DeFi 2.0: OlympusDAO, OHM, (3,3) Review
Defi 2.0 is a term that is still finding its narrative through excessive APRs and multiple blockchains.
It’s followed by a few exciting projects that have launched well after Compound finance first started the entire liquidity yield farming craze just over a year ago. More specifically, Defi 2.0 is almost synonymous with projects like Olympus and Wonderland, which are trending hard and fast right now.
In under a year, OlympusDAO has grown to a value of $3,582,427,163 locked and continues to grow. Users are in awe of the massive returns and APR of these protocols that it’s attracting all kinds of capital and not only from the crypto community! This means that if you invested $1,000 in OHM today and staked it for a year, you would have $80,000 at the end of the year. This result is, of course, if its APY of 8000%+ (an APR of ~440% compounded three times daily) and the token price remain the same.
OlympusDAO ($OHM) has been in the limelight as of late in the DeFi world, and it’s sparked a bunch of forks (most notably Wonderland) following in its footsteps. Why are these protocols being talked about, and what makes them unique? As we pull back the layers of these protocols, we’ll hopefully offer you some more clarity on these protocols (and their tokens) and how it all fits in within the new world of Defi 2.0.
The Move to Defi 2.0: Why Is It Important?
To understand why Olympus has taken hold within the DeFi community. It’s essential to understand the differences between Defi and Defi 2.0. In short, DeFi 1.0 has become too much like traditional finance that crypto users were trying to avoid.
OlympusDAO: Entering Olympus
OlympusDAO is one of the first protocols that came about in this new wave of DeFi 2.0, and it has some lofty ambitions. It wants to be a trustless, decentralized crypto reserve bank backed by a basket of crypto assets.
This aim, of course, draws parallels to the gold standard monetary system where a country’s currency has a value directly linked with gold. As we all know, the gold standard is no more in modern monetary policy, and almost every fiat currency is backed by nothing. Therefore, creating a need for alternatives. Could it be OlympusDAO? Well, time and probably money will tell for sure. So far, however, it’s looking good for the protocol.
Remember, DeFi 2.0 changes the relationship with capital holders. Instead of renting liquidity, protocols aim to own their liquidity. Users with capital sell their assets to the OlympusDAO treasury to receive discounted OHM tokens in their process called “Bonding.”
The assets in the treasury provide revenue for the protocol and increase the risk-free value for each of the tokens. Users are then incentivized to lock away the tokens that they receive through this process byways of staking. Thus, taking away selling pressure from the market.
$OHM Token: Creation & Value
What about its native token OHM? Straight from the OlympusDAO FAQ, “OHM aspires to become an algorithmic reserve currency backed by other decentralized assets…OHM provides free-floating value its users can always fall back on”. What the heck does that mean?
To put it in another way, OHM is trying to be both a store of value and also a unit of exchange. And through OlympusDAO, the OHM token is issued and managed based on its monetary policy.
Therefore, OHM neither wants to be a purely speculative store of value like Bitcoin nor does it want to be pegged to a certain amount like a stable coin like USDT or USDC. It sits somewhere in the middle.
I’m not going to bore you with too many equations or numbers, but here are a few interesting points about the OHM token:
- Because OHM has a free-floating value (its price fluctuates depending on the free market) and is not pegged to the US Dollar, it avoids the monetary policies of the Federal Reserve or the US government. And thus, it mostly avoids inflation and the depreciation of the dollar.
- OHM is backed by assets and liquidity in the treasury. Remember the process of creating new OHM tokens (Bonding)? The assets that you sell to Olympus are kept in its treasury which produces revenue for the protocol and increases the risk-free value of each OHM token. See graphic below:
- As mentioned before, staking OHM tokens is incentivized due to its massive APY. Almost a whopping 8,000%+ APY at the time of this writing. However, this APY is practically a marketing device to attract new capital.
You’d still get significant returns, but the deal is that although your OHM would increase exponentially, there would also be many more OHM tokens in circulation as well (in which other people are looking to sell). But here’s where it gets more interesting: as people unstake to sell or dump their tokens, APY will increase and thus, attracting capital to participate in Bonding/Staking. It’s extremely clever.
Wonderland.Money: Following The White Rabbit
From the success of OlympusDAO, a bunch of CTRL-C, then CTRL-Vs followed. In other words, forks or copies of the project’s code trying to chase the same success that Olympus had gained. In crypto, all projects are open-sourced. The code is available for people to verify that the code aligns with the features or maybe even create their version of the protocol.
With OlympusDAO forks popping up one by one, there are more than 30 forks, according to some DeFi influencers at the time of this writing (and probably will continue to increase). Among the forks, Wonderland is far and away the most popular.
Its popularity is likely due to a couple of things:
- Daniele Sesta, one of the founders of Wonderland, is known as a DeFi whiz and has worked on other successful projects such as $MIM and $SPELL on the Avalanche blockchain.
