Range Bound Stability

Olympus V3 introduced Range Bound Stability (RBS), which lies at the heart of the new chapter of price stabilization of the OHM token. The mechanism operates by automatically executing market operations under specific conditions to absorb volatility in the market price of OHM.

A diagram representing the Range Bound Stability (RBS) system, displaying the 30-day moving average price surrounded by upper and lower cushion and wall zones to stabilize OHM token price within the set range.

The RBS system is comprised of several mechanisms and parameters, explored further in the Olympus documentation and education materials. In summary, automated market operations operate similarly to ‘guardrails’ on the OHM token price, either buying and burning OHM tokens using reserve assets in the lower (or ‘bid’) cushion, or minting and selling more OHM tokens in exchange for reserve assets at the upper (or ‘ask’) cushion. The upper and lower cushions operate using a Sequential Dutch Auction system, which offers a dynamically increasing discount on OHM tokens until someone executes a swap, at which point the discount resets and continues to increase until the next swap order, as long as the token price remains within the cushion. In contrast, the upper and lower walls act more like market orders, where arbitrageurs can trade directly with the treasury to buy or sell OHM tokens at the stated wall prices.

The RBS system is comprised of several mechanisms and parameters, explored further in the Olympus documentation and education materials. In summary, automated market operations operate similarly to ‘guardrails’ on the OHM token price, either buying and burning OHM tokens using reserve assets in the lower (or ‘bid’) cushion, or minting and selling more OHM tokens in exchange for reserve assets at the upper (or ‘ask’) cushion. The upper and lower cushions operate using a Sequential Dutch Auction system, which offers a dynamically increasing discount on OHM tokens until someone executes a swap, at which point the discount resets and continues to increase until the next swap order, as long as the token price remains within the cushion. In contrast, the upper and lower walls act more like market orders, where arbitrageurs can trade directly with the treasury to buy or sell OHM tokens at the stated wall prices.

A percentage of treasury reserves, called the Reserve Factor, are deployed in the cushions and walls of the RBS system to ensure there is sufficient liquidity to protect the token price, without risking draining the entire treasury. If either cushion runs out of available assets, a six-day window is required to reinstate the funds into the Range Bound Stability system, which re-engages at the newly found OHM token price range. The protocol also enacts policies to balance the amount of reserves deployed between liquidity pools and treasury, to ensure sufficient pricing depth on secondary markets.

A percentage of treasury reserves, called the Reserve Factor, are deployed in the cushions and walls of the RBS system to ensure there is sufficient liquidity to protect the token price, without risking draining the entire treasury. If either cushion runs out of available assets, a six-day window is required to reinstate the funds into the Range Bound Stability system, which re-engages at the newly found OHM token price range. The protocol also enacts policies to balance the amount of reserves deployed between liquidity pools and treasury, to ensure sufficient pricing depth on secondary markets.

How Does the RBS System Work?

When the price of OHM exceeds the upper cushion price, a bond market is deployed to sell OHM for reserves. The bond market is closed if the price goes back below the upper cushion price, or if it exceeds the upper wall price in the case that the upper cushion and wall have been depleted. Similarly, when the price of OHM falls below the lower cushion price, a bond market is deployed to buy OHM with reserves. This bond market is closed when the price goes back above the lower cushion price, or if it drops below the lower wall price in the case that the lower cushion and wall have been depleted. Both bond markets are instant-swap with no vesting. Initial parameters for RBS were suggested after some analysis of the OHM ecosystem, and were updated further in OIP-125. The RBS system uses the 30-day simple moving average (MA) price to determine the target price for OHM, which is how the upper and lower cushion and wall prices are set for the RBS system. The spread from the target price to either cushion currently stands at 7.5 percent, and parameters are configurable through Olympus DAO governance.

This figure displays the upper and lower bounds of the Range Bound Stability system, as well as the price and liquid backing of OHM tokens. It also demonstrates the effect of the 30-Day Moving Average dipping below the Liquid Backing, and how that affects the Target Price.

In the event that the OHM token target price (given by the 30-day MA) drops beneath the ‘Liquid Backing Price’ of OHM tokens (meaning the price denoted by all liquid reserve assets that are able to be sold to repurchase OHM tokens), the target price in the RBS system changes from the 30-day MA to the ‘Liquid Backing Price’ based on liquid assets held in reserve. The RBS system is designed to automatically execute market operations to absorb volatility and maintain stability in the price of OHM whenever the price exits the range between the cushions.