Gnosis Wants To “Morph” OWL Into Yield-bearing Stablecoin

Gnosis Wants To “morph” Owl Into Yield-bearing Stablecoin
Gnosis Wants To “morph” Owl Into Yield-bearing Stablecoin
  • A discussion thread on the Gnosis governance forum proposes turning the OWL payment token into a stablecoin.
  • Furthermore, Gnosis should offer an interest rate, making OWL a yield-bearing asset.
  • While potentially problematic, introducing this new token model could make long-term prediction markets viable.

While the price of the Gnosis utility token (GNO) has increased more than sevenfold in the last year, traction for its payment token (OWL) has remained stagnant. Now, Gnosis has opened a discussion about turning OWL into a stablecoin.

The History of GNO and OWL

Originally, OWL was designed to be a semi-stable token where 1 OWL pays for 1 US-Dollar in fees on platforms affiliated with Gnosis, such as the prediction market protocol Omen. Users were able to claim OWL by locking up GNO for a short time in two token generation events in 2018 and 2019.

The reasoning behind the introduction of a second token was that OWL wouldn’t be impacted by market fluctuations as much as an unpegged utility token. However, like most other projects with a dual-token model, the payment token did not manage to spark much interest. While the price of OWL has been remarkably stable around the loose peg of 1 USD in the past months, its market cap is now less than 5 million.

In the forum of the Gnosis DAO, a discussion thread has appeared that seeks to revive the OWL token. The plan is to morph OWL into a yield-bearing stablecoin that is collateralized by all assets owned by Gnosis and that pays out a fixed interest rate. Users would be able to buy OWL from Gnosis in exchange for some other crypto asset, such as USDC.

Initially, the price at which Gnosis offers to buy and sell the tokens would be 1 USD and then gradually increase to reflect the interest rate. The result would be similar to a stablecoin that is vaulted on a yield-farming platform like Yearn Finance.

Risks and Benefits

Given that OWL already hovers around its USD-peg, it is questionable why Gnosis should introduce yet another unconventional token mechanic. Gnosis would also be responsible for somehow recouping the interest, for example by depositing the collateral on a DeFi or CeFi platform. This is turn would make Gnosis liable in the case the platform is hacked.

On top of that, the SEC may classify OWL as a security, since it is a yield-bearing asset that is managed custodial by Gnosis. While this step has the potential to bring more problems down the line, there is a good argument in favor of turning OWL into a yield-bearing stablecoin, since it is used on prediction markets.

At the current time, making long-term predictions with stablecoins is hardly profitable, since there is a plethora of investment opportunities that are more lucrative. Offering a fixed interest rate would give investors an incentive to use the token for making predictions and thus earn a second yield source on top of the interest rate.