OtterClam Protocol Upgrade
CLAM has a new buyback mechanism when the market price of CLAM is below it’s backing price (USD value of treasury / CLAM supply). This mechanism slows or stops new CLAM emissions, and utilizes treasury rewards to create constant upward price movement until the market price of CLAM reaches its backing price again. Once market price = backing price again, emissions begin again and treasury rewards are reinvested.
The Otter Treasury has also been restructured to earn additional yield (which allows for stronger buybacks and higher backing price), and to maximize rewards in Qi for governance power in the QiDAO ecosystem. The intent is for OtterClam to be a major influencer in Qi vault rewards distributions, which incentivizes investors to buy PEARL to gain greater influence over QiDAO rewards through OtterDAO votes.
Gather ‘round the lake, Otters!
There is exciting news from the Otter Kingdom, and it has a major impact on our CLAM token.
First and foremost, I’d like to briefly review CLAM’s tokenomics and the ongoing developments of OtterClam for context in today’s article. With that in mind for comparison, we can then move into the major protocol updates that have just taken place via OtterDAO vote. These updates improve CLAM tokenomics, and by extension, OtterClam as a whole.
Two CIPs (CLAM Improvement Proposals) have been voted on and passed in the last month, along with other developments. This article will focus on these two proposals, and how they affect the health and long-term outlook of the OtterClam protocol.
Previously, CLAM attracted attention through its high APY stemming from elevated emissions (hyperinflation), giving you many more CLAMs than you started with. A buyback mechanism served as a backstop in the event of CLAM dropping to $1 (technically, 1 MAI).
At that point, the protocol would use treasury funds to buy back CLAM and burn it, raising the price above the $1 threshold. These mechanisms were coupled with a certain amount of price stability from our new time-locked PEARL chests (if this is new to you, you can catch up here and here). PEARL chest functionality is unaffected by the updates covered in this article.
There are also a lot of promising developments coming down the pipeline, such as our Otto Genesis NFT Collection which is slated for March (more info on that here), which includes CLAM-burning as a function of the minting process. There is also the construction of the Otter Kingdom in our Sandbox plot. These developments are still underway and contribute both directly and indirectly to the organic demand for the CLAM token.
Now that we have gone over the original protocol mechanics, let’s talk about the recent upgrades. There are two that are already in place and one more to be deployed in the near future.
Redesigned Buyback Mechanism
The first major upgrade changes how the Otter Treasury interacts with and supports the CLAM token. The old buyback mechanism sufficed as an emergency safety net and for some investor peace of mind, but would result in loss of treasury funds if executed.
This degradation of treasury reserves could have threatened the long-term viability of OtterClam. Furthermore, the “hard” backing at $1 isn’t exactly reassuring for any CLAM holder who bought CLAM above $1 — which is currently all of them. OtterDAO thought that this could be improved upon, and so our Otters took action.
Thanks to CIP008, which was voted on by the DAO in mid-January, the Otter Treasury now earns LP rewards with about half of its reserves. CIP010, which just passed a vote at the beginning of February, will now leverage these new LP rewards to directly benefit the CLAM token.
Prior to CIP010, new CLAM emissions were quite high, which was the basis for such a high APY for our PEARL chest holders (even with previously high emissions, there are still only about 560k CLAM currently in circulation, because the protocol started from 0 CLAM). Alas, such APY comes at a cost, in the form of dilution. As we mentioned in one of our first Medium articles, these mechanics were never designed to be sustainable in the long-term. CIP010 represents step 1 in the evolution of the CLAM token.
A “backing price” for CLAM has always existed. It is calculated as follows:
USD value of the Otter Treasury / circulating CLAM supply
Before CIP010 was passed, this backing price was really nothing more than a gauge of how healthy the treasury was in relation to how many CLAMs were in circulation. After passing the vote, CIP010 removed the “hard backing” at the $1 mark completely, and instead moved to a “soft backing” at the actual backing price. What does this mean for CLAM?
