By combining liquid staking and DeFi yield, Origin Ether has disrupted the ETH liquid staking landscape. OETH utilizes reserves of ETH and staked ETH to offer users outsized returns on ETH staking.
The protocol has garnered over 39,000 ETH in TVL since launching in May, making it one of the largest ETH yield aggregators in the space.
Even with rapid scaling, OETH has maintained far higher yield than its underlying LSTs. The protocol currently generates a 30-day trailing APY above 4% thanks to its groundbreaking mechanics.
Specifically, the OETH Algorithmic Market Operations (AMO) strategy forms a key component of Origin Ether’s yield generation.
Popularized by Frax Finance, AMO strategies are used in DeFi to bolster capital efficiency and keep trading pools balanced. Both of Origin’s OTokens leverage an AMO strategy, first implemented to OUSD in 2022.
Liquid staking protocols face key challenges when it comes to maintaining their ETH peg and managing underlying collateral ratios. AMO strategies address these issues by managing token operations at the smart contract level.
AMOs serve to stabilize pegs and optimize yield by deepening liquidity pools via protocol-owned liquidity.
As a result, platforms that integrate AMO strategies are more resilient in the face of broader market forces, and users can swap on AMO pools with less slippage.
In-N-Out famously makes every burger to order. McDonalds, on the other hand, prepares a bunch of burgers in advance because they know hungry customers will be coming and they want to be able to serve them quickly and efficiently.
Either way, no burgers get eaten until they are paid for by the customers. Before Origin launched the AMO, the OUSD vault acted like In-N-Out, where OUSD was only minted when requested and paid for by an end user.
With the addition of the AMO, the protocol now pre-mints some OUSD and OETH, putting it up for sale on Curve. Since the liquidity is owned by the protocol, the OTokens become 100% backed the moment someone swaps their tokens in the pool. The AMO is extremely efficient, helping the protocol maintain pegs and earn up to 2x the rewards on the same amount of capital.
The OETH AMO focuses on Curve’s OETH-ETH liquidity pool. For OETH to maintain a 1:1 ETH peg, the Curve pool must remain balanced at all times. Having an imbalance on either side can affect the peg’s stability. Note, even if the Curve pool becomes imbalanced, users can still redeem OETH for an equivalent amount of ETH through direct redemptions.
The OETH AMO ensures that new deposits to Curve are distributed proportionally in OETH and ETH when deployed to the pool. This ensures the OETH maintains its peg while Origin Ether carries out liquidity provision (LP) activities.
Through a strict set of rules, the protocol can mint OETH to the Curve liquidity pool. The amount of OETH that the protocol can mint is limited based on the amount of ETH deposited to the pool. If a user swaps for OETH, the ETH deposited is used to collateralize the OETH put into circulation.
OETH held by the AMO is deployed to balance the Curve pool. When the strategy removes ETH liquidity from the pool, a proportional amount of OETH is burned. For example, if the Curve pool contains 60% OETH and 40% ETH, a 4 ETH withdrawal from the protocol would burn 6 OETH.
While this may seem counterintuitive, using protocol-owned liquidity helps to ensure that OETH remains 100% collateralized at all times. The AMO is able to maximize capital efficiency without diluting the OETH supply as this extra OETH never truly enters circulation until additional ETH enters the pool.
Origin's algorithmic market operations strategy allows for 2x capital efficiency within the OETH-ETH Curve pool. The protocol pre-mints OETH to deposit alongside ETH in the pool. This OETH is either backed when leaving the pool (from ETH swaps) or burned when the corresponding ETH is withdrawn from the pool (written in the smart contracts).
Liquidity is provided to the OETH-ETH pool via Convex to bolster rewards. This means that OETH earns staking rewards in CRV and token rewards in CVX for liquidity provision. Origin Ether collects and sells these rewards. Resulting yield is then added to the vault and distributed to users in the form of OETH.
Thanks to the AMO, the OETH protocol controls the majority of ETH and OETH in the Curve liquidity pool. While the protocol-owned Origin Ether is reflected in the token’s total value locked, it only enters circulation if a user deposits ETH to swap for OETH.
AMO strategies have been successfully battle-tested in DeFi. Frax’s implementation has demonstrated the efficacy of AMO strategies at scale since its launch in January 2021. Additionally, Origin Dollar (OUSD) has utilized an AMO successfully since 2022.
The AMO strategies used by OUSD and OETH have undergone comprehensive testing without any vulnerabilities being detected. Both protocols prioritize robust security and have been rigorously audited to ensure their safety.
The emergence of AMOs has empowered DeFi protocols to run more efficiently while strengthening price stability. These strategies are key to Origin DeFi’s ability to offer outsized yields with seamless usability.
Stack ETH faster with Origin Ether: app.oeth.com
Stack USD faster with Origin Dollar: app.ousd.com
