Prelim - PoL Proposal & Brainstorming Experimental Idea

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All – I’ve been working on a proposal to bring Protocol Owned Liquidity (made popular by Olympus DAO on Ethereum) to Sovryn. It would be extremely valuable to Sovryn, but we cannot copy the exact structure. So, I’ve made an initial write-up and could use the communities help to review and brainstorm.

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Overview:

Here’s a summary of what we’d try to build, the problem we’d need to solve and a few suggestions on how to make it work:

First a brief overview. Olympus in a protocol on Ethereum which allows users to exchange their LP tokens for the native Olympus token, $OHM at a discount. For example a user would trade their $100 ETH / $100 USDC LP position worth $200 for some greater amount of Ohm, let’s say $220. The user
gets “instant profit” and the protocol now owns the liquidity. The process of selling LP for discounted tokens is referred to as “Bonds or Bonding” in this context.

The primary risk with this and the one we need to solve for Sovryn is how do you prevent users who just received discounted tokens from dumping onto the market and causing a negative feedback loop on price? In theory, users would arbitrage the discounted token price they receive via bonds until the discount is gone which is not sustainable.

The way Olympus prevents the above problem is by offering users astronomically high APY yield % to re-stake their $Ohm token in the protocol instead of selling. The offer from the protocol essentially is 'Why sell the fresh $Ohm you just received a discount on into the market when you can stake them instead for some insane 8,000%+ APY to get even more $Ohm tokens?). Olympus can offer this because the $Ohm token can be minted in a near unlimited fashion (like the Federal Reserve), so they’re basically paying out fractionally reserved monopoly money but the token price can maintain some semblance of integrity because of this cycle that continually incentivizes people not to sell. Sovryn cannot do this because $SOV is a real token and there is a limit to how may $SOV tokens we have. We also do not want to create some arbitrary ponzi token to pay out APY’s in.

From Sovryn’s perspective we can pretty easily fork Olympus Pro’s model and build out a system where we offer discounted $SOV tokens in exchange for LP tokens. However, as we exchange more discounted $SOV tokens for LP token pairs the question becomes how can incentivize users to NOT dump their tokens for quick profit and specifically do this without creating some sort of ponzinomics or arbitrary and unnecessary additional token? If we can solve this then I think the idea of PoL for Sovryn is an amazing idea which can build out our balance sheet, reinforce the token price and stabilize the liquidity pools.

Potential Solution: Please note this isn’t tested or rigorously analyzed but it is meant to serve as a brainstorming exercise.

To put it bluntly, we solve this issue by appealing to the financial motive of the apes. The two ways I see this as possible is by allocating a portion of the LP tokens Sovryn receives from bonds and doing 1) A Buy-back and burn of $SOV tokens as well as a 2) Revenue Subsidy paid in Bitcoin to Bitocracy stakers. Now, if users know the protocol is going to buy-back and burn $SOV it means there will be upward pressure on the token price. Additionally, if users know Bitocracy stakers will be receiving additional revenue then there is further motive to stake in the protocol (in addition to all of the already existing benefits). These are pumpamentals to the $SOV token.

In normal circumstances we would ask ‘Where is the money coming from to buy-back & burn and/or subsidize stakers?’ Well, that’s the beauty, we’re getting fresh non $SOV liquidity from the bonds. The more tokens we sell via bonds, the more LP tokens we have which gives us assets on our balance sheet to either 1) Keep in the AMM pools to maintain liquidity 2) Buy and Burn $SOV or 3) Disburse to stakers.

