IBCO closing proposal

OVER is proposing to end its Initial Bond Curve Offering (IBCO), two years and three months after launching. Why now?

In April 2022 we outlined the opportunity to alter the CW parameter of the IBCO. The goal was to make the OVR token more volatile and burn an additional quantity of tokens. You can read that proposal here: https://www.overthereality.ai/blog/ibco-voting-proposal/. 

However, in consideration of the downward trend in market conditions and the fact that the massive liquidity of the IBCO offered additional protection to the token price, we did not proceed with the voting process.

We avoided changing such a position forecasting future market trends, yet lately, the depeg of USDC and the implied DAI depeg have made it apparent that the potential risks connected to Maker DAO governance on the collateral backing DAI are very real. 

We believe it’s not worth getting exposed to the risk of Maker DAO governance decisions with the IBCO collateral anymore. Because of this, we’re proposing to definitively close the IBCO.

 

Advantages and disadvantages of the IBCO

After two years of flawless operation in bull and a bear markets, the advantages and disadvantages of the IBCO model have become clear:

Advantages

• Coexistence of a primary and secondary market during the project launch
• Liquidity granted by the accumulation of non-withdrawable collateral (DAI) in the bonding curve
• Absorption of selling pressure, deceleration of downtrends
• Burning of sold tokens during price downtrends
• Stability granted by stablecoin collateral 

Disadvantages

• Risks connected with the DAI collateral governance (Maker DAO)
• Issuance of new tokens when price uptrends
• Uncapped supply
• Compliance complexity for exchange listings connected with the existence of burning and minting functions for the OVR ERC-20 token
• IBCO market and liquidity are not listable on Coingecko (CG) and Coinmarketcap (CMC)
• Slowdown of uptrends 
• Inefficient liquidity allocation: 0 fees on the collateral (DAI) liquidity provision

 

Aim of the shutdown

The proposal to end the IBCO is aimed at removing all of the disadvantages of the IBCO while maintaining most of the advantages. But what advantages can we maintain? 

Considering that we’re no longer in the project/token launch phase and that the stability of the DAI collateral is undermined by the associated depeg risks, the most important advantage currently provided the IBCO is its liquidity depth that can absorb selling pressure. 

Fortunately, we can maintain comparable levels of buy-side liquidity by funding the Uniswap V3 pool for the ETH/OVR pair. Not to mention that in this way the market liquidity will be finally apparent on Coingecko and Coinmarketcap. 

 

Execution of the shutdown

For this, we propose a two-step process:

1. Closing the IBCO and withdrawing all of the DAI liquidity
2. Exchange 75% of the liquidity into ETH and distribute it on the buy side of the current Uniswap V3 ETH/OVR pool. 25% of the liquidity will be used to directly finance the project

We consider that the final state of the system after the IBCO shutdown and the transfer of liquidity on the Uniswap V3 ETH/OVR pool will be a net positive for OVER and will have the following characteristics:

 

Independence from DAI

As mentioned above, DAI collateral will be withdrawn and exchanged to ETH. 75% of the collateral will be used to fund the Uniswap V3 liquidity pool for the OVR/ETH pool. Any exposure to Maker DAO governance decisions on DAI collaterals will cease to directly impact OVER.

 

Capped supply

No more minting of new OVR tokens by the IBCO, smoothing price uptrends. No more burning of OVR tokens by the IBCO. The final total supply of OVR tokens will be fixed and equal to the existing supply at the time of the closing of the IBCO.

 

Liquidity publicity and accessibility

While the IBCO has massive liquidity, this isn’t evident in public aggregators and explorers such as Coingecko and Coinmarketcap. Moreover, the IBCO market itself is less accessible than Uniswap and requires a KYC. Because of this it is currently mainly used by arbitrageurs. Transferring the liquidity to Uniswap will allow for greater awareness of liquidity existence and easier accessibility – no KYC needed and high traffic exchange platform exposure.

 

Capital efficiency

The IBCO provides liquidity to the OVR markets. This activity usually has a return (think about the exchange fees accrued by liquidity providers in the Uniswap pools). The IBCO takes 0 fees for the provided liquidity, thus the allocation of capital is not efficient. During its run, the IBCO enabled the exchange of a total volume of $150 million. Applying a 1% fee (as Uniswap V3 pools do) to such a volume would yield to the liquidity provider (OVER) $1.5 million in fees alone.

 

Increased volatility

The IBCO minting and burning mechanic, based on the Bancor Formula, smoothed price movements both upwards and downwards. Particularly, the higher the price the higher the accumulated DAI collateral, the smaller the volatility. Moreover, the relative weight of  the stablecoin collateral (DAI) compared to others (ETH) decoupled the price movements of the OVR token from the broader market movements, especially when compared to other tokens where, with predominant liquidity, collateral is composed of ETH instead of stablecoins. Of course, downtrend volatility reduction is a positive IBCO feature that is not possible to reproduce fully. Yet by distributing and concentrating the 75% of current IBCO collateral (exchanged in ETH) on the buy side of the Uniswap V3 ETH/OVR pool, it is possible to re-create a comparable volatility reduction versus ETH from the current price* downwards. 

 

Risks

Aside from the increased volatility already described in the former paragraphs, the main risks connected with the IBCO closing are purely technical, in order to limit those, the IBCO closing and liquidity transfer have been extensively tested by our team on a simulated environment. 

*At the time of the IBCO closing

 

Conclusion

Any change to the IBCO (closure included) needs to be approved by a majority of the token holders. 

In the coming days, we will release a voting quorum, a qualified majority, and a guide on how to perform voting. 

 

Join our Discord Group for all the information.