26th November 2021 > > Reserve Treasury Protocols.

tl;dr

There are always hidden risks in the DeFi world.

Market Snap

Market Wrap

Stocks and bonds are not happy.

Today is option expiry day with net long calls only in the money at over $60k to the tune of $230mm. Anything less than $58k favours the puts whilst below $56k pays out $365mm to the bears. These are not insignificant sums of money, so we can expect greater volatility than usual today.

Occasional Series – the Nu variant

The controlling, authoritarian forces will be out all weekend calling for lockdowns and other measures to again try to destroy our hard-won liberties. My local MP is on record supporting a zero Covid strategy. How can anyone vote for someone that malign?

Curious Cryptos’ Commentary – Reserve Treasury protocols

Olympus DAO (OHM), the first of the current crop of rebase protocols of which XEUS and FORT are the CCC’s live experiments, has just demonstrated the risks to these products, apart from the obvious one of a rug-pull.

OHM has been around since April now, and its code has been audited several times.

Treasury protocols take in assets from investors, and issue native coins (in this case OHM) in return.

Staking those coins rewards the stakers with hundreds of thousands of percent APY or even more (FORT is currently 1.3mm % APY. To put that in context, that is almost 1% every eight hours).

The process of exchanging assets for the native token is known as bonding. Coins are vested over a period of days (typically five) with varying degrees of discount, or even a premium at times (not a sensible move for obvious reasons).

Assets can be stablecoins or LP (liquidity pool) tokens. XEUS for instance currently accepts BUSD (the Binance stablecoin) or XEUS-BUSD LP from PancakeSwap.

Early on in OHM’s life, one of the assets that could be used for bonding was OHM-DAI LP on SushiSwap. DAI is the MakerDao stablecoin. That offering was removed some time ago.

But the coding was not changed – it was just the website that no longer displayed that option.

The discount on this bonding asset had gotten somewhat out of whack. One sharp-eyed individual deposited $50,000 of OHM-DAI LP and received 1,697 OHM which was worth $1.43mm at the time.

That is one steep discount with the added advantage that he did not have to be overly concerned about impermanence loss in the liquidity pool.

In fact, better than that, if he cashed out OHM straight away, and immediately withdrew his liquidity, he would have made out on both sides.

That was one heck of a trade. All perfectly legit and above board.

Very good for the individual, small bad for all the other investors in this project. This event won’t kill OHM of course, but it is a salutary reminder that there are many, many unknown risks with all these DeFi projects.