Think of it in a circular nature with the intent of creating a reflexive cycle where bonding leads to more bonding. An example:

  • Sovryn sells discounted $SOV for LP tokens, which are assets like rBTC, ETH, BNB, etc.
  • Sovryn signals to the entire market 'Hey for every bond we sell we’re going to intentionally give more value to $SOV holders by buying and burning token supply off the market AND giving a straight Bitcoin dividend to stakers.
  • This causes more people to want to buy $SOV to capitalize on this financial benefit via holding or staking.
  • Now users are motivated to buy $SOV, and if they want $SOV they’ll want to do it with any discount they can possibly find and therefore will need to buy it via more bonds that Sovryn issues.
  • By issuing additional bonds, the cycle repeats, which constantly builds up more assets in the treasury and additional value of the $SOV token.

Even though it may seem we’re using the LP we acquired from the bonds in a counter-productive and costly way (by burning and rewarding stakers), it is a necessary mechanism to create a reflexive cycle where the net effect is more value to stakers, higher $SOV price, stronger treasury and more stable LP pools.

A further example of how it could work:

  • User bonds a $100 rBTC / $100 ETH position for $210 of $SOV.
  • Sovryn keeps 90% of that LP in the AMM Pools ($180 out of the $200 acquired via LP)
  • Sovryn takes 7% and designates to buy-back $SOV on the market and burn it ($14 of the LP)
  • Sovryn takes the remaining 3% and allocates it to stakers as a BTC dividend ($6 of the LP).
  • By pushing back value to SOV holders and stakers, we create a scenario where the forced up-side of holding $SOV should out-weigh the opportunity to sell and make a measly “instant profit”.
  • In theory this pushes users who just bonded to not sell. therefore the price of $SOV up (making Sovryn’s $SOV treasury larger and potentially off-setting the loss of initially offering a discount) and incentivizing all parties to do more bonds, which adds more assets to Sovryn’s protocol and adds more value to $SOV holders and stakers.
  • This creates a circular, reflexive effect.

The reality is we have to toy with these numbers to find the sweet spot (maybe building some sort of curve). Maybe giving more to stakers, less on the burn, etc. But ideally it becomes a scenario where the gains in Sovryn’s treasury from new LP, in addition to the increase in $SOV token price out-weigh the cost incurred by Sovryn protocol of selling discounted tokens, as well as burning and subsidizing stakers.

Should we move forward with this type of proposal, we also signal our intention to the market loud and clear and build it into the protocol. So anyone knows if they’re buying a bond on our platform that it will cause some sort of upward price appreciation and therefore the incentive is for all parties to hold or stake.

The Risk: The primary risk and where this model can fall apart is if the upward price pressure from the burn and staking subsidy is not enough to off-set the down-ward pressure on the $SOV token because users just decide to sell the $SOV token anyways. I have a hard time seeing this happen because if I am a user that just took a bond and received a measly 5% discount, is it really worth me selling versus the prospect of myself and a bunch of other apes joining in on the model and getting out-sized returns? Probably not. I also know that even if other people sell and I decide to stake then I am not necessarily as concerned with the token price but instead trying to get out-sized returns in Bitocracy. So I almost don’t care about minor price swings if the revenue share is amazing. In these types of scenarios we can allocate more to Bitocracy to incentivize that sort of game theory.

I could really use the communities help to give this idea a reasonableness check. Does it make sense? What do people think?

I could also use a more quantitative mind to start hashing out some of the numbers like how we determine what % to discount bonds at, what % of LP we burn or offer to stakers, then how those numbers move depending on different scenarios.

Here are some more of my own internal notes and document that I’ll try to update if anything new comes to mind: Here’s my initial and not yet complete proposal: Prelim - Protocol Owned Liquidity Proposal - Google Docs

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How would this play out when we reach the max cap of 100M circulating supply and sovryn protocol doesn’t have more $SOV for rewards? At this point is when (hopefully before) volume in platform picks up and true price discovery kicks in for $SOV token.
I see $SOV token more like a equity that pays you a dividend and that should be the main reason for people not sell it and instead stake it, having a buyback/burn mechanism would be like a buy back share from a company, that action is mostly focus on pumping the price in the short term so the board members (with shitton of stock) get rich quick instead of using the funds to innovate /acquire/expand. This is how giants like IBM and many others fell, when they start focusing in the price of the stock instead of the business.
Can this Olympus model be tweaked for organic grow and not sacrificing the future for the present?

