External Proposal: Origin Protocol's OUSD for Treasury Yield

Proposals by Gotchi Gov'nuhs
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TL;DR Summary

Origin Protocol would like to propose that the AavegotchiDAO convert $2m+ of the DAI allocated to the treasury from closing the bonding curve into Origin Protocol’s OUSD to generate continuous passive yield for the AavegotchiDAO. I met with their team in ETHDenver who put together this very thorough proposal on their product. Regardless of whether we use their product, it’s imperative for us to consider risk tolerance, diversification strategies, and goals of our treasury. Thanks for the review and feedback. Note that I am posting this on their behalf for broad DAO consideration.

Major pros:

Completely passive
Sustained yield ~5% over the last year
They’ve been around since 2020

Major cons:
Not on Polygon; would have to keep OUSD on Ethereum
Still results in significant exposure to DAI/USDC via their primary yield strategies
5% APR May not be enough reward for the risk

Abstract

Following the closure of GHST bonding curve, the Aavegotchi treasury will soon experience an influx of DAI. Rather than sitting idle, converting a portion of the DAI into OUSD will put the funds to work to passively generate yield, helping extend the future of Aavegotchi each additional day it is held within the treasury.

Background on Origin Protocol

Origin 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, released in 2019, 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

In 2020, Origin Protocol’s second product, the Origin Dollar, was launched.

Specification

The Origin Dollar (OUSD)

OUSD is an ERC20 stablecoin that generates yield while sitting in your wallet. 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 ~5.1% APY, comes from a combination of:

  1. Lending collateral to Aave, Compound, Morpho, Curve, and Convex

  2. Reward tokens (AAVE, COMP, CRV, and CVX) are automatically claimed and converted to stablecoin

  3. 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

  4. OUSD sitting in non-upgradable contracts (more than 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 manually. 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.

In early 2022, OUSD reached a market cap $298m, with no issues, and without diminishing the daily rebase payments; OUSD can easily function with scale. Since 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. The current OUSD market cap is ~$30.8m as of March 14, 2023, growing each day with each rebase. Many members of the Origin team, including both founders, are holding a significant portion of their personal wealth in OUSD. Origin Protocol’s corporate treasury is also holding millions of dollars in OUSD. We have skin in the game and are willing to put our own money at risk with the code we have written.

OUSD On Other Protocols and DAOs

Similar proposals for DAO treasury investment into the Origin Dollar have received positive feedback within other DAOs, including:

OUSD is also going through the process for integration within several protocols, including:

FAQ on OUSD

What is Morpho?

Launched in 2022, Morpho is a protocol built on top of lending protocols Aave and Compound. In addition to lending to pools, Morpho has the ability to also match lenders and borrowers directly. When matched, lenders receive higher APY and borrowers pay lower interest rates. The MORPHO token has not yet launched, but the OUSD protocol will be owed a significant portion of the MORPHO tokens once they do. More information on Morpho can be found in the OUSD doc here: Morpho - OUSD

What is the status of bribes and how does it affect OUSD yields?

At the moment, we are not bribing for the OUSD pool, though we are voting with our own CVX holdings. We evaluate bribing periodically when appropriate, and have allocated 1B OGV to be used for liquidity incentives for when we do start bribing again.

The more LPing there is, the higher our boost goes. LPs are trading their OUSD yield for the reward tokens. More LPs means deeper liquidity for people to buy and sell, instead of minting and redeeming OUSD. It also means a more stable price.

Will OUSD be coming to Polygon?

As of March 14th 2023, OUSD is only available on the Ethereum Mainnet. However, we have been exploring support for OUSD on L2s and side-chains, such as Arbitrum, Optimism, and Polygon, for several months and have an active thread with the Polygon team. In January 2023, Origin announced Polygon support for Origin Story NFT marketplaces. Some of the discussions on Origin’s L2 strategy and plans can be found in the public Origin Protocol Discord server. Unfortunately, there is no set timeline with launching the next iteration of OUSD.

How did OUSD OUSD perform during the USDC/DAI de-peg?

