Understanding OlympusDAO in early autumn 2021
There is a DeFi protocol that achieved the following metrics in a little less than six months.
- $1B Market Cap (99th place onCoinGecko)
- $180M asset in the treasury
- $960M TVL
- 15,000 token holders
- Treasury holds +99% of its token liquidity
- $3M revenue in 7d moving average(as of 19th Sep 2021)
- Have assets that can payout +7,300% APY to holders for approximately one year
Its name is OlympusDAO. What is Olympus and why is it so special? How could they achieve these numbers in six months? Let’s break it down one by one.
In fact, it is not an easy task to fully understand Olympus in one article. Olympus is a DeFi protocol, but at the same time, it is similar to an airplane. Various parts of the aircraft are interlocked, and there are many things to be considered simultaneously. Olympus continues to evolve as an organism, meaning this article will be outdated in just a few months. Still, let’s look at what Olympus has achieved so far and how it has worked in many ways.
Reserve Currency
The term ‘Reserve currency’ may sound daunting at first, but one can consider the dollar TradFi counterpart. Since the purpose of DeFi is literally Decentralized Finance, it aims to break away from being issued and controlled by the U.S. Fed(or other specific country or organization). Ironically, however, the most commonly used Stable-coin is pegged to the dollar. The goal of Olympus is to create market-driven floating digital currency.
Not Pegged, but Backed
The Stable-coin mentioned earlier, is pegged to $1. However, Olympus’s native token, $OHM is backed, not pegged. What does this phrase which has become a meme, mean?
The protocol supports 1 OHM being backed by least 1 DAI. If 1 OHM falls below 1 DAI, the protocol buys back $OHM and burns it to support the 1 DAI backing. However, there is no price cap, so the price floats on 1 DAI. In other words, backing means that it can be equal to or greater than 1 DAI.
This means the price of 1 OHM can be determined by the market. The initial price began as supported by 1 DAI, but as the protocol began to make profits, it began to create RFV(Risk-Free Value), and it could be maintained at a higher price than RFV at least.
Why a Premium?
Then why is $OHM traded at a price higher than 1 DAI or RFV? Naturally, people invest in the future of the business value of this protocol, but basically, Olympus provides high-interest rates to stakers.
Users who stake $OHM receive interest in $sOHM every 2,000 Ethereum blocks(approximately every 8 hours) via the protocol’s rebase mechanism. The interest is automatically compounded.
The number of $sOHM from users increases exponentially over time through high-interest rates, and using the APY as of September 20th, 7,457%, it accumulates 0.3957% per rebase. So if someone starts with 1 OHM today, in a year, they will have approximately 1*1.003957^(³*³⁶⁵) = 75.51 OHM
If someone has kept staking the entire 141–142 $OHM from the IDO through September 13th, it would currently amount to $1M(The APY was higher than 200,000% at the beginning).
You might have some questions at this point. Isn’t it a loss if the price falls regardless of the amount of $sOHM increasing?
As described above, 1 OHM is guaranteed to be backed by 1 DAI. And based on the numbers above, around 6% of the amount will be accumulated per week. In conclusion, that’s why you don’t lose money if you hold $sOHM for a long duration.
What happens when people sell it all? We call this a ‘Bank Run’ situation. There is a detailed description of this in our GitBook.
Liquidity Issue
You might have a question regarding where the high APY comes from? Before thet, let’s look at one more issue.
If you’ve invested in DeFi, you won’t be unfamiliar with high APY or APR. But how did those end? According to the laws of supply and demand, inflation causes prices to fall. This be a significant risk for investors because dumping is the end result in most cases.
Because it is burdensome to provide liquidity to the market from the protocol side, it asks users to purchase this token and pays high interest in tokens in return for lending to the market for a while. Although this is necessary to bootstrap the liquidity in the early market stages, it’s very expensive and causes a vicious counterproductive cycle over time. Furthermore, users can withdraw their liquidity at any time.
This is a problem that many in DeFi have. There was no case alternative, complete solution for this until Olympus appeared.
Bonds
Most protocols rent tokens from users to bootstrap the market but it costs a lot and has a high risk of unstaking liquidity.
Olympus introduced a Bond mechanism for the protocol, giving users a chance to buy $OHM much cheaper than the current market price and with a vesting period(5 days) before redemption(you can redeem 20% of it per day during that period).
Bonds can be purchased in the form of DAI, DAI-OHM LP, FRAX, FRAX-OHM LP, wETH, and through this users can purchase $OHM at a discount by handing their asset over rather than lending their LP to the protocol. This also allows the protocol to stabilize the liquidity of $OHM.
This is completely different from the conventional way DeFi has bootstrapped liquidity and is also innovative because token discounts can increase the liquidity possessed by allowing users to give up LP or other liquidity, and lock it for a certain period of time!
Please read ‘Introducing Olympus PRO’ about Bonds more.
The profits from bond sales are used to issue more $OHM. For example, if there are 2,000 DAI from revenue, the protocol issues 2,000 DAI, of which 90% is distributed to stakers and the remaining 10% is distributed to DAO. This is where the high APY comes from!