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We’re a far-cry away from the 100M cap. I think that’s like 7 years out. Regardless, this isn’t a permanent model. It’s just something that we can turn on/off when we need it. It just gives us the ability to bond X number of $SOV when we want. So maybe we just want to run the bonds as a trial and say OK let’s try this with 50K $SOV and that’s it. If it doesn’t work out we just don’t issue anymore bonds.

Yep I am on the same page. We don’t want to build a house of cards. Above all else we must prioritize legitimate growth from fee revenue. However, these bonds can help achieve that. A better way to think about this is an on-demand fundraising round. The bonds themselves don’t create true economic value, but it strengthens the Sovryn protocol which in turn can create more true revenue. For example, if we own our liquidity then it stabilizes our AMM pools which can benefit swap fees. It gives us more treasury assets which we can use to hire devs or pay expenses without selling into the market.

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Thank you for this thread. I am very much in favour of PoL and i also agree that we need to find a sustainable way to achieve this goal. I might have to dig a bit deeper into this topic but here’s my main thought:

Why do we have to put in so much effort in order to avoid the SOV price dumping? Let the market decide it!

I do not see a negative feedback loop happening if we limit the amount of SOV tokens that are sold. Such a feedback loop can only happen if SOV is sold continously at a price below market. Obtaining PoL can instead happen slowly over time in different “funding rounds”. Here’s an example:

Sovryn’s CEO, CFO and supervisory board declare that by March 01 2022, 123k SOV will be used to buy LP tokens from interested investors at a 10% discount for the investor. People start to speculate and trade SOV beforehand because they want to make profits from this information. The platform enjoys increased trading activities.
The sale happens, some people do the trade and afterwards instantly dump the received SOV for 10% profit. SOV price dumps. Sophisticated investors that speculated on the price dump are able to catch SOV at a 20% discount. The price stabilizes. Meanwhile the Sovryn platform has increased trading activities and the protocol earns increased revenue.

After that, another round is announced for 01.09.2022. People start to speculate again, the trading group PWC aims to dump the SOV price before the sale in order to get as much SOV at a discount as possible. The sale happens, everyone acquires cheap SOV, nobody sells. Speculators that hoped to buy SOV at a 20% discount after the 10% discount people sold won’t get that discount and buy SOV at higher prices, their trade did not go as planned. Every trade has 2 sides.

Of course, there’s now more SOV in circulation which should impact the price negatively. If the protocol earns more revenue now because the PoL generates income, the value of the SOV token should increase because staking gets more profitable. With this thought, it would make sense that stakers receive a revenue share of the income that the PoL generates.

If the protocol does not generate more revenue whatsoever, the price deserves to dump because it does not mirror the protocol’s value. Finding measures to prevent a token from dumping / staying way above it’s value will only help short term - it all comes back down to earth.

Viewing this from the protocol side, it should be unattractive to sell SOV at very low prices (like i believe we have right now). So the procurement of PoL should start very slowly, like a small test first, and then increase if it looks like it could deliver good results and strengthen the protocol. When the protocol generates more revenue, the SOV price will be higher. Then, more PoL can be aquired. This should also prevent speculators from dumping the SOV price too much before the sale in order to get a maximum amount of SOV for LP-tokens. It’s way more difficult to suppress a token’s price below it’s fair value. And the good thing is: the SOV token definitely has intinsic value due to Sovryn’s protocol revenue.

If we want organic growth, it does not make sense to manipulate/prevent people from selling. The damage should be controllable by monitoring the amount of SOV that’s being brought to the open market.

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Hi!

First of all I congratulate you on your proposal, it is very imaginative and bold. I also value your continued commitment to Sovryn.