During the weekend of March 10, both USDC and DAI fell from their $1 price point. 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, 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. OUSD fully restored to $1 within 36 hours as opposed to USDC and DAI which remained severely depegged for almost 3 days.

Timeline

The core team/DAO will initiate the swap from DAI into OUSD within 60 days of proposal ratification, or within 90 days if the core team/DAO would like to include a month for OUSD test transactions to ensure yield is generating properly into Aavegotchi wallets.

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

Expected Return

Since OUSD rebasing happens at least once per day, the opportunity cost is between $169 - $10,862 per day ($61.6k - $3.964m per year) at the proposed $2m DAI conversion with the daily OUSD APY over the past month, before accounting for compounding interest.

Please use this calculator to estimate the OUSD return per month and per year over 16 quarters. On the calculator, cells in green are investments made at the beginning of the month (if the DAO would like to initiate recurring swaps into OUSD) while cells in orange are months with no additional OUSD investment. Parameters you may want to change and explore in the calculator are cells B70 - B73, B76 - E79, and B81 (outlined in bold boxes). To change the OUSD APY, investment amount, or test transaction amount, select File > Make a Copy.

Monitoring and Reporting

While there is no need to actively manage an OUSD position due to the automated features of OUSD, monitoring of the current OUSD APY, strategies, and backing collateral, is always available in real time on the OUSD Analytics page. A three month day-to-day OUSD APY can be seen on this page on the analytics site, updated daily, while a longer history of the OUSD APY is available via this Dune query. API endpoints containing OUSD data are also available via the API page of the OUSD docs. To assist with reporting and decision making, the Aavegotchi team can use this link to join the distribution list that will receive a weekly OUSD analytics report. Here is an example analytics email from November 2022:

Exiting OUSD

There are no lockups with this proposal, Aavegotchi can move in and out of OUSD as the core team, DAO, and community desires. OUSD remains completely liquid at all times, and can be spent in the same way as its backing stablecoins, or unwound at the speed of the Ethereum blockchain, if unexpected expenses were to arise. OUSD on-chain liquidity is in the tens of millions, with the Curve Factory Pool having the majority of the liquidity, followed by Uniswap.

The goal of this proposal is to provide additional yield for the Aavegotchi treasury, for as long as the core team, DAO, and community see fit, without having to manage a position or take on leverage. When the core team, DAO, and community decide enough yield has been generated for the Aavegotchi treasury from OUSD, Aavegotchi can exit OUSD using any of the same methods used to enter OUSD.

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. In situations where DAI, USDC and USDT fall below the $1 peg, OIP-4 disables minting of additional OUSD tokens using the de-pegged asset.

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 four projects on the InsurAce platform have received. Origin also holds the top two spots on the Immunefi leaderboard when sorted by average response time to pay or close a bug bounty.

Thanks for reviewing the long post. Please feel free to give feedback on this or general yield-generating strategies.

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Peter here from Origin Protocol (and GotchiID: 11146)

Thanks for submitting this for us @stedari! I’ll be monitoring the comments to answer any technical questions that the community or core team might have. Attached is the example analytics email from 11/22

Analytics email
Analytics email862×1326 177 KB

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This is looking like a solid idea for our DAO as a deversification option.
I’m up for it

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We’re going to have Origin on for the meeting this weekend. Can we get somite more questions going?

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Since we’re on the topic of diversification I’d like to see us allocate like 10% to btc and eth.

Origin is not a project I know anything about unfortunately

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Here are a few sites to poke around on:

Core Origin homepage:

Origin Story:

Origin Dollar (OUSD):

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I noticed there was some discussion about OUSD in the Discord and I wanted to clear up a few things:

Q: Could OUSD be considered a diversification strategy?

A: OUSD is diversified in several ways:

  1. collateral - with the weekend of 3/10/23 in mind - the 1/3 backing by USDT helped prevent the OUSD peg from falling as low, and for as long, as USDC and DAI. OUSD was back at 0.99 within 17 hours, with OUSD holders profiting $120k from the weekend

  2. The various yield strategies - yield generation for OUSD is dispersed between seven different yield-generating platforms: Curve, Aave, Compound, Morpho Aave, Morpho Compound, Convex OUSD​+3Crv, and Convex LUSD+3Crv

  3. governance driven - OGV holders vote on which strategies to allocate to each week. Very often the allocation is different week to week

Q: Does OUSD rebalance to the higher yielding tokens?