Does it look like the bond sales are not a big deal? Check the ‘OHM Financial Statements’ sheet shared by our King @Asfi. From June 21st to July 21st, Olympus made a profit of $12M. Through bond sales, it accumulated enough assets to payout high interest rates for about a year.
So, the protocol mints $OHM and distributes it to stakers? What happens if Bonders redeem $OHM and sell it?
(3,3)
Sharp ohmies may have noticed that the protocol can make profits and maintain a high APY when the protocol holds most of the liquidity and issues bonds. This was made possible by the core team and policy team with giga-brains. Also, they realized that in order for it to happen, everyone had to work together to stake (3,3). The more people maintain (3,3), the protocol becomes stronger because more liquidity is supplied to the protocol.
About (3,3), please read the ‘The Game (Theory) of Olympus’.
The power of the Olympus community was mighty. All of these were experiments, but as it succeeded, countless ohmies began to emerge in groups and numerous memes and cultures were born.
Can’t fork the community
I’ve seen a variety of things since 2016 in the crypto industry, but after I met Olympus, it changed the meaning of ‘community’. The crypto community I’d seen has been mostly a ‘speculator group’(not all of them). This was far from the healthy and self-sustainable community we usually think of when we think about the term, community.
However, Olympus’ community held festivals, made memes and played poker together while developing the power of 3,3. Beyond sharing opinions and being in one channel, it has become a true community by actually maintaining the power of Game Theory. We don’t have to know each others’ faces. I discovered a true crypto community for the first time here. The word ‘community’ has been used countless times, but it seems we have finally discovered a true crypto community.
Olympus is one of the most active crypto communities in Discord. Wherever you go, people are welcoming and waiting to solve your curiosity and help you with your problems. So that they become ohmies. In addition, ohmies have become present in each other's daily lives. Examples include sharing their health status, music, books, and games with each other.
There have been several attempts made to imitate Olympus. But most of them failed because the structure of the protocol can be copied, but the community cannot be forked! Now, the community has become one of the biggest assets of Olympus.
Olympus is waiting for FOHMO 3 festival this week following the successful FOHMO 1 and 2.
DAO
In a DAO, anyone can propose a policy and vote together. Policies which are important to the protocol are mostly proposed and announced by key members(I have never seen a DAO with such active and strong governance). As it was said, the true community was discovered via Olympus, the same as the DAO. It has good composition and operation, which has been amazing to see and participate in.
Unfamiliar with DAO may ask the question, what if the protocol change suggested by the key members go in the direction of ruining the protocol? It sounds possible but hasn’t happened so far due to the members giga-brain make-up.
The DAO is divided into a community&content, marketing, creative&design, odyssey and operations with the team leaders ‘stratego’. Dozens of great ohmies are participating and anyone can join. The DAO is not yet perfect, but it functions without critical issues and continues to grow and advance. It is becoming a model for decentralized organizations.
@shadow’s Dune Dashboard, which shows various indicators of Olympus has become the most used dashboard in Dune Analytics.
The Olympus Agora (3,3) is a media group that tells various news stories and is run by community members.
In addition, various communications are overflowing in our Reddit community and Korean Korean KakaoTalk over Discord and Twitter.
The ecosystem in Olympus Pro
It may be too early to call it an ecosystem yet. However, if you look back on what has happened so far and predict what will happen in the future, you can see the ecosystem has already begun.
Olympus is creating an ecosystem as it has started a Bonds program with Alchemix. If adopted, Olympus would take a 3.3% of the fee on all ALCX bonds sold. What if more DeFi protocols adapt this? It will solve many of the liquidity problems in DeFi. Actually, it’s already happening. StakeDAO, Pendle, Frax, Float, and Indexed all are proposing to integrate Olympus’ bond program to themselves.
Not only is there Bond-as-a-service, but also official forks like KLIMA, Wonderland, OTC with xSUSHI and INCOOOM, Olympus Odyssey, and derivatives markets such as Rari Capital and Abracadabra.money
Can $OHM be the central currency of DeFi? I think yes, ANON!
Future
How many people trust the future of this protocol? How widely Bond-as-a-service creates an adoption to the market? How much will revenue increase significantly and continuously to support the treasury? These questions will affect the success of Olympus.
Personally, I think Olympus has a clearer intrinsic value than Bitcoin. The price does not only soar upward, but as it matures over time, the volatility decreases. Therefore, the possibility of $OHM operating as a reserve currency, will be increased.
Resources
There are many materials to read. Introducing a few things,
- Dune Dashboard by @shadow
- ‘DeFi Uncovered: Experiments in Money and Value’ by glassnode insights
- ‘What is Olympus Dao’ by Messari
- ‘OlympusDAO: Stability analysis during it’s expansion phase’ by 0xVentures
Lastly
It’s been around six months since the birth of the protocol. There was a lot of controversy regarding whether Olympus was a Ponzi or not. But the time for that doubt has passed. When we compare the price chart with the high APY, it shows everything.
Olympus continues to evolve. So I hesitated as to when to write this article. New things are happening even at the moment of writing. I hope this article will help new-ohmies understand Olympus, even a little bit…
