oFVM In-Depth

Exploring Options with oFVM

oFVM is a new options token that helps to reduce sell pressure on the native FVM token. It is earned by liquidity providers (LPs) who provide liquidity to the FVM-FTM pool. oFVM can be redeemed for FVM at a discount, or it can be locked up for a period of time as veFVM. veFVM is a governance token that allows holders to vote on the distribution of emissions, as well as receive weekly bribes and fees.

There are three main options for LPs who earn oFVM:

  • FVM-FTM LP Lock Option: This option allows LPs to lock their oFVM rewards for a period of time. During this time, the oFVM rewards will be compounded back into the FVM-FTM pool, earning the LP additional oFVM and FTM.
  • veFVM Option: This option allows LPs to redeem their oFVM rewards for veFVM. veFVM is a governance token that allows holders to vote on the distribution of emissions.
  • FVM Option: This option allows LPs to sell their oFVM rewards for FVM at a discount. This option allows LPs to take advantage of the discount on FVM and sell their oFVM rewards for a profit.

Benefits of oFVM

The introduction of oFVM has a number of benefits, including: Reduced sell pressure: oFVM can be redeemed for FVM at a discount, which reduces the sell pressure on the native FVM token. Increased liquidity: The FVM-FTM pool will be more liquid as a result of oFVM, as LPs will be incentivized to lock their oFVM rewards in the pool. More sustainable APRs: The FVM-FTM pool will be able to offer more sustainable APRs as a result of oFVM, as the pool will be more liquid and there will be less sell pressure on the native FVM token.

Practical Examples

Let's illustrate this mechanism with another example. Say the price of FVM is $100, and there is a call option token oFVM. oFVM gives its holder:

  • a perpetual right to buy FVM at 75% of the market price;
  • a perpetual right to buy max locked veFVM at 10% or even 0% of the market price (currently 5% but 0 for example's sake);
  • a perpetual right to LP into FVM/WFTM pool with a 40-80% discount. In this case holder is locked from withdrawing liquidity for x amount of time (7-60 days). When x amount of time passes the holder is allowed to initiate withdrawal.

The protocol issues 1 oFVM to a farmer Alice, who immediately exercises the option to buy 1 FVM for $75 and sells it on a DEX for $100. The tally of gains & losses are as follows:

  • The protocol: -1 FVM, +$75
  • The farmer Alice: +$25
  • The DEX LPs: +1 FVM, -$100

Compare this to second possible choice of Alice (veFVM):

  • The protocol: -1 veFVM
  • The farmer Alice: +$100 worth of veFVM max locked (1 year) giving a right to claim voting bribes and fees
  • The DEX LPs: 0 change

Compare this to third possible choice of Alice (FVM/WFTM LP):

  • The protocol: 0 change
  • The farmer Alice: +100$ worth of FVM/WFTM LP receiving LP rewards in oFVM AND WFTM claimed from people who choose to redeem oFVM immediately.
  • The DEX LPs: +1 FVM/WFTM, +100$

We have the following observations:

Reallocation of value: Using oFVM instead of FVM as the reward token effectively transfers gains from the mercenary farmers and notorious dumping bandits to those invested in the protocol's success who see long term value in earning passive income from veFVM.

Trading off incentivization efficiency for protocol tokens LP depth: In our example, for each FVM token issued by the protocol, the farmer Alice can choose option 3 and provide liquidity for a fixed amount of time which is crucial for protocol long term sustainability.

This effectively creates a continuous token sale: instead of giving away tokens for free in regular liquidity mining, we turn incentivization into a continuous token sale with options to:

  • Redeem into liquid FVM with the lowest discount, partially returning extracted value to the protocol;
  • To redeem into locked FVM with the greatest discount, decreasing circulation of FVM and reducing short-term selling pressure;
  • To redeem into LP with a moderate discount and the ability to collect wFTM gained from those who chose option 1

Conclusion

The introduction of oFVM is a positive development for the FVM ecosystem. oFVM has the potential to reduce sell pressure on the native FVM token, increase liquidity in the FVM-FTM pool, and offer more sustainable APRs for retail & protocols.

Key terms

  • oFVM: A new token that is earned by LPs who provide liquidity to the FVM-FTM pool. oFVM can be redeemed for FVM at a discount, or it can be locked up for a period of time in order to earn veFVM.
  • FVM: The native token of the FVM ecosystem.
  • veFVM: A governance token that allows holders to vote on the distribution of emissions and receive weekly bribes and fees.
  • LP: A liquidity provider. An LP is someone who provides liquidity to a liquidity pool.