A: Not exactly - OUSD rebalances (from DAO voting) between strategies, but rarely between the 3 stables. Rebalancing between stables has only occurred once in the past year. If any of the strategies become weaker due to security or possible yield, they will most likely not receive the votes to receive collateral for that week. We now have a Stablecoin Scorecard that we use as a framework for evaluating yield strategies.

Q: Is Origin robust enough to consider for long-term strategic investment?

A: Origin Protocol is not a new project in the web3 space - it is an entity that has been around since 2017, has been backed by top VCs in the space, and our fully doxxed team came from iconic tech companies like Coinbase, YouTube, Google, VMware, Dropbox, and Palo Alto Networks. OUSD was co-created by one of the founders of PayPal.

Origin Story has been very successful over the past few years (see the proposal above for examples), and not that long ago OUSD had 300m in TVL. In this market, we are simply following the trend as everyone else.

Q: Is OUSD just a liquidity yield farm?

A: This is overly simplified, OUSD leverages yield protocols to extract yield but in its essence is a decentralized stablecoin (or more decentralized than USDC, USDT and DAI). While it is true that it obtains yield from various blue chip protocols, it is a different mechanism from staking, as OUSD is fully liquid and can be moved around like any other stablecoin held in your wallet.

We carefully select the yield strategies that we deploy into and select only the most battle-tested protocols that pass our thorough security due diligence, as well as multiple audits both internal and external. Every month we choose not to move forward with countless other strategies as we consider them too risky, such as Anchor, Idle Finance, Euler, and various Balancer boosted pools.

It might be helpful to revisit the “Specification” section above on OUSD, to understand how the four yield generating functions combined enable OUSD to generate higher yields than manually using any single protocol strategy. The fourth yield generation function is often the largest contributor to OUSD yield, since half the OUSD in existence does not receive yield.

Q: In a de-peg, could you deposit de-pegged DAI into OUSD to get $1 of credit for <$1 of market value

A: No, this would not be possible. In situations where the price of DAI, USDC and USDT fall below $0.9980, OIP-4 disables minting of additional OUSD tokens using the de-pegged asset. Please see the section above titled “How did OUSD OUSD perform during the USDC/DAI de-peg?” for more information on how OUSD handled the peg during the weekend of March 10 2023, and how OUSD holders were able to profit in the end.

Q: Is converting into OUSD taking a longterm bet on all the OUSD collateral stablecoins?

A: Yes, this is true, by holding OUSD you are exposed to all three OUSD collateral stablecoin: USDC, USDT, and DAI. In the 2+ years OUSD has existed, no other stablecoin has passed Origin’s rigorous risk due diligence. We are security first, yield second. We never placed bets on stablecoin like UST.

Please see the section of the proposal above titled “Risk Mitigation”. The three stablecoin chosen to back OUSD have stood the test of time and maintained their peg quite well through multiple bull and bear cycles. They have all regained their peg. There are also no lockups - if at any point OUSD holders are uncomfortable, they can exit OUSD with minimal slippage through the dApp or any DEX.

Q: Can you keep OUSD in cold storage?

A: Yes! OUSD thrives in self-custodial cold storage, and will continue to earn yield while sitting in a hardware wallet. We have a great relationship with the Ledger team!

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I am not familiar with OUSD, I think we should review different yield producing stable coin projects like sUSD, crvUSD, FRAX.

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These are great examples of tokens that could be borrowed if you were to stake another asset and borrow a stablecoin, they would require you to manage a position and are not the same as OUSD’s passive yield generation.

I’ll be on the community call this Sunday to answer all your questions :slight_smile:

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I think this is addressing the criticisms I wrote in discord haha. Thanks for answering and I appreciate your strong communication. I’d like to make clear that I am not against treasury funds going into OUSD. I was really more specifically trying to point that OUSD is certainly not a diversification strategy which someone suggested.

