[FIP-02] Adding OUSD Support

Governance Proposals
1

Summary

This is a proposal for adding lend/borrow support for the Origin Dollar stablecoin on the Flux Finance market. Enabling lend and borrow support for OUSD on Flux will provide a new lend market for OUSD holders, a new borrow market for OUSG holders, and will lead to an increase in TVL for the Flux protocol.

Specifications

1. What is the link between the author of the FIP and the Asset?

Peter is a member of the core Origin Protocol team

2. Provide a brief high-level overview of the project and the token

Origin Protocol was founded by Web3 veterans Josh Fraser and Matthew Liu in 2017 and is one of the most venerable projects in the space. Josh and Matthew are joined by the fully doxxed Origin team and community, which includes hundreds of thousands of members and open-source contributors. Origin has raised $38.1M from top investors including Pantera, Spartan Group, Foundation Capital, BlockTower Capital, Steve Chen, Garry Tan, and Alexis Ohanian, and currently maintains a multimillion dollar treasury. As a technology partner, Origin Story has helped launch some of the largest NFT projects to-date:

• Paris Hilton Launches ‘Past Lives, New Beginnings’
• 3LAU Launches Record-Setting $11.7M Auction
• Charlie Bit My Finger NFT Sale Makes Headlines and Sets New Record
• Macallan Cask NFT Sells For $2.3 Million
• First Real Estate Sale via NFT Marketplace

Origin Protocol’s second product, the Origin Dollar (OUSD), was launched in 2020 and is an ERC20 stablecoin that generates yield while sitting in your wallet. OUSD is backed 1:1 by USDC, DAI, and USDT at all times; holders can go in and out of OUSD as they please. Yield is paid out daily and automatically (sometimes multiple times per day) though a positive rebase in the form of additional OUSD, proportional to the amount of OUSD held.
OUSD yield, currently ~5% APY, comes from a combination of:

  • Lending collateral to Aave, Compound, Morpho, Curve, and Convex
  • Reward tokens (AAVE, COMP, CRV, and CVX) are automatically claimed and converted to stablecoin
  • A 25bip exit fee is charged to those who choose to exit OUSD via the dapp (completely avoidable if using DEX or CEX), this fee goes back to OUSD holders
  • OUSD sitting in non-upgradable contracts (about half the OUSD in existence) does not rebase, instead the interest generated from those tokens is provided to those that can rebase

These 4 yield generating functions combined enable OUSD to generate higher yields than lending directly to any single protocol. Each week a governance vote is held to determine the best allocation of OUSD collateral between the whitelisted strategies, voted on by OGV holders. OGV is the governance token for OUSD, and any token holder can participate in these votes after staking their OGV for veOGV. OGV holders also have the ability to propose new yield strategies for OUSD.

There are no lock-ups, terms, or conditions with OUSD; it’s completely non-custodial. Any web3 wallet should be able to support OUSD and its rebasing function, including hardware wallets and multi-sigs. There’s no need to ever again give up the keys to a 3rd party platform, such as Celsius, Blockfi, or FTX, to earn yield.

3. Explain positioning of the token in the Flux ecosystem. Why would it be a good borrow or collateral asset?

At the moment, the sole use for OUSD is to hold it within your wallet to generate yield, or to LP it to a DEX to collect trading fees – there are no lending or borrowing markets available. Adding an OUSD market will provide OUSD holders a place to lend their tokens, which they may choose to do when the variable APY on Flux for OUSD is higher than the current APY OUSD is paying via rebase. When the variable APY for borrowing OUSD on Flux is lower than the current APY OUSD is paying via rebase, users will choose to borrow OUSD from Flux as it becomes profitable.

Any OUSD lent to Flux will not rebase while sitting in Flux smart contracts. Since lent USDC, DAI, and soon USDT cannot be used as collateral on Flux at the moment, we are not proposing to use lent OUSD as collateral at this time.

4. How is the asset currently used?

OUSD is currently used differently by different verticals of users. Retail users are treating OUSD like a bank account or high-yield savings account within their wallet. Yield farmers are using OUSD to save on gas fees by replacing active farming with passive farming. DAOs are swapping their idle treasury stablecoin into OUSD to extend their project runway. Funds and asset managers are incorporating OUSD into their portfolios to hedge against centralization risk and obtain superior DeFi APYs.

5. Emission schedule

There is no set emission schedule for OUSD. Similar to stETH, OUSD is minted on demand when users lock their stablecoin into the protocol, and burned on demand when users exit OUSD for the collateral stablecoin.

6. Token (& Protocol) permissions (minting) and upgradability. Is there a multisig?

The protocol is upgradeable by a 5 of 8 multi-sig and there is a 48-hour timelock on any changes. You can read more about that in the admin sections of our docs. Launching a new OUSD strategy requires approval from this 5 of 8 multi-sig, but there is a limited strategist role that can shift funds between approved strategies. All new strategies go through a rigorous process involving multiple audits and smart contract reviews, economic analysis, and a community governance vote on Snapshot.