- Although Wonderland is a fork, it was built as another part of the growing and already popular MIM ecosystem on Avalanche, which allows for different synergies than Olympus DAO (more on that in the section below).
- Avalanche is another layer 1 blockchain that offers a high throughput and low fees. Therefore, users that are sick of Ethereum gas fees are more likely to put money into Wonderland.
As explained above, since Wonderland is a fork, the protocol largely remains the same. See the quick comparison table below of the two protocols:
The Meme (or $MIM) Ecosystem: Deeper In The Rabbit Hole
Although Wonderland has the same concept and game theory as OlympusDAO through its minting and staking system, one thing elevates this protocol from other forks.
There’s a whole ecosystem built already on the Avalanche blockchain that Wonderland can make use of. This ecosystem by itself can be an entirely separate article, but I’ll outline briefly how deep this hole can go if an individual wants to maximize ROI but, in return, increase their risk.
The internet loves to meme things into existence and provides value to where there was none. The blockchain is no different. Inside Abracadabra lives the meme and the $MIM (Magic Internet Money).
If Wonderland is a protocol that is the reserve bank for internet money, then Abracadabra is the place you lever up that money. It’s the place where you can borrow stablecoins on assets that are producing interest. If people are already staking on Wonderland, they might be tempted to borrow against their staked Time token.
Borrowing also has an interest rate, but in most cases, your interest from your assets is outpacing the borrowing rates…effectively borrowing free money. Magic Internet Money or MIM the stablecoin. You may laugh, but it’s extremely capital efficient. People who know what they’re doing can maximize returns for assets that weren’t being used for anything (other than sitting there accruing interest).
When you borrow, there are associated risks, like liquidations (losing your collateral or money you put up), so it’s something to note and be aware of.
Wait, Isn’t This All An Elaborate Ponzi Scheme?
In general, a Ponzi scheme is a fraudulent investing scam that pays older or earlier investors with the funds from new or recent investors. Here are a few characteristics that almost all Ponzi schemes have in common:
- An investment scheme or product which guarantees or promises extremely high returns with a claim of little or no risk of financial loss.
- Funds from new Investors are taken in, and financial profits are paid to earlier investors with funds from more recent investors.
- There is no actual working product or service.
For both OlympusDAO and Wonderland, at no point are any of the early stakers being paid by the newer participants in the protocol. The “money” they receive is in the form of token rebases (a mechanism by which your staked OHM or TIME balance increases — When new tokens are minted, a large portion of it goes to the stakers).
In other words, the APY is calculated through the amount of OHM or TIME issued, not how much money you’ll be able to make from the protocol, which is the clear difference.
What’s Next For Defi 2.0 and These Protocols?
While OlympusDAO and its forks are leading the charge for Defi 2.0 currently, some innovative new protocols and assets are being developed with the same values in mind.
These values are:
- Being backed and not pegged.
- Having intrinsic value through crypto native reserves.
- Prioritizing decentralization and transparency.
One of these new projects is Brinc Finance and its token $BRC. $BRC is a digital asset that can only be bought by depositing funds into a reserve i.e. a public Ethereum wallet address; one hundred percent of $BRC tokens in circulation are backed by these reserve funds. This means that every $BRC token is backed by the funds that were used to purchase them as opposed to the majority of cryptocurrencies which do not have any form of reserves or backing.
The minting, burning, and control of all $BRC tokens are completely done by smart contracts so that the token supply of $BRC is always decentralized and free from manipulation or arbitrary actions of the team behind the project.
No one, not even the founders, team, or community receives a single token without paying i.e. depositing to reserves.
There are also no investors who benefit from buying in earlier than everyone else just because of their track record and brand power. $BRC is the first decentralized cryptocurrency asset that is fully backed with an increasing price curve powered by math and code.
What makes Brinc different from all previous crypto projects is that it is providing real intrinsic value:
- Each token is backed by DAI reserves held on-chain
- The protocol generates fees on the buying and selling of BRC token supply
- The reserves (DAI) can be reinvested into third-party DeFi protocols in order to generate income and value which increases the treasury base
Conclusion
What drives the OHM (and TIME) token price is user adoption for staking to receive the abnormally high nose-bleed APRs that are automatically compounded returns three times a day.
What is fueling the returns is user demand for yield as opposed to any other real utility, which is fine as Olympus has found a novel and technologically savvy crypto-economic primitive. So far, it has gained a lot of traction from the crypto community.
In the grand scheme of things, it’s still early, and both protocols are optimizing for growth and wealth creation. Therefore, the inordinately high returns people are making will eventually slow down and stabilize, returning to the original thesis of the protocol and token. That is: to provide a store of value and unit of exchange backed by crypto native assets.
