Olympus Pro allows effective locking of DEX liquidity in pool 2 via its bonding mechanism.
What is the current situation? Synapse is currently incentivizing users to provide liquidity at SushiSwap with 171500 SYN/week in automatic emissions, which at the current price of $2.80 is a bit more than $2M/month.
If the SYN rewards are reduced by the DAO, and LPs feel that providing liquidity purely to collect trading fees is not a viable strategy, they will pull their liquidity of the pool. Essentially this will mean that Synapse was paying $2M per month to rent liquidity temporarily.
Not to mention the fact that most of the SYN rewards will be sold, either to re-enter the pool (sell 50% and pair it with the other 50%), or to take profit.
The solution provided by Olympus Pro is "bonding". Basically, liquidity providers are incentivized through the Olympus Pro smart contracts to surrender their share of the SYN/ETH LP with discounted governance tokens.
There is a discount, because:
- The user incurs the gas fees for the bonding action
- The bonded SYN tokens are vested linearly over the period of 7 days, so bonders of LP tokens can't immediately arbitrage the discount.
The pricing for the swap (i.e., the calculation of the discount) is done algorithmically by the Olympus smart contract based on the rate at which LP tokens are being bonded. If more LP tokens are bonded, the discount automatically falls, and vice versa. This allows an effective bond market to exist.
Worth noting that all the infrastructure is already built by the Olympus team. They will provide the battle-tested smart-contracts, feature bonds on their marketplace
Olympus charges a 3.3% fee on all bonds as compensation for their services.
In our case this would mean that for every 1000 SYN bought via bonds, Olympus will receive 33 SYN.
It is worth mentioning that Olympus is using the bonded tokens as the backing reserves for OHM, which would help to reduce the SYN circulating supply.
Redirect 50% of the current incentives for providing SYN/ETH liquidity at SushiSwap into the Olympus Pro bonding program. This will change the current scheme "171500 SYN/week to SYN/ETH LPs" to "85750 SYN/week to SYN/ETH LPs; 85750 SYN/week to bonding program".
The bonds will have a vesting period of 7 days. Further parameters, if any, will be advised by the Olympus team.
Olympus DAO will receive 3.3% of bonded SYN tokens as compensation for providing the infrastructure, their expertise, and the listing on their Bond Marketplace.
The SYN tokens, received by Olympus, will be used as additional backing for OHM.
All further actions with bonded SYN/ETH LP tokens will be decided by further Synapse DAO governance voting.
As time goes on, another voting may be concluded to modify the distribution proportion between the bonding program and the LP rewards program.
As of now, Synapse is paying a big price for renting liquidity in the SYN/ETH pool. If the rewards stop -> most of the liquidity goes away (some LPs will stay to collect fees/stake at Sushi). This proposal is trying to fix that by incentivizing current LPs to effectively lock their existing liquidity.
Let's take a look at the numbers. According to the Olympus Dune Analytics page, the average discount for their bonds is around 4-6%.
Dune Analytics page
Those are their own bonds (OHM/DAI, OHM/ETH and so on), so let's use the upper bound of 6% in our case. Olympus charges a 3.3% fee, so in total this will result in ~90% conversion from SYN to SYN/ETH LP, if you look from Synapse's perspective (100% - 6% - 3.3%).
~65% of the "effective discount" will go straight to SYN bonds buyers, which is reasonable.
Also worth noting is that SYN that Olympus will gain will be used as a backing for their token, OHM, which means these SYN tokens will be effectively leaving circulating supply (at least for now).
It's also important to remember that in the future, the DAO will be able to further decide how to best use these bonded LP tokens.