DeFi Deep Dive: Olympus DAO

R.F. Capital Alpha Score: 93

With all of their positive momentum over the past months, Olympus DAO has lead the narrative of DeFi 2.0. Reversing the way protocols accrue value by owning it rather than renting. They are offering staking rewards of over 7,000% in this new model! How are they achieving this and not destroying the price of their token? Let’s find out.

Olympus has announced their V2 upgrade that has 3 major aspects. First is the introduction of their DAO or as they call it, On-chain governance. This will be rolled out in three phases starting with a guardian multisig, an on-chain governed treasury, and on-chain governed bonds. The governance token will be called gOHM which replaces the current wsOHM. In a welcomed improvement they are also allowing users to switch in and out of gOHM without paying expensive gas fees.

Bonds have also undergone quite an overhaul including most notably:

1. Bonds can be held as NFTs, enabling a liquid secondary bond market.
2. Bonds can be fixed term or fixed expiration allowing them to be traded like any other ERC-20.
3. New bond types are created as isolated offerings improving immutability and budgeting.
4. Bonds no longer vest linearly, instead bonders must wait until the end of their term to redeem.
5. Bond payouts are staked at the time of purchase in order to minimize market pressure and maximize efficiency.

Even more exciting for us is the fact that all new contracts will be audited. They will be running these audits with Runtime Verification sometime within the next month. This added level of security should help legitimize them to an institutional grade product.

Olympus or OHM has performed relatively well compared to others at a similar market cap. They have outperformed their contemporaries over a 60 day time frame by returning 230% compared to just 46% from the rest of the field. Boiling it down to even a 30 day outlook, OHM has appreciated by 89% while others have trailed at an average of 28.9%. OHM currently sits at a market cap of an impressive $3.8 billion which has grown by 10x since this past September.

History

Olympus DAO launched in March of 2021 with an astounding staking APY of over 200,000%. Olympus was generated on the Ethereum blockchain so it can be expensive to interact with their product for lower net worth individuals.

The public face of the project is an anonymous developer who goes by Zeus. He focuses on building a community around his offering that allows people to win together with the growth of his Olympus protocol. Most of the other major members of the team are also anonymous.

Capital Funding

The initial fund offering was done via Discord which they termed as an “Initial Discord Offering” (IDO). The individuals in their Discord account before March 3rd that did not live in the United States were able to buy OHM at $4 per token and launched at $8.

The genesis launch of the token entailed 50,000 tokens to the community that bought the IDO. Another 18,260 was added as initial liquidity for a total of 68,260.

Over 90% of the OHM in existence is staked back into the protocol which allows Olympus to procure more assets for their reserves. Further adding stability to their platform.

What Does It Do?

OHM is a free floating asset that is not pegged to any currency but rather backed by a basket of treasury assets. Currently the trading price is almost 10x the value of these backing assets which means at this point the high value of over $1,100 is speculative. The treasury is growing to hold more than stablecoins like DAI and FRAX. Ethereum is being added which helps to bring value across all of DeFi with this ETH locked in Olympus at such scale.

A term that is newly created by them is called Risk Free Value which is basically the floor price that is backed by the treasury in case of a bank run. This is currently sitting at around $180. There are a few use cases for the OHM token which revolve around Staking and Bonding.

Staking

Staking is how new tokens are minted over time at a varied rate designated by the amount of assets in the treasury. Stakers are incentivized with high APY in order to leave their OHM with the protocol. Rewards are paid out every 8 hours and are automatically compounded rather than the end user having to re stake them at high cost. This rebase mechanism for stakers has been dubbed as “3,3” by the community.

