Unlike traditional liquid staking tokens, Origin Ether enhances staking rewards with additional streams of yield. OETH earns ancillary rewards from using ssv.network's distributed validator technology (DVT), which boosts staking yields via SSV token incentives.
Rewards from liquid staking tokens are then passed onto OToken holders, being boosted by Origin DeFi’s rebasing mechanism. Moreover, some of Origin Ether’s collateral is held in WETH and is utilized by Origin Ether’s most lucrative strategy: The Convex AMO.
Thanks to Origin’s nuanced approach to liquid staking, OETH holders have earned over considerably higher APYs when compared to traditional liquid staking tokens. Let’s take a look at Origin Ether’s AMO, and how it helps bolster capital efficiency while strengthening the OETH-ETH peg.
Origin Ether’s Algorithmic Market Operations (AMO) strategy deploys WETH collateral assets into Curve Finance's OETH-ETH Metapool. Subsequently, Metapool liquidity provider tokens (OETHCRV-f) are staked in Convex Finance to maximize Curve (CRV) and Convex (CVX) rewards. The strategy differentiates itself by pre-minting OETH and injecting it into the Metapool alongside WETH, thereby amplifying returns.
Hold on, how is pre-minting OETH without collateral assets safe? This is a common question when astute DeFi investors first look at the AMO strategy. Let’s look at how it's not only safe, but actually helps maintain the OETH-ETH peg.
Questions surrounding the security of pre-minted, non-collateralized OETH are warranted. However, it's critical to understand that OETH owned by the AMO strategy within the Curve Metapool is not in public circulation and, hence, does not require backing.
When these strategy-owned OETH tokens exit the Metapool via ETH swaps, they’re immediately backed by an equivalent amount of ETH swapped into the pool, thus becoming fully collateralized. If the strategy removes liquidity from the OETH-ETH pool, the uncollateralized OETH is automatically burned.
To better visualize how funds are deployed, here’s the detailed value transfers of depositing WETH to the AMO strategy:
Another benefit of the OETH AMO is that it enhances the stability of the OETH-ETH peg. By rebalancing the Metapool when the AMO deploys funds, the OETH-ETH peg is strengthened. Additionally, the strategy offers a reduced fee of 0.04% for swapping OETH for ETH via the Metapool, compared to the 0.5% incurred when using the vault.
Following Origin Ether’s recent AMO improvements, single-sided deposits and withdrawals to the OETH-ETH pool are now supported under certain conditions. This allows for new ways to maintain the OETH peg:
However, these functions are only permitted when the end result moves the liquidity pool towards the OETH-ETH peg, or maintains the pool balance. In doing so, OETH achieves a tighter peg to ETH while becoming more efficient in the process.
The AMO strategy is designed to effectively double returns by pre-minting OETH in accordance with the ETH added to the Metapool. The amount of OETH pre-minted ranges between one to two times the quantity of ETH deposited, depending on the existing balance of the Metapool. If there is less OETH than ETH in the pool, then more OETH is added with the WETH to help rebalance. Conversely, if there is more OETH than ETH in the pool, no new OETH will be deposited by the AMO.
Thanks to the recent AMO improvements, the OETH protocol has more control over how liquidity is managed within the AMO strategy. Not only can OETH be pre-minted as stated above, but single-sided liquidity deposits are now enabled under strict conditions.
This proactive rebalancing results in a more lucrative yield generation mechanism. Thanks to the AMO, Origin Ether can provide roughly 2x the liquidity on Curve, which results in OETH holders earning a much higher share of the rewards pool.
Consider a scenario where the AMO strategy owns 75% of the Metapool's LP tokens, and thus has a claim to 75% of the ETH and OETH in the pool. A user swaps 10 ETH for OETH in the pool. As a result, the collateral assets the AMO can claim from the metapool increase by approximately 7.5 ETH (after a negligible 0.04% fee). This results in a harmonious increase in both circulating OETH and ETH collateral, preserving asset integrity.
As shown in the chart below, the AMO strategy has claim to 75% of the ETH and OETH in the pool (this is indicated in blue). In this example, the pool is imbalanced with more OETH in the pool than ETH.
The ETH (left) in blue is collateral for OETH that is in circulation. However, the OETH (right) in blue, is not in the circulating OETH supply and does not have any backing collateral. Therefore, if the AMO removes liquidity from the pool, this OETH will be automatically burned.
The portion of OETH depicted in orange that is claimable by anyone who is not the AMO strategy is in the circulating supply of OETH and is backed by ETH. These tokens work the same as any other ERC-20 being used for liquidity provision.
Origin Ether's innovative AMO strategy offers a highly attractive yield optimization mechanism while maintaining rigorous security standards. The built-in financial efficiency and enhanced peg stability make it a compelling option for serious DeFi investors looking for optimal risk-adjusted returns.
To learn more about where Origin Ether’s yield comes from, we invite you to check out Origin’s Proof of Yield dashboard for an in-depth view of the yield generated by OETH.
