An Explanation of the Implementation and Application of Option Liquidity Mining (OLM) for Blue-Chip DeFi Projects

Recently, Bond Protocol published an article introducing the general implementation of option liquidity mining (OLM). Adrian, a researcher at Hailstone Ventures, summarized the implementation principle of OLM and introduced blue-chip DeFi projects currently using OLM.

Option liquidity mining (OLM) mints ERC20 call options with configurable parameters such as quote asset, payment asset, strike price, and exercise window. Essentially, the article outlines the implementation standard of OLM, including:

Option liquidity mining contract; treasury contract for minting and redeeming; ERC20 tokenized options for emission. The exercise logic is simple: when oTokens are ITM, token holders can redeem them from issuers and receive the upside payment (spot price – strike price); when oTokens are unexercised or expired, the issuer retrieves the collateral payment used to mint the tokens.

1) Keep3r Network has achieved considerable success by issuing rKP3R (its tokenized call options) and has accumulated about $8 million USDC. The cost of exercising the call options will be distributed to vKP3R holders.

2) Yearn recently proposed to activate oYFI emission rewards guided by the veYFI gauge. In each epoch, veYFI voters will allocate the distribution of the next epoch to oYFI gauges. Each gauge will receive a certain amount of oYFI based on the number of votes received in the previous epoch, which will be distributed to vault depositors. oYFI allows its holders to buy back YFI at a discounted ETH price, determined by the locked veYFI ratio. As veYFI decreases, the discount increases to attract locking, and the ETH obtained from oYFI redemption is redirected to YFI buyback.

Essentially, OLM allows protocols to: accumulate fees in the form of discounted token sales; create a natural lower price limit (at the strike price); and reduce selling pressure. Especially for Yearn, oYFI is designed to maximize incentives for veYFI holders, who are also vault depositors, active governance participants, and treasury owners who will receive the highest share of governance power. It feels like many other ve-based protocols could consider adopting similar designs to coordinate incentives between governance participants, liquidity providers, and token holders. [Original text in English]


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