34.3 requiring an expenditure of $8.25m over 54 days left to reach it, $152.5k per day.
    • On June 1, Organic Flows 7 day EMA was -$190k per day.
    • To reach target net market activity, the organic outflow would need to be counteracted along with an additional $152.5k
    • Total capacity calculated $152.5k - -$190k = $342.5k, however this is greater than the 2x maximum of $305k. New total market capacity will be $305k per day.
• Discount to liquid backing >25% and at or below 120-moving average
  • A one day bond market should be added, increasing capacity by the $DAI amount required to get back to a liquid backing discount of ≤25% - Organic Flows 7 day EMA.
    • TLDR: $DAI required to reach discount - Organic Flows 7 day EMA
  • Example:
    • Liquid backing per floating Ohm is $14.35. A discount of 25% is $10.76. Current Ohm market price is $10, a 30% discount.
    • Realizing a discount ≤25% would require at least $1.1m DAI added to XYK pools, given current liquidity of $63m
    • Organic Flows 7 day EMA is currently -$567k
    • New 1 day market capacity: $1.1m - -$567k = $1.67m
• Calculated bond market capacity must be significant enough to require a bond. Significance is determined by size of bond capacity and current gas fees. For example, if we only need $30k and gas fees are in the hundreds then market participant can profitably take that bond. In this case creating the market is too costly.

When are intra-week Capacity Changes Considered?

Bond market capacities are calculated weekly. However, there are instances where a change in capacity intra-week may be required.

• The discount to liquid backing exceeds 25%: in this case a 1 day bond market that increases capacity is required
• Organic Flows 7 day EMA at time of launch vs now have diverged by more than +/- $300k.
  • Example: Day of market launch the organic flow 7 day EMA is -$500k. Two days later the outflow increases to -$800k. At this time a change in bond market capacities can be considered.