Summary

Following OIP-128 and the new budget and compensation structure, designate the Lending AMO project as one of the key focus areas for 2023 and include it in the bonus program.

Motivation

OIP-127 outlined the importance of Lending AMOs for Olympus:

“Up to this point most integrations of OHM/gOHM in lending markets have focused on the collateral-side. With the recent changes through RBS and the resulting price stability and low volatility, OHM/gOHM are becoming preferred collateral assets to use - as the recent listings on Silo Finance and Fraxlend have shown. At the same time, it is important for the protocol to also start focusing on the lending-side of the market and to promote OHM as a good borrowable asset as well.

There are a few different reasons why. For borrowers it diversifies options to borrow “stable-ish” assets beyond just USD stablecoins. For traders and speculators it provides the option to hedge or short OHM, both of which are not easily doable today. While this may seem like a downside, shorting or hedging allows for more natural market dynamics and price discovery, and helps to prevent unsustainable premiums. For Ohmies lending markets also adds additional utility in that they can lend out OHM to interested parties on various lending platforms.

More importantly though - from the protocol’s perspective - is that lending markets allow for more efficient scaling of OHM as well as diversifying the assets that back circulating OHM. Rather than being exclusively backed by treasury assets, OHM minted into credit markets would be backed by a basket of collateral assets (or rather, a claim on those assets). As a result, the OHM supply could theoretically grow without increasing the treasury assets and/or diluting liquid backing of the floating supply by minting into these lending markets.

Finally, Olympus will also be earning OHM-denominated yield on OHM that is lent out, creating a new income stream for the protocol.”

Project definition

While OIP-127 approved a pilot programme to test out OHM lending markets, these initial tests will be performed through a multisig for ease of deployment. The full Lending AMO project encompasses a more sustainable solution that does not rely on holding funds on a multisig but rather on new smart contracts specifically developed for this purpose. The deployment of a lending AMO smart contract is thus the key deliverable for this project.

The full scope of the Lending AMO project is as follows:

• List OHM as a borrowable asset on a select group of lending markets.
• Implement a warm up period for OHM staking to prevent flashloan attacks.
• Develop a set of new smart contracts - consisting of a base level contract and specific implementation contracts for each lending market - that allow for:
• Minting into whitelisted lending markets
• Setting a target interest rate and report the total supply needed in that market to achieve this target
• Removing or adding liquidity to manage interest rates (i.e. to ensure rates are close to the target)
• Harvesting yield
• Audit these smart contracts before deploying them.

Note that while some of these elements listed above are live today already, they were developed during January-February 2023 and so fall within the scope of OIP-128’s bonus program.

Deadline

The deadline to implement the full Lending AMO project - from the pilot programme to the actual deployment of the audited smart contracts - is the 31st of May.

Note: this deadline has been changed in comparison to the original RFC. The main reason being is that the development and deployment of the Liquidity AMO contracts have been prioritized. A separate OIP will follow with more details on this project.

Bonus

The bonus allocated for the successful and timely completion of this project is 15% of the total bonus pool.