I am certainly wrong about being able to arb OUSD by depositing depegged assets. But the backing of OUSD is still composed of the ratio of stablecoins in the vault. And as long as there is liquidity being provided between these stablecoins by OUSD assets, the assets in the vault will always trend towards being more composed of depegged assets. Thus, OUSD ultimately inherits more downside from depegs than from holding the composing stablecoins individually. In this sense, the assets of OUSD do indeed rebalance, but not in a simple way because of the number of strategies.

I am actually a fan of this proposal, and hope that the DAO decides to invest in this pool a significant amount. There are numerous benefits that I believe this treasury needs. It completely outsources any work that we need to do to plan out lending and liquidity farming, and I believe the safety measures OUSD takes is very reasonable. They also choose pretty safe yields, and it’s a big plus that they can lend on Morpho for boosted yields as well which we cannot do on Polygon. (full disclosure, I work for Morpho :P) I also think it’s a great opportunity to earn a share of yield of the non-yielding OUSD which is a really insanely good premium. We can be like the banks that borrow customer money for free to earn yield on it! XD

I would just like for the DAO to be educated on what exactly this product is when they consider this proposal. From a financial POV, it is not diversification and has downside risks from all assets in the vault. And the DAO would have no control over what OUSD assets would be returned by the vault, which is not problematic as long as OUSD trades with plenty of liquidity.

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Yes, since by holding OUSD you are exposed to all three stablecoin then you are exposed to the potential risks of all three vs just holding one of the three, that we can agree on - though on the flip side being exposed to all three helped prevent OUSD from depegging as low and for as long as USDC and DAI on the weekend of March 10th

It’s not a very simple rebalance - in addition to the strategies used you also need to take into account how many are exiting OUSD, and if they are choosing to use the OUSD dApp or a DEX. There actually was a proposal submitted to the OUSD DAO by a community member on 3/11/23 for an emergency rebalance, but it did not pass, and OUSD holders benefited in the end from the significant yield increase.

Thank you for the kind words! If you’re in the Morpho/Origin TG feel free to pop in and say hello! Hope to catch you this Sunday for the Origin call.

Fair enough, appreciate the friendly debate and discussion!

We keep the Curve pool well funded! Utilizing one of Origin’s MM would also be an option for exiting OUSD, if the DAO would prefer it.

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Categorically against it.

A little-known stablecoin with no reputation.
Low liquidity on exchanges
Low trading volume
Small number of pairs to the token

In the chart you can also see in early 2021 the token collapsed to $0.15

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Appreciate your comments:

You are not wrong. We are working to change this

Not wrong again, though it is important to mention that the main use case for OUSD is to hold it in your wallet for yield, not use it for trading.

This was discussed during the community governance call last week, it was the result of an exploit pre-audit #1. Since completion of audit #1 there have not been any instances of lost funds. We cover the situation in this article: What We’ve Changed Since the OUSD Attack | by Daniel Von Fange | Origin Protocol

Rather than abandoning the project, everyone was made whole and was reimbursed for their lost funds. Security is now prioritized over new feature development, and we have Open Zeppelin on retainer. Audits are now done quarterly and will be posted here after completion: Audits - Origin DeFi Docs

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Can we get some more activity on this forum post? From the comments so far there have been 2 in support and 1 against, but the current snapshot vote is showing almost 84% against.

Would appreciate some input from @Maxicrouton @MikeyJay @eitri @Cookiethief @Bearded @Ceza @diddlypoo

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This is how our DAO works and the calculation of our voting power shows the way of how our community feels like about the proposals.

Like it or not, but this is objective community decision.

You can try to come to our Discrod, and seek for answers there, since Discord have more activity then forum.

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Thanks for your input, albeit a bit late.

The Discord messages were more or less the same as the comments on this proposal. The outcome was unfortunate, but understandable. We’ll most likely be back with another proposal after the OUSD L2 strategy launch in a few months or next year.

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