As for the proposal itself, I raise a few questions to add to the debate. Please be clear that I don’t mean these as negative criticisms, they are just questions I ask myself imagining potential risks.

  1. What would be the consequences of the worst-case scenario you could imagine? Would the damage be controlled?

  2. Is it possible to create a sub-protocol with its own token to do what you are proposing? It can be done with or without a bounding curve, to protect Sov from any negative correlation. It can even be scaled to affect sov holders to a greater or lesser extent.

  3. If done, would success or failure affect the subprotocols with bounding curve? If I for example participate in Origin or Zero, would I be affected in any way if this project is developed?

  4. How can the performance of the model you propose be predicted in bear markets, or in large dips such as those that occur periodically? The mechanism should be robust to deal with such events without emergency intervention?

  5. Would those Sovryn users who are not Sov holders suffer in any way if the model you propose were to fail?

Finally, a reflection, this one entirely personal. The process you propose is a great financial construction that seeks to maximise the value of sov for sov holders. But I don’t see how it manages to increase the value of Sovryn for non-sov holders. I mean, if something is good for Sovryn, it is good for sov holders. It’s a double benefit. But if something is good only for sov holders, it’s not clear to me that it’s also good for Sovryn users.

Again, thanks for your proposal, there is a lot of work behind it.

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what worries me is that we do not have a long term stress test of this Olympus model.

I remember also talks about the btc peg Sovryn was developing and that $SOV is somehow involved in that process and at that time questions about the stability of SOV were raised. I did not follow the conversaton and am not sure if it still the case ( a dev should corect me if i am wrong) but if we rely on SOV stability in other mechanisms other than the Bitocracy then we should be very careful of the consequences of such mechanisms.

Also, if this model introduces higher volatility it might repel other projects from opting into the sub-protocol/Bonding curve mechanism.

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Olympus DAO Might Be the Future of Money (or It Might Be a Ponzi) Must read
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I do agree. Our goal shouldn’t be to artificially make number go up. But…we need number to go up. We’re trying to buy-out the mercenary liquidity, which by definition is short-sighted and profit seeking. In order to execute PoL effectively and at scale we need to give users sufficient financial incentive…

Ask yourself honestly, would you sell your liquidity to Sovryn if it was just a straight bond at 10%? For example would you sell $10K worth of ETH/BTC for $11,000 of SOV? Or would you think I’m already earning nearly 75% APY on the LP tokens through LM rewards so I can just wait 1-2 months, keep the LP and earn more than the SOV I would’ve otherwise gained? Plus, more SOV is going to be dumped on the market which lowers the price? The game theory doesn’t match out. I don’t think many people would bond because financially it’s really not that good of a deal.

The revenue from bonds would be pretty negligible, especially so if no one actually wants to buy the bonds.

We’re not manipulating or preventing anyone. We’re setting up an incentive structure that users can choose to take advantage of.

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Answers:

  1. It’s important to note, this isn’t an all or nothing proposition. The proposal is just to build out the bonding mechanism, then we can use that in our complete discretion. So maybe we say OK let’s offer 10K SOV at a discount via bonds and see what happens. Will the market hodl or dump? And then we experiment from there. Or maybe we say OK that went awesome let’s bond 100K SOV or 1M SOV, etc. We can go big or small and shut it off anytime we want. It’s just a lever that we can pull on when we need it. IMO the worst case scenario is the Sovryn treasury sells some $SOV at a discount and it gets dumped onto the market and price goes down. So token price goes down and Sovryn loses some of it’s treasury. But as a reminder, anytime this happens Sovryn does acquire some new LP and non $SOV tokens which is MUCH needed. AND some of that will go as a direct dividend to stakers. So if you’re a staker you’re like heck yah, free rBTC and you don’t care about the $SOV price because you can’t sell your stake anyways. If anything you prefer the $SOV to go down so you can buy more, stake it and hope Sovryn does more bonds so they can give you more dividends.