You can see on our Dashboard that the backing price of CLAM is currently around $4.85. That is higher than the current market price of CLAM (which is about $3.60). When the CLAM price is lower than the backing price, new CLAM emissions stop, and yield rewards from the Otter Treasury (new rewards, not underlying principal) are used solely for buying CLAMs and passing them along to PEARL chest holders and stakers (if you’re unfamiliar with the relationship between CLAM and PEARL, there’s a helpful article explaining that here).
This buyback mechanism creates protocol-driven buying pressure, continues to reward long-term holders (although at a reduced rate compared to when they received new emissions), and does not degrade existing treasury funds.
The buybacks will continue until the CLAM price is above the backing price, at which point CLAM emissions will resume, and Otter Treasury rewards will be reinvested instead of being used to buy more CLAM. The higher the current CLAM price is above the backing price, the higher the new CLAM emissions will be until the standard emission rate is achieved.
To prevent undue selling pressure in the future, emissions in general will not return to prior levels. Even without emissions, however, and with only CLAM buybacks being passed to long-term holders, the APY for the 180-day chest still offers approximately 320% returns. That’s notable for a token that is currently experiencing sustainable upward movement by the protocol’s design, without even factoring in outside buyers.
This development offers even greater peace of mind than the original buyback protocol, because the Otter Treasury has now been optimized to first reach, and then maintain the backing price, without the risk of depleting treasury reserves.
SuperCharging Treasury Yield, Focusing on Amassing Qi
The second proposal that passed, CIP011, only adds more strength to the new buyback mechanics set forth in CIP010. Remember that about half of the Otter Treasury is currently producing yield. Well, CIP011 is putting the other half to work. In addition, OtterClam is restructuring the treasury to earn maximum rewards in the QiDAO ecosystem (more on that later).
Our original treasury reserves consisted almost exclusively of MAI, FRAX, and CLAM. We maintained MAI/CLAM and FRAX/CLAM liquidity pairs on QuickSwap and SushiSwap, respectively, so our Otters can purchase more CLAM. CIP008 moved all of our MAI not providing liquidity on QuickSwap into the MAI/USDC farm on QiDAO to earn Qi rewards (currently around 14% APY). CIP011 took that a step further, converting all FRAX into Qi and locking that Qi up on QiDAO for 4 years. The locked Qi will be perpetually relocked. This will boost the voting power of our Qi and entitles us to dividend distributions.
Our previous FRAX/CLAM LP wasn’t getting much attention, so we sent those funds to the Qi/WMATIC farm on QiDAO for higher rewards (currently sitting around 70% APY). We will incorporate a Qi bond where Otters can contribute Qi to the treasury in return for discounted CLAM, and that new Qi will also be locked up for rewards and voting power.
This puts the entire Otter Treasury to work earning a handsome yield, which can be used to perform more buybacks when CLAM is below backing price, thereby increasing APY for all stakers, while raising CLAM’s price at a faster rate. When CLAM is above the backing price, those rewards will be auto-compounded to grow the treasury and increase the backing price for a future rainy day.
Now, there’s one more piece of the tokenomic puzzle that hasn’t been mentioned, and it’s a big piece. Our Otto Genesis NFT Collection drops next month, along with our very own NFT marketplace called PAW Market. The NFTs will be minted with CLAM and that CLAM will be burned. There will also be breeding of Otto NFTs and customization options, all requiring CLAM.
When released, all of the new NFT activity in the PAW Market will create a constant burn of the supply, both raising price and backing price. With the circulating supply being so low at the moment (560k CLAM), these impacts could be significant.
From the token’s humble beginnings just 4 months ago, the brain trust at OtterDAO is creating a truly unique product in the DeFi space. Our new buyback mechanism from CIP010 creates a persistent tailwind for CLAM’s price.
CIP011 ramps up these buybacks with additional treasury yields, along with giving OtterClam a true niche position within the Polygon ecosystem. Finally, the CLAM burning mechanism from our impending PAW Market will create even more upward pressure on CLAM’s market price.
These upgrades and the innovative nature of the OtterDAO community ensure a bright future for the Otter Kingdom. If you’d like to know more about us, stop by our Discord by following the link below and check us out!
Raft together Otters!