Soon the 5 of 8 multi-sig will be handing ownership of the contracts to OGV stakers (veOGV holders) so that governance of new strategies will be completely decentralized. The strategist role will continue to have the ability to reallocate funds as directed by the community and also take emergency actions like withdrawing from strategies or pausing the protocol.

7. Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)

Because OUSD is backed 1:1 by its collateral assets at all times, and OUSD and its collateral are stablecoins, OUSD market cap = OUSD supply = OUSD TVL. Analytics for the current OUSD allocation and backing assets are always available on-chain via analytics.ousd.com. As of February 17, 2023, OUSD market cap is $52,439,720.

The main 4 liquidity sources for OUSD are:

• Curve Finance, $35.06M
• Morpho Aave, $8.6M
• Morpho Compound, $7.2M
• Convex, $1.04M

Obtaining OUSD is seamless, users can convert their stablecoin into OUSD via any of the following methods:

• Minting on OUSD.com
• Purchasing on CEX
• Swapping on DEX
• OTC desk thru Origin’s market maker

Security Considerations

Risk Mitigation

There are four risks when using OUSD, and Origin is making sure to reduce each risk as much as possible:

Counter-party risk - OUSD is governed by stakeholders around the world. Everything from yield generation to fee collection and distribution is managed by a set of smart contracts on the Ethereum blockchain. These contracts are upgradeable with a timelock and are controlled by hundreds of governance token holders. While the initial contracts and yield-earning strategies were developed by the Origin team, anyone can shape the future of OUSD by creating or voting on proposals, submitting new strategies, or contributing code improvements. We intend for all important decisions to be made through community governance and limited powers to be delegated to trusted contributors who are more actively involved in the day-to-day management of the protocol.

Smart contract risk of the yield strategies - Origin is only using platforms for yield generation that have a proven track record, have been audited, have billions in TVL, maintain a bug bounty program, and provide over-collateralized loans. Over-collateralization in itself, combined with liquidations, provides a reasonable level of security for lenders.

Stablecoin risk - Origin has chosen 3 of the largest stablecoins to ever exist to back OUSD, and they have stood the test of time and maintained their peg quite well through multiple bull and bear cycles. They have also demonstrated significant growth in circulating supply, so the Origin team is confident that the 3 stables will maintain their peg and that OUSD will remain stable. OUSD is also using Chainlink oracles for pricing data for DAI, USDC and USDT to ensure accurate pricing at all times.

Smart contract risk of OUSD - Origin is taking every step possible to be proactive and lessen the chance of losing funds. Security reviews of OUSD are prioritized over new feature development, with regular audits being done, and multiple engineers are required to review each code change with a detailed checklist. There are timelocks before protocol upgrades are launched, and deep dives into the exploits of other protocols are constantly being done to make sure the same exploits don’t exist on Origin contracts. Security is extremely important to the Origin team. 7+ audits have been done since 2020, all of which can be seen on Audits - OUSD, and OpenZeppelin is now on retainer. On-chain insurance protocol InsurAce awarded OUSD the highest possible security rating of AAA, of which only 5 projects on the InsurAce platform have received.

Recommended Parameters

If the Flux community would like, OUSD supply and borrow caps can be implemented for the first 90 days, or until the Flux community becomes more familiar and comfortable with OUSD. Since OUSD is backed 1:1 by USDC, DAI, and USDT, we recommend the following market parameters:

Interest rate curve that follows the one used on USDC, DAI, and soon USDT:

  • 0% utilization → 0% APY
    o 90% utilization (kink) → Overnight Benchmark Funding Rate (OBFR) - 50 bps
    o 100% utilization → OBFR + 300bps
  • Borrow Cap: No cap
  • Collateral Factor (LTV): 0%
  • Reserve Factor: 0%

Mandatory parameters with no impact given the 0% collateral factor
• ProtocolSeizeShare: 1.75%
• Liquidation Incentive: 5%

We look forward to engaging with the community on this proposal, and invite any and all thoughts or comments.

2 Likes
2

I wasn’t familiar with OUSD prior to reading this proposal but the fact that this forum is attracting such solid, well written proposals is very encouraging to me.

4 Likes
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We’re here to answer any questions about OUSD - fire away!

4

Would the Origin foundation commit to TVL to bootstrap the liquidity? With the existing supply being roughly $50m according to Coingecko, it may be a bit premature for Flux compared to slowly adding the highest market cap stablecoins. From our end, it would still be an interesting proposal for the DAO to vote on.

2 Likes
5

Thanks for the long and written out proposal.

But I am having a trouble understanding your PoV here. You want to have OUSD disabled when sitting in the moneymarket contract.

Do you mean that the OUSD that is borrowed by those supplying OUSG won’t increase in value?

Also I am concerned about the oracle here. Even though you say it will always be backed 1:1 stablecoins, we know from other similar projects that negative rebases are possible. How would that look like in terms of using it as a borrowable asset? If a negative rebase happens and some significant amount of OUSD is locked in the Flux smart contracts, won’t that amplify the effect of the negative rebase?

I am also wondering why Flux should go through the engineering effort, oracle costs and other ongoing to add Origin Dollar specifically - are there some incentives or revenueshare you could provide?

