# Olympus Credit Issuance Framework

"Bamboo is flexible, bending with the wind but never breaking, capable of adapting to any circumstance." - Abraham Lincoln

## Pricing and interest rates

If I have 1$ and deposited on day 1 for 1% APY, at day 365 I should end up with $1.01.
If deposited for -1% interest, I would end up with $0.99.
If my token on day 1 is $1, and at day 365, the price has appreciated to $1.01, __I have been paid 1% interest (Positive interest rate).__
If my token on day 1 is $1, and at day 365, the price is now at $0.99, __I have *paid* 1% interest (Negative interest rate).__

Please keep this in mind when reading below.

# Overview

Disclaimer: I know some of this is very handwavey.

The idea here is to look at treasury liquid backing vs price as a collateral ratio. We would currently be overcollateralized (10.50 / 9.63 = 108% CR).

Say that our minimum collateral ratio, our "reserve requirement", is 80%.

In the case we were to issue more OHM that brings us undercollateralized, say down to 80%, the price would end up around $8.40, in the worst case that 100% of the newly minted OHM is dumped (which would happen for looping leverage use-cases). We could look at this delta in backing as our budget to mint into these markets, the same as Frax looks at the current liquidity pools to decide how much $FRAX can be minted with their AMOs.

To maintain holders, we issue bonds that pay out to maintain value + some interest at the current price. So in the above example, if we expected to mint enough OHM to potentially devalue down to $8.39 within 6 months, we would issue 6-month bonds with interest to cover the delta in backing:
ie. with price delta being 10.50 - 8.50 = $2.00, a 6-month bond OHM should pay *at least* this much in yield at the 6-month price to maintain purchasing power (TODO do math).

Since we'd likely be minting into variable rate markets, there are many cases that could result. A simple but extreme example is that within the 6-month period, bond maturity and debt issuance both result in net 0 gains in OHM supply, since all debts were cleared by the end of the 6 months.
Another extreme case is where there is a mismatch in debt maturities. Bonds have been issued, but all debt is repaid before the bonds have matured. This would result in a premium, which would ideally be harvested and added to backing. The opposite could be true too, where too much debt has been issued, and bonds have matured (and not re-bonded), in the worst case resulting in price drop below the original, which would expend backing.

All in all, what this results in is an expansion of our balance sheet. We issue OHM into markets via AMOs as an asset, with matching bond issuance as a liability. This is also effectively the same as the ideas proposed before, of using the bonds issuance to supply lending markets, with the key difference that the origin of the capacities is flipped: instead of issuing bonds then deciding how much we can lend, we instead decide how much we can lend, based on our collateral factor, liquidity and current price, then issue liabilities to fund this.

The whole point being that we can actually find limits of how much expansion of supply we can do for uses of OHM minting ability while staying within our "reserve requirements", whatever that is that we decide, while staying within the current frameworks of liquid backing and RBS.