oMAGMA
What is oMAGMA?
oMAGMA is a call option token for $MAGMA. This entitles a holder to purchase $MAGMA at a set discount rate to the current market price at time of redemption.
Redemption converts oMAGMA to MAGMA in a 1:1 ratio
oMAGMA does not have an expiration date
The discount can be set between 5% and 50% for oMAGMA --> MAGMA
The discount can be set between 10% and 100% for oMAGMA --> veMAGMA
Why use oMAGMA as the reward token?
Using a call option as the reward token captures some of the value of the total emissions back into the protocol, which helps to mitigate two large problems that DEXes face. In the crypto space, there is a great love for the concepts of flywheels. However, people do not like to talk about the two issues with flywheels:
Getting the initial conditions wrong When starting a new DeFi protocol, what should the starting market cap be at launch? How much liquidity should there be? What should the emissions start at and how should they change over time? What kind of APRs are needed to convince money to migrate it? How much TVL will get deposited by new users? How much revenue will that TVL generate for investors? Because these questions are nearly impossible to get "right," founders do their best to guess and anticipate. But everyone is "wrong" to some degree or another. The starting market cap is too high to justify, or too low to bring interest, or emissions are too high for the token price to sustain, or too low to entice TVL growth. And who bears the greatest burden for being wrong? New buyers. The price eventually finds an equilibrium as product-market-fit is found, and emissions are appropriate relative to the revenue generation, bearing in mind future speculation. In the mean time, there had to be investors who bought the top and watch as the token price suffers dramatically.
The reflexive nature of flywheels cuts both ways when momentum turns negative The classic flywheel starts with APRs paid to LPs, so TVL goes up, so trade volume goes up, so veNFT revenue goes up, so token demand goes up, so token price goes up, so LP APRs go up, so TVL goes up, and so on. Now what happens when you replace the word "up" with the word "down"? The same chain reaction, but in a much less exciting direction.
Throughout all of this volatility, call options provide revenue that stocks the protocol treasury. This can then be used to survive significant market downturns, establish new initiatives to change momentum, or even simply distribute the funds to veMAGMA holders. In this way, the volatlity is smoothed out for users and greater stability is found for the protocol to continue growth.
How do you redeem oMAGMA?
On the oMAGMA page of the Magma Finance website, there are 2 options to redeem, both of which are settled in $MNT tokens.
Option 1: redeem oMAGMA for $MAGMA at the set discount rate
Option 2: redeem oMAGMA for veMAGMA by providing additional $MNT to pair, but the redemption is at a much greater discount rate to reward those who wish to lock
This provides much greater value for users who wish to increase their veMAGMA position relative to those who wish to sell their emission rewards. Here is an example of the two options, for a user who just received an amount of oMAGMA with a nominal value of $1000, and a discount rate set at 35% for converting to MAGMA, and a 70% discount for converting to veMAGMA.
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