gOHM - 14 March 2022
The Dopex Community Analyst series is a series of strategies, ideas, opinion pieces and educational resource written by independent contributors from the Dopex community. Every month many knowledgeable community analysts share a short analyses of a coin of their choice and share these with Dopex. The goal of these articles is to empower the community and help Dopex increase SSOV volume & deposits. With these articles we hope to provide users with additional information that will help them in making an informed choice of strategy using our products.
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gOHM TOKEN ANALYSIS
by @teamxcool#8304
Introduction
The Olympus DAO token (OHM) has purported to be many things since its inception, beginning from a decentralized reserve currency, to a Defi savings account, to (currently) partial ownership of an actively managed treasury of cryptocurrency assets. Its founders and the community (one of the strongest in the space) may at various points endorse some or all of these use cases, however the market will ultimately decide its true purpose.
Quick Stats (2/27/22)
Tokenomics
OHM is an infinite-supply rebasing token. It currently rebases at a rate of 0.208% every eight hours for a 5-day ROI of 3.166%. The most famous innovation from Olympus DAO is the protocol-owned liquidity (POL) bond-expansion mechanism, which for brevity’s sake I won’t discuss in detail here. The key points as they relate to tokenomics being that the protocol emits OHM to stakers at a high rate (managed by the DAO) while simultaneously bonding desired treasury assets in exchange for OHM. The protocol will attempt to balance the rate in a favorable manner through altering the bond discounts. The “index” tracks the current value in OHM of 1 OHM deposited at protocol genesis. gOHM is a non-rebasing token equal to the OHM index that also provides governance features.
Position/Analysis
Initially, OHM commanded varying degrees of premium relative to its “proportional” share of treasury assets (backing price) due to the rebase mechanism. However, after a downturn in the market and several events causing fear, uncertainty, and denial (FUD) surrounding rebasing POL protocols, OHM has now stabilized around its backing price. The TIME/Wonderland debacle had caused several negative narratives to emerge: the liability of anon developers (0xSifu being revealed as Omar Dahini), the inability of a POL protocol to efficiently disperse treasury assets or buyback tokens when token price falls below backing price, and the cracks in the (3, 3) strategy during a liquidation cascade.
The author has become short- and mid-term bearish OHM following these events as well as generally bearish macro factors, but would still like exposure to the yield generated by the rebasing mechanism. As macro factors shape up, if the team and community behind OHM begins to show strength, the author will once again flip bullish for the long term.
Strategy
This strategy is a bet that for the foreseeable future (until a change in narrative emerges), OHM should be valued at its backing price or below. The Dopex gOHM SSOV-C will be used to gain exposure to both the rebasing mechanism of OHM as well as the option premium generated from writing calls while reducing exposure to “overvalued” OHM above the backing price.
As of this writing (2/27/22), the OHM backing price is $42.90, while OHM itself is priced at $41.92, giving gOHM a value of $3741.57. The index is 89.27. OHM rebases three times a day (every 8 hours), currently at 0.208% per rebase. The 5-day rebase rate of 3.166% will be used for sample calculations here. We will also assume that the backing price per OHM will stay roughly the same.
Keep in mind these numbers represent the predicted MAXIMUM fair price for gOHM, not necessarily the actual price. If gOHM exceeds or even reaches these prices, we should be okay with selling/exercising of written call options in order to prevent downside when OHM returns back to or below backing price. As Olympus DAO is the biggest holder of OHM (in its treasury), if OHM price falls (or other treasury asset prices fall), the backing price will drop in turn, providing an additional catalyst for decline in gOHM price.
After one SSOV epoch (25 days), the index will have increased to 104.33. For a fair backing, gOHM should be valued at $4475.76. Therefore, the strike price of $4000 will be chosen. If the price ends exactly as calculated, the additional option premiums from the lower strike must be weighed against the loss in OHM value as the calls will expire ITM. In this case, an 11.89% loss is predicted. The previous epoch’s lowest strike generated 117.47% APR for a 9.79% yield on gOHM that epoch, which would not quite cancel the loss in a neutral or bullish case for OHM. In order to manage risk should OHM fall significantly below its backing price, an equal amount of gOHM put options will be purchased from the Dopex SSOV-P one to two strikes below (shoutout to tztok-chad for this strategy for calls) at $2500 or $3000. The $2500 strike covers prices below $23.96, while the $3000 strike covers prices below $28.75.
This strategy can be modified on an epoch-to-epoch basis as sentiment towards OHM changes:
Possible Outcomes
The intended outcome of the bearish strategy is to maintain OHM exposure (both to token and rebase mechanism) while holding off losses caused by short- and mid-term bearish factors (both concerning OHM and the overall market) that decrease OHM token price. Therefore, either no change or a slight increase in USD terms of position would be considered a positive outcome. When conditions change, the bullish strategies can be used to maximize position size increases.
Ideally, gOHM price will end slightly below the $4000 strike. Here, your gOHM position will have “increased” in value both due to the rebase mechanism (number of OHM) and option premium yield (number of gOHM) without the options themselves exercising.
Potential downside occurs if OHM increases or decreases significantly relative to the backing price. If the former occurs and the call options are exercised, you will still be up in USD terms (due to increase in gOHM price and option premium), just less total value than if OHM was held. As mentioned previously, this is not as much of a concern as it may initially seem as this thesis states that OHM at those prices is “overvalued.” The put options can be switched to call options one or two strikes above the deposit strike price ($5500 and $6500) to manage risk here or if you flip bullish OHM. Hedging with simultaneous OTM calls and puts can also be done, but more data is needed on expected option premiums for gOHM to ensure a positive outcome, as at this point you will be significantly reducing your yield if not managed properly. If OHM price falls significantly below backing, you may (temporarily) be down in USD terms, ideally lessened by the put options exercising, but will still be up in OHM terms due to the rebase mechanism.
The table below shows the potential OHM prices and their corresponding gOHM price at the end of the epoch as well as the values of various call and put options at those prices.
Disclosures
The author does not currently hold OHM/gOHM but did in the past.
https://twitter.com/teamxcool
TL;DR Thread
https://twitter.com/teamxcool/status/1503034344809635840
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Views expressed in this article are the author’s own and not reflective of the position or professional views from Dopex.io.
Dopex reimburses analyst contributors with a small payout to partially compensate the time spent on research and writing. For questions feel free to jump into our discord (discord.gg/dopex) and chat with the team or analyst contributors directly.
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