An analyst reached out to discuss my OlympusDAO analysis, and in particular, my "sustainable value" model (twitter.com/norswap/status/1498358036733194243)
After clearing up a couple things, I felt like doing what I hadn't done last time and actually compute a few possible prices for OHM.
🧵 ⬇
The metrics I want the compute are prices that take into account the treasury backing per OHM:
(1) market value backed price
(2) sustainable value price
(3) risk-free value (RFV) price
Before the calculations, a few considerations:
- All the values and prices are for the 6th May (3 days ago)
- Values are taken from the official dashboard (app.olympusdao.finance/#/dashboard/treasury)
- The price of OHM at the time was 16.68$
- The OHM treasury contains OHM tokens, in the form of half of the LP tokens of the protocol-owned liquidity (POL). We can obtain the amount of OHM in POL by halving the market value of the POL and dividing by the market price of OHM.
Now onto the calculations:
(1) The market backed price takes into account the market price fo the treasury, *including* the OHM it owns.
market_backed_price
= market_value_of_treasury / total_ohm_ex_pol
= 492.65M / (total_ohm - ohm_in_pol)
= 492.65M / (20M - 1.89M)
= 27.2$
(2) The sustainable price takes into account that the ohm in the treasury also needs to be backed by the rest of the treasury.
It represents the $ amount you could give per OHM to holders (including the protocol) if you were to instantaneously (and without slippage) liquidate the OlympusDAO treasury.
(This is not entirely true, because the OHM treasury holds some locked token, such as veCRV, that can't be liquidated. I assume they have been valued at the value of the unlocked token in order to compute the market value of the treasury.)
sustainable_price
= market_value_of_treasury_ex_ohm / total_ohm
= (market_value_of_treasury - market_value_of_pol / 2) / 20M
= (492.65M - 63M / 2) / 20M
= 23.05$
(3) The risk-free value (RFV) of an OHM-stable LP token is the value of the token if OHM were worth 1$. Hence the RFV value of OHM is the treasury backing per OHM given that the LP tokens are valued in that way.
This notion doesn't make a lot of sense, given that the sustainable value is 23.05$. A price of 1$, representing a 95+% discount seems unlikely.
It's difficult to compute the RFV value since it depends on Curve math (xy=k), spread accross multiple OHM-stable pools.
However, what we can do is compute a lower bound for the RFV backing, by supposed that the LP tokens evaporate entirely and are thus worth 0.
rfv_backing_minimum
= market_value_of_treasury_ex_pol / total_ohm
= (market_value_of_treasury - market_value_of_pol) / 20M
= (492.65M - 63M) / 20M
= 21.48$
I couldn't resist playing with
amm-playground.on.fleek.co/ a little.
If you (wrongly) assume that all the liquidity is in the same x*y = k pool, to fall to a price of 1$, we'd need to sell > 30M OHM
(more than total supply!) and the pool would end up holding 1.8M$ in stables.
In reality, because POL is in multiple pools, we'd have to sell less
to obtain this result, and we'd be left with even less money.
So assuming that LP tokens are worth 0 doesn't put us too far from the truth.
Finally, note that the OHM dashboard reports none of these backing, but reports something called "liquid backing" (6th May: 15.4$), which it defines as:
"Liquid Treasury Backing does not include LP OHM, locked assets, or reserves used for RFV backing. It represents the budget the Treasury has for specific market operations which cannot use OHM (Inverse bonds, some liquidity provision, OHM incentives, etc)."
I think this notably excludes veCRV and vlCVX, whatever is going on with Liquity pools (forum.olympusdao.finance/d/177-tap-5-whitelist-liquity-lusd-stability-pool-and-lqty-staking), and more.
I'm guessing (but am far from certain) that "reserves used for RFV backing" refer to the 1-2M amount needed to pay 1$ for every OHM.
In fact, the dashboard is more clear on parts included (basically only DAI, ETH, FRAX, DAI part of OHM-DAI LP and FRAX-3crv LP). There must be other things included (otherwise the math doesn't quite check out!), but it's not clear what.
I wonder how the choice to include "liquid backing" as the metric of choice influenced the price action of OHM (which now hovers right over this liquid backing level).
While the appelation "liquid backing" might be truthful (as in: this is the amount of money you could get immediately if you atomically liquidated the treasury), it's an undervaluation of OHM's assets: only the veCRV and vlCVX tokens generate significant cashflows!
So to recap we currently (well 3 days ago) have:
liquid_backing < price < rfv_backing_minimum < sustainable_price < market_backed_price
liquid_backing = 15.4$
price = 16.8$
rfv_backing_minimum = 21.48$
sustainable_price = 23.05$
market_backed_price = 27.2$
Price today: 15.85$
So is OHM undervalued? It certainly seems that way to me.
Reservation: the values reported by the dashboard have to be correct. And honestly, there are a few problems with it (mostly things not quite summing up to what they should) that give me pause there.
Disclosure: I own 0.62 gOHM, that's like 1k$ (lol)