OHMS Protocol

OHMS is an Ethereum based elastic supply protocol with a self-distributing store of value. The protocol is designed to rebase (inflate/deflate) supply of its native coin (OHM) through automated distribution proportional to percentage of supply held. Designed to be balanced against USD, the issuance is always correlated to the USD denominated price at a given point in time. 

OHMS mission is to completely reinvent the world’s financial system, merging the scale and familiarity of the traditional economy with the security, efficiency, and transparency inherent in the public blockchain. OHMS technology can enable the user to “own the whole experience in that they are their own bank, using their own assets as collateral.”

The OHMS platform can also be used to “store or stake” credit and earn massive returns. Essentially, instead of trusting money to managers of banks and funds, users will be able to securely control where their money sits and how they use it.

OHMS Dynamics

Inflation in simple economic terms can be classified into three types: Demand-Pull inflation, Cost-Push inflation, and Built-In inflation.

  • Demand-Pull inflation occurs when demand is higher than supply. the inverse is also true when supply exceeds demand – this is the typical inflationary/deflationary driver in the current De-Fi space, 

  • Costpush inflation occurs when higher costs of production decrease the aggregate supply (the amount of total production). This is one of the inflationary drivers of traditional crypto mining protocols (Bitcoin, Ethereum) – for example, as the costs of mining increases, mining rewards are halved and therefore the supply becomes increasingly scarce and price inflates.

  • Built-in inflation occurs when an asset increases/decreases in value due to the performance of another correlated asset, for example in a yield aggregation context, the price of a token increases based on the yield generated from other assets.

The purchasing power, or value, in decentralised finance is often driven by Demand-Pull inflation, that is, simple supply/demand driven through initial hype or network effects. With the eventuation of utility or yield generation this shifts to the inclusion of more sustainable built-in or cost-push inflation.

For sustained growth, the design of any crypto-currency then should consider how to add cost-push or built-in inflation to generate long term value and thus maintain purchasing power.   

OHMS Economics

In theory, if the price of OHMS is to remain constant, the supply should be moderated to maintain parity (Price = Market Cap / Supply). That is, in simple terms to maintain a price parity to $1.00 when demand is high, the protocol must increase supply. Inversely to maintain price parity to $1.00 when demand is low, the protocol must decrease supply.

Whilst this form of elastic supply uses the forces of demand/supply to moderate the price, in practice, the volatility inherent in coins with low initial supply results in extreme fluctuations in price and thus supply. This volatility introduces price management risks when seeking to leverage the total market value to generate built-in inflation through yield generation functions such as lending. 

As described in the following section, the OHMS protocol is designed to build long term value and thus create built-in inflation through the addition of a number of yield generation utilities.

Internal Utility

Internal utility can be thought of as the yield generated by the OHMS protocol in itself, internal utility available immediately in OHMS is described below:

  • Treasury – The core of the OHMS yield generation function is the Treasury. The Treasury is a yield aggregator that uses multiple strategies to maximize the interest rate returned on locked assets. The total value locked (TVL) into the Treasury can be used to invest in services such as Compound, Lend etc. The Treasury has been designed with an initial locked value of USD and OHM tokens equivalent to 50% of initial circulating supply. All yield/interest generated by the OHMS treasury is returned to Liquidity Providers in USDC.

  • Liquidity Mining – Liquidity Providers are rewarded through a mining rewards program that is available through the OHMS platform. Rewards are proportional to the holder’s percentage ownership of the OHM Uniswap liquidity pool and can be multiplied in exchange for locking liquidity over longer periods.   

  • Deflationary Mechanism – OHMS is designed with a deflationary mechanism to offset the supply/demand dynamic. For example, OHM supply increases when demand is high and decreases when demand is low.

External Utility

External utility can be thought of as the integration of OHMS to third-party products or services to gain additional value from holding OHMS.

  • Yield Farming through locked liquidity involves the integration of OHMS to existing Yield farming pools to generate rewards in another token. While this is an attractive proposition, it requires development effort from the third-party to integrate the features of OHMS, and in many cases, election through the third-party DAO to qualify for addition to the Yield Farm.

A number of third-party platform integrations are being considered; however, it is expected that the OHMS protocol needs to gain a level of maturity and price stability before this can be initiated. Therefore, this is a future roadmap item that will not be available in the initial OHMS release.

Supply Adjustment Mechanism

Holders of OHM own a percentage of the overall supply and supply adjustments are applied to all wallets including OHM Tokens held by Liquidity Providers and the OHMS Treasury. This is important to note as supply adjustments to the Treasury form the basis of the yield generation function of the OHMS protocol.

The OHMS team considered the use of a randomised supply adjustment mechanism to minimise potential exposure to price manipulation. Given that the supply elasticity is calculated based on an average of prices measured throughout the prevailing period, the team has deemed that this is not necessary.

As the intention is to provide investors with full transparency of the supply adjustment mechanism, all price measurements and calculations will be made available to the community and supply will be adjusted at a fixed time daily.

Yield Generation

A key differentiator for OHMS is the capability to generate additional yield for investors immediately, this yield is in addition to inflation through the token demand and elastic supply adjustments as described in the previous section.

The token economics have been designed such that at initiation two pools are created. This dual pool structure is shown in the following figure and provides for a mechanism to generate immediate yield for liquidity providers.

Liquidity Pool

To enable trading of OHM tokens, a OHMS/USDC liquidity pool has been created in Uniswap, with locked liquidity of 50% of the initial circulating supply and the equivalent in USDC. The total value in liquidity is 50,000 USDC and 50.000 OHM, this has been locked for a period of 24 months. 

In addition to initial locked liquidity, a liquidity mining program is available whereby Liquidity Providers can stake and earn rewards. Staking is available for variable periods in exchange for higher rewards (e.g, a 3 month lock receives a proportionally higher reward).

The token economics have been designed such that at initiation two pools are created. This dual pool structure is shown in the following figure and provides for a mechanism to generate immediate yield for liquidity providers.

Treasury

  • When the supply increases (price is above the Upper threshold), the Treasury balance will also increase.
  • The increased supply will be traded back to USD
  • The USD returned is deposited for yield generation purposes.
  • The conversion of additional supply to USD moderates the price back to parity, whilst locking value generated through periods of supply inflation.
  • This mechanism is described in the following figure.

Yield Distribution

  • Yield is paid in USDC.
  • Yield generated through the Treasury is fully distributed to Liquidity Providers that have staked LP tokens through the OHMS platform.
  • Yields can be accrued and claimed over time to mitigate transaction costs.

In summary, the OHMS treasury system provides for ongoing value generation whilst providing a mechanism for price stability – if only one LP remains, they would receive all the Yield for eternity.

Locked Value Generation

The core of the OHMS yield generation function is the Treasury. The Treasury is a reserve of value based on an initial locked supply of 50,000 USDC and 50,000 OHM.

The 50,000 OHM equates to 50% of the initial circulating supply, and is subject to the same supply adjustment mechanisms as all other wallets. Therefore, the number of OHMs in the Treasury is designed to grow at the same rate as the Liquidity Pool.

A key difference is the treatment of OHMs in the Treasury during periods of supply inflation/deflation, rather than compound the growth of OHMs in the treasury, any increase in supply will be traded back to USDC moderating the price and compounding USDC growth.

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