1 Like
6

This is a great question, one that we have already discussed with the Ondo/Flux team prior to submitting the proposal - Origin would seed the new market to help get the ball rolling on lending and borrowing activity

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Can you provide more details on what seeding the market looks like? Is there a specific amount of TVL? OGN rewards?

8

OUSD lent to Flux will not rebase while sitting in the Flux smart contracts, it will only increase at the variable rate Flux is paying lenders at that time.

On the borrow side, the OUSD that you will be required to repay will only increase at the variable rate Flux is charging at that time, it will not additionally increase while sitting in Flux smart contracts.
However, on the same day the OUSD borrowed from Flux lands in a user wallet, it will begin generating interest at the current rate OUSD is paying, which can be seen via the analytics page. There will be situations, quite often we believe, where the OUSD borrowed from Flux will generate a higher yield while sitting in your wallet than the cost to borrow, creating a profitable opportunity to collect the difference in yield percentage. When it no longer becomes profitable, users can repay their OUSD loan and close their position.

OUSD rebases up only, so this situation would not be possible. There has never been, and will never be, a negative OUSD rebase.

Since OUSD would not rebase on the lending or borrowing side of the Flux market, the cost to add OUSD would be the same as any other ERC-20 stablecoin.

Origin would not directly generate any revenue from an OUSD market on Flux so there would be no revenue to share, but Flux would receive the spread between the lending and borrowing APYs. As a token of appreciation for listing the OUSD market and to give the FluxDAO voting rights for the OUSD collateral allocation votes, it may be possible to provide some OGV tokens to Flux, but this would require an OUSD governance vote

9

The range could be between $10k USD - $5m USD for 30 days, or until there is a healthy level of deposits and borrows. This is something that the Origin team would most likely discuss with the Flux/Ondo team offline.

Probably not OGN, since OGN is a separate business unit of Origin Protocol that is not involved in this proposal - but maybe some OGV rewards :slightly_smiling_face:

1 Like
10

OUSD rebases up only, so this situation would not be possible. There has never been, and will never be, a negative OUSD rebase.

If I understand Origin correctly, it seems you’re being quite dishonest here.

What happens if one of the underlying vaults that Origin uses gets exploited?
What if something like LUSD has its price move radically?

Both of the above would mean that the amount backing OUSD would be less than the outstanding amount of tokens, thus creating a negative rebase.

Are you saying this scenario is completely impossible? Instead of a rebase it would just lose peg then? How would pay for the oracle costs to make sure the accurate price of OUSD is used?

Also, Origin would generate revenue from OUSD as you don’t need to pay rebase to OUSD sitting in Flux - yet you are generating yield with the stables used to create that OUSD.

Would really appreciate better transparency and honesty here tbh.

11

Deleting this comment since it posted twice.

12

If this situation were to happen, OUSD would lose peg. It is impossible for OUSD to negatively rebase. We cap new strategies involving other stablecoin at 100k USD (like the LUSD Convex strategy). When OUSD trades below peg, it creates a profitable arbitrage opportunity with the OUSD dapp that anyone can take advantage of.

As a reminder, we are not proposing to use OUSD as collateral on Flux with this proposal.

We’re in the process of building or obtaining an oracle for OUSD. For now we’re using Chainlink Oracles to ensure the proper pricing for the backing USDC, USDT, and DAI

This is yield generated for ALL those who hold OUSD in their wallet, not just Origin. So yes, as OUSD holders the Origin team would benefit from this, but so would everyone else.

All OUSD current and new strategies and contracts are available via the OUSD:

If there’s a way we can be more transparent, please share. In the next week or two we’ll be rolling out what we call “Proof of Yield” that will show an even deeper breakdown of the yield strategies

2 Likes
13

Dropping a quick note here on the OUSD performance during the weekend of 3/10/23:

Since OUSD is partially backed by USDC and DAI, the price of OUSD also fell below $1 for a period of time. During this time, arbitrageurs were able to buy OUSD at the cheaper price on AMMs, then redeem the OUSD via the dApp into a basket of stables (USDC, USDT and DAI), which they sold back to the market for a profit. With each dApp redemption, OUSD collected a fee (#3 on yield generation in section 2 in the proposal), and there were lots of redemptions during this weekend. When the price for USDC and DAI returned to peg, the entire cost was borne by those that sold their USDC and DAI for less than $1. If the price stayed down, LP’s will have traded more valuable OUSD for the less valuable USDC, and will have taken a loss.

In either case, OUSD holders have more stablecoins than they started with, with external parties bearing both the risk and the loss. OUSD holders made a total of $120K in yield during the market events. OUSD APY increased from ~4.6% to ~42% (7-day trailing) and was trading back at 0.99 within 17 hours of losing its peg. The 1/3 backing of OUSD by USDT helped prevent the OUSD peg from falling as low, and for as long, as USDC and DAI.

In situations where the price of DAI, USDC or USDT fall below $0.998, OIP-4 disables minting of additional OUSD tokens using the de-pegged asset. OUSD fully restored to $1 within 36 hours as opposed to USDC and DAI which remained severely depegged for almost 3 days.

1 Like