Bonding

Bonding is possibly even more important to Olympus than their staking mechanism because bonds are how the protocol is able to buy back OHM at market price as well as purchase assets to continually grow their treasury. While they grow their protocol controlled value, the amount of OHM that is issued through staking can continue to increase over time. This bonding mechanism allows Olympus to flip the previous yield farming methodology on its head. Before, protocols were essentially renting liquidity from the community with massive incentivized rewards. Once these rewards had dried up, liquidity providers move on to the next play and the cycle continues. With this new method of the Protocol Owned Liquidity, Olympus is not reliant on this rented liquidity from the community as it is the community that purchases these bonded products to continue boot strapping the protocol.

What’s their vertical?

Olympus is taking on the reserve currency or store of value sector in a brand new method. Rather than being pegged to the dollar, it is backed by its treasury assets for underlying value. This monetary experiment feels like a decentralized version of the Federal Reserve where policy is governed completely by token holders in ways that benefit all rather than the select few.

Tokenomics

Currently there are 4,546,676 OHM tokens in existence. The reward rate will remain in effect until the circulating supply passes 10M tokens as liquidity locked is currently at 90%+.

New tokens are minted every 8 hours to stakers of the OHM token as well as sold via bonds at a discounted rates to those that would like to purchase it directly from the protocol.

Despite the inflationary aspect around the increased staking incentives that will continue to decrease over time, bonds are the keystone mechanism of this protocol. Those benefits were previously discussed but it has thus far allowed the DAO to own over 98% of its own liquidity, earn LP rewards from it on DEXs, and continue to issue more of their OHM reserve currency. The DAO can also burn tokens from circulation if they feel inflation is getting out of hand.

At the moment, there is no way to leverage OHM within the protocol in order to accelerate the staking rewards but there is a method that can be done and has had quite a bit of success for those partaking. Staking is referred to (3,3) by the Olympus community while this leveraged option is called (9,9).

While staking OHM, you will receive sOHM as your LP token to represent your future unstaked balance of OHM whenever you decide to retrieve your liquidity. Utilizing Rari Capital’s lending/borrowing portal called Fuse, one can borrow stablecoins by using sOHM as collateral at a varied LTV based on risk tolerance. Using this method, people are able to increase their staked OHM by 25–50% while only having to pay off a loan that is 55% APY which is small potatoes compared to the 8000% they are making from the staking mechanism.

Roadmap, Progress, and Sentiment

Their roadmap has been consistent over time, delivering innovation and improvement along the way. With the most recent V2 launch already underway, the protocol increases their security and longevity. While integration of a larger diversity in what the treasury assets contain will take more time, it is clear that the new bonding mechanisms and security measures will lead to larger institutional interest. Finally allowing larger players justify moving billions in capital to their smart contracts in confidence.

As previously stated, the market cap has steadily risen over time from $50 million in April 2021 to currently at $3.8 billion with increasing volume. This rise to nearly the top 50 in market cap has come while almost all meaningful trading volume is on decentralized exchanges. Their public sentiment is scored an 88/100 from Coin Rank for their community building efforts across socials.

There are quite a few forks of Olympus launched or pending launch on Ethereum, Avalanche, Terra, and others. Some of them will be hard to take seriously as the intention behind those projects seems mostly about generating large returns without as much care towards long term health of the protocol. Not all are as greedy as saving the environment is tied to recent fork Klima DAO. It is to be seen if any of these forks will come close to having the impact that Olympus has but similar to how Sushiswap innovated far past Uniswap, we can imagine that one of these forks will bring something fresh to the model at some point.

The Bottom Line

Olympus DAO, with their mostly anonymous leadership, has become a leader in what many call DeFi 2.0 protocols. The reality that they have solved the yield farming problem to sustain large yield for their stakers without the issues of impermanent loss from past liquidity mining programs is something to be celebrated.

While this model of Protocol Owned Liquidity is under a year old, it has shown us what the future of the Federal Reserve may look like. Time will tell if this model can continue to deliver the incredible yield to its stakers or if there is a ceiling that can be hit if people stop buying bonds or unstake in droves.

One thing is absolute, the future of finance will not be brought to you buy the bankers or Gary Gensler. It is innovations like Olympus that continue to push the borders of what finance can do for us.