  2. No I don’t think this is the type of thing we would do as a sub-protocol. The only reason to introduce a token with this model is if we wanted to copy exactly how Olympus DAO runs with their $OHM token with bonds. Specifically, we would need to create an arbitrary token that we can mint unlimited amounts of to pay out as rewards. In Olympus model, that is how they incentivize people not to sell, they keep printing this token over and over and paying it out as rewards. If we did a subDAO the numbers of tokens we could create is limited by $SOV put into the bonding curve. So that limitation prevents you from being able to mint an unlimited amount. And regardless, I don’t think we should introduce a new token if we don’t have to.

  3. No I don’t think so.

  4. To re-clarify this isn’t an everlasting mechanism that we implement then we’re stuck with. It’s more like a lever that we can adjust and control when we want. It’s just a tool in our kit. We either build it and say wow this is amazing and working exceptionally well or we say OK but in the tool-shed this thing didn’t work out.

  5. No I don’t think so. What would effect the Sovryn users is if we have a bear market, all the liquidity bails from the AMM system and we have to shut down swaps. We’re trying to prevent that by buying up all the liquidity so we can ensure this wont happen.

This isn’t a permanent model that changes Sovryn’s tokenomics or structure. It’s just allowing us to issue these bonds, when and how we want. Maybe we do a trial run and say OK let’s only bond 30K SOV tokens. Worst case scenario we sell some SOV at a discount, it’s a total flop and those tokens are dumped on the market.

Good point. I skipped a bit over why this is so important for the Sovryn protocol. I believe it is essential for us to start buying up as much liquidity as we possibly can. Right now even if you don’t own any $SOV in order to use the platform you interact with our AMM and liquidity pools. Much of that liquidity is only in the system because we’re paying out sizable liquidity mining rewards. If tomorrow all that mercenary liquidity bails then we just wasted months of liquidity mining rewards for nothing and the platform is crippled. The smart contract code is no good of there is no liquidity. Alternatively, if $SOV price goes completely down the tank and Sovryn protocol has no non-SOV assets on it’s balance sheet then we risk running out of money. Without money it’s difficult to pay the team, it’s difficult to run the marketing campaigns, it’s difficult to just run a business.

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Fair point, but that is why as mentioned in the above replies this is just a tool that we can use at our discretion. It isn’t a permanent model. We can test it out in any amount and keep doing it or stop on a dime

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Yah this is a good article. However, to be clear we’re not trying to copy Olympus’ exact model.

In order to create that circular image Olympus is reliant on having a new token ($OHM token) which they market as a ‘reserve currency’ and print unlimited amounts of. That is how they create that self fulfilling cycle. IMO we should not take that approach because I think the token has no use case and is extraneous.

BUT I do believe we should copy and modify the bond mechanism and introduce our own incentive model to create that self fulfilling circle.

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Thank you for the clear answers.
I hope the rest of the community will join the debate.

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I get your point. But we should keep in mind that LP’ing is also risky due to impermanent loss. By selling LP’s to the Sovryn protocol, you are selling RISK for a pretty much guaranteed 10% profit. It’s a good deal.

The protocol gets PoL which is valuable but it looses SOV. But the protocol looses SOV all the time by giving LP’ing rewards. These rewards are dumped continously on the market as we can clearly see currently. So we do have a negative feedback loop right now: Token gets dumped, LP’ing gets less profitable because token price decreases, liquidity is being reduced. So what if we take some SOV tokens from the adoption fund that would be offered as yield farming rewards and sell it directly for LP tokens? This way, no additional tokens would hit the market, token inflation might spike short term but the overall emission schedule would not change.

Currently, 90.000 SOV are provided as Liquidity mining rewards every 2 weeks. What if we reduce this amount to 75.000 SOV for the next 3 months? This would save up 15.000 SOV every 2 weeks for 12 weeks so 90.000 SOV which could then be offered around march 2022 in order to buy PoL at attractive prices. It could be possible that due to reduced rewards, pools might shrink a bit short term.

