PoolTogether

Olympus PRO - 30 days analysis

Overview

The Olympus PRO bond program saw its first deposit 30 days ago and in this post we will examine the results thus far. The program was initiated by the passing of PTIP-40 which provided 20k POOL to be redeemed at a discount in exchange for LP tokens taken in for the PoolTogether treasury. Looking back at the motivation, and digging into the results, we can gain a new perspective on the outcomes in consideration of utilizing the bonding program going forward.

Original Motivation

To quote from the original PTIP-40 proposal:

Overall, the community has been making an effort to use POOL distribution more effectively. The protocol governance is already sufficiently decentralized and as such, going forward we should be more focused on using POOL effectively to promote growth and strength of the protocol.

Source: PTIP-40 Rationale section.

Original Expectation

The ultimate goal was to increase protocol-owned liquidity (POL), while reducing the need for POOL rewards in the long-term. The ultimate outcome is to deliver more value to POOL holders in the long-term, while effectively managing POOL emissions in the short term.

The three most important questions we’ll explore in this post:

  1. Did the program increase POL (protocol owned liquidity)?
  2. Were ETH/POOL LP bonders converted to POOL holders? Or was the POOL redeemed from bonding sold.
  3. Was the approach more effective than swapping POOL for ETH, pairing with POOL, and LPing directly?

Results

The program has bonded 226 UNI V2 LP tokens, currently valued at ~$125k. This represents 5.8% of our total liquidity on Uniswap. At the current rate it would take around 16 months to replace our incentivized liquidity completely with POL.

If the expectation was for community members to participate, bond ETH/POOL LP tokens for POOL, and remain long-term aligned holders, then the results do not reflect that outcome. The majority of the participants in the bond program appear to be bots.

The Olympus Pro bond sale was proposed and executed to minimize the sell pressure on POOL over time. While sell pressure from traditional liquidity mining has impacted POOL price, the bond sale resulted in greater sale pressure over the same timeframe. The distribution of POOL redeemed through bonding was highly concentrated and heavily sold.

A single address involved in the bonding program SOLD 5,842 POOL while only 5,500 POOL has been CLAIMED from the Uniswap LP rewards over the same time period.

Below is a synopsis of the participation in the Olympus Pro bond sale:

– 18 unique bonding events
– 9 unique addresses participating
– 5 of the 9 uniques have shared activity and appear to be one cohort of bots

The total number of participants in the Olympus Pro sale: 5

For a list of all bonding deposits, and more detailed notes on all participants, see this google sheet Olympus PRO Analysis - Google Sheets

Cost Overview

17,577 POOL redeemable with $125k liquidity bonded thus far gives us an average price of $7.11 per POOL

Deeper Dive

The bots accounted for 127 of the 227 bonded LP tokens (i.e 56%).

All of the POOL redeemed by this army of bots was sold. An additional 54 of the tokens were bonded by one other address that has completed 3 round-trips of bonding, redeeming, selling half the POOL and bonding again. These two actors alone account for 80% of the bonding.

Between those two actors, 85% of the POOL redeemed in the process was sold, instead of being transferred to long-term holders interested in participating in the protocol. It’s worth noting the same bot addresses could be seen attempting to profit off of several other protocol’s PRO bonding program. This outcome was not limited to PoolTogether.

With a majority of the POOL redeemed from bonding being sold, the program becomes much less attractive. We could only find one instance where a user had withdrawn their staked liquidity tokens to bond them.

What’s next

The bonding program is 82% complete and we can expect it to finish within the next 2 weeks, at which time we should have around $160k in POL, at current prices. This is definitely the upside, as Leighton pointed out, “$125k POL is 100% more than $0”.

If the majority of bond participants are selling POOL in the process then it’s likely more efficient for the protocol to sell POOL on it’s own terms, at its own prices, and save the 3.3% fee charged by Olympus and the bonding discounts offered through the PRO program. However, there could be other factors to weigh like regulatory optimization.

Potential Improvements to Approach, Considerations

Some considerations should be made before continuing:

  • Consider changing the maxPayout to allow for bonding higher amounts so the bonded amount is less hindered by gas as a percent cost

  • Increase vesting time of bond redemption

  • Integrating, or linking to bonding in the PoolTogether app and/or using more marketing/awareness to attract protocol aligned participants

  • Running the program at a slower pace to reduce impact of selling

  • Waiting for higher POOL price

  • Evaluating outcomes of other protocol owned liquidity options such as the Fei<>Ondo LaaS program

Outside of governance and the forum, the TWG doesn’t believe there is widespread awareness among LPs about this program. For example: on the “Rewards” section of the PooTogether dApp, there is no message or indication that the Olympus Pro sale is currently ongoing. Including a message in the UI here could increase awareness, as most LPs presumably claim rewards from this interface.


Source: PoolTogether dApp - Rewards page.

Conclusion

Acknowledging that our fixed cost of 3.3% to participate in the program only goes up with bond discounts, which at minimum subsidize gas costs, it seems unlikely that the PRO setup can compete with other methods of converting POOL to ETH. In addition, it is important to consider having control of our own diversification to ETH comes with advantages such as timing, setting a minimum price, and order sizes of our choosing.

It is the Treasury Working Group’s opinion that we should hold-off on continuing the bonding program for now. Further consideration should be made as to who the ideal participants are and how the program makes sense for them. If there is such a path to success, making potential participants aware of the program will be key.

edited to add one dropped image

9 Likes

Watching the bonding program for 24 hours

Most of the time the bonds are not being sold at a price that is actionable. The way it works the discount increases over time until someone bonds. Once the 1000 POOL maximum payout is bonded the contract resets the price to a premium over spot. This period of time, between the premium, and an actionable price, creates a market that has to be well understood or watched regularly to see any opportunity. There is no better participant for such a market than a bot.

After around 12 hours of the bond being priced over spot, the discount starts to open up, however participants still have to weigh the cost of gas to complete the transactions. For LP stakers they need to withdraw, approve, deposit, and then later redeem POOL. We can estimate this gas cost to be $150-$300, or 2-4% of the currently defined maximum payout.

The discount goes much higher than 2%. As it opens from 2% to 17%+ over a few hours there are no takers until the discount gets so large that the bot cannot resist.

The transaction shows the value of POOL cost to the treasury, compared to the value of LP tokens received in the bonding process. $5,598 in LP tokens received for $7,018 in POOL.

1 Like

I can definitely say that I personally have taken part in LPing and was encouraged by the Uniswap LP rewards, but have never considered taking part in the Olympus Pro bonding.

This is mostly because

  1. gas is expensive and only really makes sense when buying a large amount of POOL.
  2. It would require constant monitoring to understand when the best time to bond is.

If I don’t want to deal with this, I doubt very many others do. This seems to be reflected in the above analysis (on top of people not knowing about the opportunity).
Passive LPs: Community
Bonders: Arbitrage bots

So I think holding off on continuing the program makes sense.

Also, a reduction in price from 2% to 17% within hours seems too quick to me.
I wonder if there is a way to make it slower, so that such an increase would take days?

5 Likes

This is an amazing analysis and also with a bit surprising result. Do we know which parameterd would PT be able to play with when using this bond program? (Discount amount, vesting period, quantity possible to be purchased…)

2 Likes

I agree, this is a fantastic analysis from the TWG. Very happy to have the TWG formed and granted.

1 Like

Wow, great explanation.

1 Like