Title: eIP34: Change OHM oracle to Chainlink and set up market parameters
Authors: Felix
Related Discussions: [RFC] Change OHM oracle to Chainlink and set up market parameters
Submission Date: 8/12/2022
Summary
This proposal calls for 1) changing the OHM price oracle to Chainlink, and 2) setting up the OHM market parameters to include a borrowFactor of 0.5 and a Base IR% of 5.00%.
Motivation
Oracle
At the moment, the existing OHM Uniswap price oracle does not facilitate the creation of an OHM market since there are no major trading pairs there. Olympus would like to list an OHM market on Euler, and as a first step to doing that we propose to change the OHM price oracle to Chainlink. This OHM/ETH Chainlink oracle can be found here and is already used in various DeFi applications today.
borrowFactor
At the same time, and after consultation with the Euler team, we propose to set the borrowFactor to 0.5, allowing for more efficient lending and borrowing activities in this market. Below we outline our reasons why - considering the market liquidity and price volatility - we think this is a relatively low risk change for the protocol.
Today the majority of OHM liquidity can be found on Balancer , with smaller pools on Curve and Fraxswap. Most of the TVL in these pools is protocol owned (roughly $60m at the time of writing), and so there is no risk of liquidity suddenly disappearing during market volatility. As such, liquidators can be guaranteed that there is sufficient depth to liquidate into and as previous experiences with for example Rari have shown, these protocol-owned pools allow for safe unwinding of debt (in the case of Rari, hundreds of millions were liquidated without any bad debt).
With the maturation of the Olympus protocol, the focus has shifted to fostering stability over the last year. The high staking rates that defined the protocol’s past have been significantly reduced, buttressing stability and removing a major hurdle for the use of OHM throughout DeFi. More importantly, Olympus has deployed an algorithmic open market operations module (“Range-Bound Stability”), fostering the stability of OHM around a floating target price. In short, RBS codifies the protocol’s “bond” policy, expanding supply by selling OHM (growing reserves) during periods of high demand and contracting supply by acquiring OHM (drawing down reserves) during periods of lower demand. For more information on RBS, please visit the following link.
As a result of these changes, the OHM price volatility has been significantly reduced. More importantly for setting the borrowFactor though, is that any sudden price increase or decrease will be heavily dampened through these algorithmic market operations that strive to keep the OHM price in a certain range.
As such, with the guarantee of permanent liquidity and a low expected volatility, we feel that setting the borrowFactor to 0.5 is a relatively low risk change for the protocol that will make the market much more attractive for third parties to participate in.
Interest rates
Finally, we propose to set the Base IR% of the market to 5.00%. Due to the nature of the OHM staking/rebasing mechanism we want to avoid a situation in which borrowers are able to pay an interest rate (significantly) below the reward rate. At the same time, lenders will not be incentivized to lend out funds if the interest rate is below the base reward rate.
Should this proposal pass we plan to deposit protocol-owned OHM to seed the supply side of the market (pending Olympus governance vote).
Specification & Implementation
- Update the OHM market’s price oracle to the Chainlink OHM/ETH oracle found here.
- Set the borrowFactor of the OHM market to 0.5.
- Change the interest rate model of the OHM market to the following:
| Base IR % | Kink IR % | Max IR % | Kink % |
|---|---|---|---|
| 5.00 | 20.00 | 300.00 | 0.80 |
Voting
- Yes, change the OHM price oracle to Chainlink and set the borrowFactor and interest rate model as outlined above.
- No, keep the oracle and market parameters as is.