@yago mentioned thoughts on possible future funding rounds. Would it be possible to also offer some SOV to interested investors in exchange for PoL?

The limited amount of SOV that’s available for the protocol to buy PoL should be spent very carefully, especially at current prices. If Sovryn keeps growing during the next year and the token price increases with it, PoL should be slowly increased with increasing adoption and token prices in order to not giving it away below possible future value. I think this is something that can be assessed by Sovryn governance very well.

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no, but I would if the sov I would got was at the levels that the apes got in. and stake it for max duration.
what % is that?

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Yes, this is why we’re trying to integrate POL so we can reduce the risk of users pulling their liquidity out and dumping the rewards. The plan is also so use the SOV tokens from option fund to sell it for LP tokens – that is exactly what POL is. I am not sure where. we disagree.

This is the exact problem. What do you mean no additional tokens would hit the market? They most definitely could and would hit the market if the proper incentive is not there. That is what we’re trying to prevent. Also I don’t understand what you mean by emission schedule changing. That is not changing and has not been proposed to change.

What does this mean? The mechanism for performing POL is via bonds which just means you’re selling SOV for liquidity, which then makes it owned by the protocol. So it’s Protocol Owned Liquidity. This is exactly what we’re trying to do.

What if the token price doesn’t increase? What does that mean, giving it away below it’s possible future value? Equity is given away ‘below it’s possible future value’ daily. Nothing is promised. The reality is it’s not just about building products and features and waiting for people to come. We have to build the proper incentive structures also to make price go up. It’s better to have a little bit of a water melon than a lot of a grape.

Also you saying this is something that can be assessed by Sovryn governance very well? How so? I don’t see much governance action going on. The reality is things are pushed forward by the core contributors and prime movers. This idea that ‘governance’ will solve things and create actionable fast moving and innovative changes is really naive for anyone that has actually built a company or project. That’s not to say governance doesn’t have an incredibly important and necessary role but innovating and building typically isn’t it.

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Let’s do a thought experiment and assume we said OK sure some people got into $SOV at $1 and we’re going to open up the bonds to buy $SOV at $1. That sounds amazing!

What do you think would happen? The price of the token would naturally trend down towards $1 for as long as we kept the bonds open. And if we can’t sell many of the bonds because it’s horrible for the token price, then what is the point?

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we do not disagree :slight_smile: i was just stating my thoughts and i agree with you on most parts. Maybe my english was not the best, sorry for that.

Currently, 90.000 SOV tokens are brought into circulation every 2 weeks by the adoption fund as liquidity rewards (with a vesting period, so it’s done over time, but you get the point).
If the protocol reduces this amount by 15.000SOV towards 75.000 and takes the 15.000 SOV to buy LP tokens directly, no additional tokens would hit the market compared to what hits the market with the current setup (90.000SOV/2 weeks or (75.000+15.000)/2 weeks. So we could keep the token inflation at current levels but get PoL. The farmed tokens hit the market anyway, doesn’t really matter if it’s dumped after the tokens are unlocked or right away after swapping them for PoL.

I mean, this is exactly your point, i was just trying to discuss different possibilities of realizing this.

Besides taking the current adoption fund tokens that are used for liquidity mining (said 90.000 SOV / 2week), additional SOV tokens could be sold to investors via a funding round. Yago mentioned that the Exchequer is considering another funding round, so getting PoL via that could be another way to reach the goal. Here, the sold SOV tokens could have a longer vesting period as it was the case in previous funding rounds.

Of course, nobody knows where the token price is headed. But it would be reasonable to expect user growth and adoption for Sovryn.

If we want sustainable growth, doing something like purchasing PoL should always be done with current protocol statistics in mind and over a very long timeframe. Some rules need to be set. For example: PoL should aim to have (5-15%) of the total size of the AMM pools. If the pools increase, so can PoL. This way, Sovryn can make sure that a minimum of AMM pool size is always available without robbing the incentive of Users to earn yield on the AMM pools.

