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Inverse Bonds (OIP-76)

What are inverse bonds?

Inverse bonds have been introduced as a protocol lever in OIP-76 as a way to support the price of OHM when it is below the backing per OHM. As their name suggests, one can think of inverse bonds as doing the "inverse" of what a regular bond does: instead of taking a treasury asset in exchange for OHM, it takes in OHM in exchange for an asset from the treasury.

Here is a TL;DR on inverse bonds:

  • They buy your OHM in exchange for a backing asset from the treasury.
  • They buy your OHM at a premium (slightly above market price) and then burn it.
  • They buy your OHM at a slight discount to the backing per OHM, increasing the backing per remaining OHM.
  • They have no vesting, meaning that the asset exchange is instant.
  • They are only available while the OHM market price is below the backing per OHM.
  • They are launched by the policy team.
  • Their price is determined by the market.

Why are these bonds being introduced?

The purpose of inverse bonds is to absorb some sell pressure for OHM, supporting OHM price while bringing in revenues and increasing the backing per OHM.

What assets can I bond?

  • You can bond only OHM v2.
  • You must unstake your sOHM or gOHM first.

How much will these bonds cost?

  • Their pricing mechanic is basically the same as for regular bonds:
    • The price and payout value of an inverse bond start at the market price of OHM.
    • The payout amount (premium) slowly increases until someone buys a bond.
    • The payout amount (premium) is then reduced and will slowly increase again.
  • They will effectively buy OHM at a premium – slightly above market price.
  • You will get more value for your OHM compared to selling directly to the market.

What asset will I get for these bonds?

  • Different bonds will be provided that pay out different assets.
  • The policy team will add and remove bonds based on market conditions and treasury composition.

How many of these bonds will be available?

  • Bonds have a limited capacity and are sold out once their capacity is reached.
  • While the policy team is ultimately responsible for implementing inverse bonds, the lower the price of OHM compared to backing, the more capacity should be expected.

When will these bonds become available?

  • The Snapshot governance vote has passed and inverse bonds can now be used as a protocol lever.
  • The policy team is responsible for their implementation, notably the timing of inverse bonds and their capacities.

Where can I buy these bonds?

  • You will be able to buy them on the Olympus website but only on the Ethereum network.
  • They will be offered only while OHM trades below the backing per OHM.

How do these bonds affect the backing per OHM?

  • The protocol acquires and burns OHM at a discount compared to backing per OHM.
  • The revenues from inverse bonds increase the backing of all remaining OHM tokens.

Do these bonds guarantee a price floor?

  • No. They simply increase the backing per OHM and absorb some sell pressure.
  • It is effectively the treasury acting as a whale buying OHM, supporting the market. As this whale can effectively buy all the circulating OHM, it should give the market more confidence.

Can these bonds drain the treasury?

  • The policy team decides how much OHM can be bonded in total.
  • The policy team allocates the amount of payout assets upfront to safeguard the treasury.
  • In terms of implementation, inverse bonds will not have direct access to the full treasury assets.

Will the DAO itself bond OHM?

  • No, OHM in DAO funds will not be used for inverse bonds.

Are these bonds the same as a buyback?

While they seem similar there are notable differences:

  • They absorb sell pressure because they buy OHM slightly above the market price.
  • They reduce sell pressure further because they increase the backing per OHM.
  • Their availability is limited to certain market conditions.
  • The amount of OHM tokens that the protocol will acquire and burn is limited.
  • Sales are driven by market demand and not by the protocol or the DAO, removing moral hazard.

What is the backing per OHM?

  • The USD value of the assets in the treasury is called “backing” or “reserves”.
  • OHM in liquidity pairs does not count towards the backing.
  • Locked assets like vlCVX and veFXS do not count towards the backing (for this purpose).
  • That backing divided by the amount of OHM in circulation is the “backing per OHM”.
  • The current backing can be found on the Olympus dashboard under “Liquid backing per OHM”.

Example

  • ETH inverse bond
  • $120 backing per OHM
  • $100 market price of OHM
  • $100 bond price
  • $105 payout per bond (5% premium over the market price of OHM)

→ Treasury takes in $100 in OHM in exchange for $105 in ETH, supporting the market by removing some sell pressure.
→ That OHM is burnt.
→ The treasury pockets a revenue of $15, increasing the backing of the remaining OHM tokens.