GET Protocol's Protocol Owned Liquidity
Beginning Thursday 17th, we will be launching in partnership with Olympus Pro what’s known as our ‘Protocol Owned Liquidity’ program (or POL for short). You may not yet be familiar with this mechanism, but it’s a method that’s grown in popularity over the last 6-9 months spearheaded by Olympus DAO & their Olympus Pro program.
Protocol Owned Liquidity unlocks the ability for a protocol to own its own liquidity by acquiring LP tokens from market participants, this gives the protocol autonomy over the LP tokens & thus underlying liquidity that it accounts for.
This creates ‘dependable liquidity’. When the protocol needs it, it’s available for use.
Our goal for the POL program is to build up $1M in Protocol Owned Liquidity over a period of 5-6 months during 2022, which will ensure that the protocol has a deep tranche of dependable liquidity for ticketing operations on Polygon.
The POL system will only be deployed on Polygon for now, as time goes on we will assess the system to decide if an Ethereum rollout will benefit the protocol.
Through partnering with Olympus Pro, GET Protocol is able to offer GET bonds in exchange for LP tokens from the GET-ETH pool on Polygon.
A liquidity provider that has LP tokens for the GET-ETH pool on Polygon can visit the Olympus Pro GET bond page and sell their LP tokens to the protocol in exchange for discounted GET.
This discounted $GET is vested for 7 days, meaning that it cannot be accessed by the individual until the vest period is complete.
The discount rate for GET is based on bond demand and is always in a state of change, it’s worth noting however that this discount rate is maintained by Olympus’s mechanisms and whilst the discount will be attractive enough to capture LP, it will never drop low enough to create a significant arbitrage disparity between the open market and discounted $GET offering. This mechanism has been battle tested by Olympus across not only their own treasury but also through 25+ partnered protocols.
As Olympus Pro states:
1. Opportunities to buy discounted tokens. Long-term holders do not need to speculate on price action in order to obtain more tokens. Through bonds, they can supply LP tokens to the protocol of their choice in exchange for its native tokens at a discounted rate. This is a win-win scenario for both the token holders and the protocol itself.
2. No exposure to impermanent loss. Long-term holders aren't incentivized to provide liquidity, as they would experience impermanent loss. Shifting this loss to the protocol better aligns both LPs and the protocol.
3. Confidence in the liquidity availability. The community can be assured that the liquidity will permanently reside within the protocol and that there will always be ample liquidity for users to trade their tokens.
The Olympus Pro service has some of the most battle tested contracts in the space and are currently being audited by Runtime Verification. The Pro service is used by over 25+ highly esteemed protocols that have bond sales occurring routinely.
Anyone can view the contracts here:
We've created a guide available here to walk through the process:
Olympus Pro States:
At times, you'll see that the bond discount turns negative, meaning you'd pay a premium from the market in order to bond. You should not bond during this time, as you can buy the same tokens but at a cheaper price from the market. As time goes on, the discount will slowly increase, until it reaches a positive discount again. The negative discount can be caused by different factors:
- 1.High demands for bonds: Bonds offer users the ability to purchase tokens at a market discount. However, this price is dependent on the demands of bonds. When there is a high demand, the bond price goes up, and vice versa. The demand may be so high that it may cause the bond price to inflate above the market price.
- 2.Sharp decreases in price: At times, when a token experiences a sharp decrease in price, it takes time for the bond price to decrease to match the new token price. This causes a temporary negative discount, until the bond price matches the market value again.
There's several mechanisms that culminate in the prevention of swing trading $GET bond discounts:
- GET Bond Discount Rate is based on bond demand, the bond discount rate can go negative for periods of time if people are trying to swing trade the bonds
- Slippage on both selling GET into Eth and then selling the vested GET back into Eth will end up at a higher price than the discount rate
- Seven day vesting period, results in it being impossible to accurately predict swing trading the bonds.
- There's also the ability to cap bond intake if needed. We're going to be very mindful to ensure this program brings in existing LP to build up healthy POL without it being a swing trading opportunity.