Again, i think this is pretty much your point, i’d just like to add some thoughts/nuances to your proposal.

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I have observed TIME and OHM for a while and understand the mechanisms pretty well so I think I can contribute to this discussion.

I think what people need to understand is that the POL mechanism is just a way to attract capital to the treasury of the protocol. This is what these DAOs are aiming to be (some kind of decentralized VC fund).

There are some subtle but important differences between TIME and OHM.

A lot of the OHM forks more frequently have to offer bonds at a high ROI and when anyone mints TIME by buying a bond, all the pre-existing TIME stakers are effectively diluted at the net discount received by the minter.

The rebasing of the token has no impact to the TIME staker when it comes to dilution.

Basically the price of the protocol token is = backed value + premium

The backed value depends on the value in the treasury (which is the value of the LPs and tokens it holds) and this will depend on the underlying asset price (could be dependent on SOV for example). The treasury is essentially investing in these assets so if they increase in value over time then this makes the entire protocol not a ponzi. If investing in these assets has a negative expectation over time then the whole scheme is a ponzi.

So when looking at TIME or OHM you have to look to see if these project have any real use cases for their token that can generate a ROI greater than their dilution of existing stakers. This is speculative but it is really hard for those protocols to achieve so that’s why there is a low probability that those projects will generate positive returns for their stakers.

But Sovryn can make it so that the “reserve currency” from this new POL protocol actually has some real world utility or at least make it so that the treasury is not losing money. (Since providing liquidity generally is a losing proposition unless it is incentivized or if the project is growing faster than any impermanent loss).

What’s interesting is that Sovryn could actually incentivize the liquidity pool (if this protocol owns 99.9% of the SOV liquidity) to make the POL protocol profitable. This would transfer the inflation pressure back onto SOV. However, the POL protocol would attract so much liquidity it could be a net benefit to Sovryn and the capital that is taken in by Sovryn from the POL protocol investing in SOV can mean that the team has the resources to actually grow Sovryn faster than any SOV inflation needed to drive this system.

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The above two quotes seem contradictory to each other. Am I misunderstanding? When the token is minted that is considered a rebasing since it changes the supply. In one quote you say it does dilute the staker and in the other you say it does not? I think the correct answer is it DOES dilute the staker. But to your later point if the assets in the treasury gain value then there is hope they could out-pace the dilution. Is that correct?

This is the primary issue. We are trying to build this POL model, without introducing a reserve currency. Bitcoin is our reserve currency and introducing something different would be anithetical to our core ethos, in my opinion. The Olympus model is just a re-creation of a fractional reserve central bank. I don’t think that should be brought to Sovryn. However, the idea of owning your own liquidity and using bonds to buy that liquidity is an amazing idea. So the question is not how can we re-create Olympus model or a fork.

The question is how can we modify their model so it works without creating a new token or making SOV a rebasing token?

Can you elaborate on this? Are you saying we turn SOV token into a rebasing token where we mint more of it? I don’t think that will fly nor should we change the tokenomics.

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TIME does this to confuse your average token holder because there are actually two inflation mechanisms.

  1. Rebasing - this is a base inflation that does not dilute existing stakers because they receive a proportionate share of the increased supply.

  2. Bond minting - when bonds are minted, they are sold at a discount to the market price and an equal amount of tokens are given to the protocol as well. Because these tokens are vested linearly over 5 days, you can claim and stake the vested tokens prior to every 8 hour rebase. Very generally, you can expect to gain 50% of the staking reward on top of the minting ROI. When the minting ROI is high, the returns on minting exceed those of staking and this means that all existing stakers are actually diluted by the net return bond minters receive.

I have good responses for your other points but I want to make sure everyone is on the same page first when it comes to understanding how POL protocols work.

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