Dollar-pegged stablecoins dominate crypto and the dollar is controlled by the FED so basically we have given up crypto’s monetary sovereignty and opened crypto up to external dependencies that introduce systemic risk. While that was a logical risk to take in the early days, as we march towards mainstream adoption we should be aiming to regain sovereignty in the form of crypto’s own cross chain policy-controlled currency system. I think it’s pretty well understood at this point that Bitcoin is not a currency; it is money (an asset). The same goes for ETH, and any other “cryptocurrencies” out there today. The perfect currency holds the same purchasing power today as in 50 years. Hyperinflation is scary shit!
In Edward Rutherfurd’s novel titled PARIS, Paris is depicted as a ship because the land it first inhabited on the Isle in the center of the river Seine is shaped like a ship. The motto of the city in Latin was “Surgit Nec Mergitur” further defined as “Whatever the storm, the ship sails on. It never sinks.” Baron Haussmann made it official in 1853. That’s when “Fluctuat nec mergitur” (“He who rises with the wave is not swallowed by it”) became Paris’ official motto. *
"Olympus DAO is an attempt to create a stable currency (OHM) through managing a treasury of assets. Initially this treasury will consist solely of DAI and OHM-DAI Sushi LP shares. Over time Olympus DAO will add new collateral types and ultimately stabilize versus a basket." Messari
The pseudonymous trader, known in the industry as Tetranode, says the small-cap project Olympus Finance (OHM) has checked all his boxes and captured a small portion of his crypto portfolio. He notes that when evaluating newer projects, he steers away from those that have large venture capitalists involved, and looks for the projects that have a strong network of supporters.
OHM is an algo coin where the protocol captures all the value, from providing liquidity, and minting new coins, and returns it to stakers. Olympus DAO treasury will try to be productive somehow and you shall be able to put your staked OHM to work. So that you can maybe throw your stake into Alchemix and get a self paying loan. But that is the "future" and not decided.
A special part 2 episode for Olympus DAO, released just before the second FOMO event. Zeus lays out his ambitious plans for Olympus to be a decentralized central bank, how he sees OHM taking over DeFi, and ends the episode by dropping some crazy alpha. The conversation was sprawling but always fascinating.
First, let's do a Q&A
What is Olympus DAO?
Olympus is an algorithmic currency protocol based on the $OHM token. Its goal is to become a stable crypto native currency. It will accomplish that the same way central banks manage their currencies using reserve assets (i.e fiat, Gold, etc) but Olympus DAO manages $OHM using crypto reserve assets (currently $DAI). It aims to achieve stability while maintaining a floating market-driven price.
Backed not pegged.
At this point $OHM is backed by $DAI. Not pegged to it. Treasury backs every $OHM with at least 1 $DAI. Maybe with more $DAI, but definitely one today. You might say that $OHM floor price or intrinsic value is 1 $DAI. We believe that the actual price will always be 1 $DAI + premium or treasury value + premium in the future but in the end that is up to the market to decide.
How does it work?
OHM consists of a protocol managed treasury, yield generation, liquidity generating bonds/futures, and high staking rewards that are designed to control supply expansion.
When OHM trades above 1 DAI, the protocol mints and sells new OHM. When OHM trades below 1 DAI, the protocol buys back and burns OHM. This results in the Olympus protocol effectively managing a treasury that can be used to stabilize the value of an OHM token against the basket of assets held by the protocol. Olympus maintains more than enough reserves to account for the market buying/selling required during high-volatility days. The protocol plans to plug the excess treasury capital into yield aggregators (such as yearn.finance) to generate additional yield which is passed onto OHM stakers. (Find most relevant protocol metrics on Dune)
Bonds are a secondary strategy used by Olympus to provide more liquidity to the protocol while also providing a more conservative and reliable return. The bonding function allows you to trade for OHM at a discount to the price at the time of the trade (similar to a futures contract). Bonding provides locked liquidity in the Sushiswap pools that facilitate market operations and protect token holders. You will need an equal amount of OHM and DAI (in value). Once you add them to OHM-DAI Sushi liquidity pool you will receive a SLP which you then bond on https://olympusdao.finance/#/bond, and after a 5 day vesting period you sell bond to the protocol.
When you stake your OHM it gets locked in the protocol which means less OHM on the market - creating value for protocol. You can unstake whenever you want. Currently ~90% of OHM is staked. Staking rewards on OHM tokens are variable and are extremely high right now. (+100,000% APY, which accounts for compounding every ~8 hours by the protocol). The rewards are tweaked by the protocol in response to the eventual stabilization of OHM value. The goal of these rewards, which are a part of the current growth phase of the protocol, are used to drive users to grow the total amount of OHM they hold. This is counter to what usually occurs in the space, where buyers purchase tokens hoping they appreciate in value. Olympus wants to encourage the accumulation of more OHM, not just less OHM that appreciates in USD-based value. The community and developers expect that these APYs will compensate for the potentially lower price that OHM will stabilize at in the future (which is a function of treasury, yield, and market forces).
(3,3) is the idea that, if everyone cooperated in Olympus, it would generate the greatest gain for everyone (from a game-theory standpoint). Currently, there are 3 actions a person can take within the OlympusDAO protocol:
- Staking (buying) (+2)
- Bonding (+1)
- Selling (-2)
Given 2 actors, all scenarios of what they could do are shown here:
If we both stake it’s best thing for both us and the protocol. (3+3=6)
If one of us stakes & other one bonds it's also great because staking takes OHM off the market into the protocol, & bonding provides liquidity & DAI for the treasury. (3+1=4)
When one of us sells it actually diminishes effort of the other one provided by staking or bonding. (1-1=0)
When we both sell its Titanic. (-3-3=-6)
Protocol Controlled Value
Tokens can only be minted or burned by the protocol. Because the treasury must hold only 1 DAI for each $OHM, every time it buys or sells it makes a profit. It either gets more than 1 DAI for the sale of 1 OHM, or spends less than 1 DAI on the purchase of 1 OHM. 1 DAI is a guaranteed long-term price floor for 1 OHM. So you can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy $OHM below 1 DAI with treasury assets until no one is left to sell. You can't trust the FED but you can trust the code.
That’s a Ponzi!
Investopedia defines a Ponzi as a fraudulent investing scam promising high rates of return with little risk to investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. Both Ponzi schemes and pyramid schemes eventually bottom out when the flood of new investors dries up and there isn't enough money to go around. At that point, the schemes unravel.
First, the Olympus Protocol is not fraudulent. The technology is real and there is more transparency than any publicly traded company. The smart contracts that power Olympus are public and can be verified by anyone. The yields and treasury balances are updated in real-time in any ETH block explorer or through the dashboard on the website.
Second, all speculative financial instruments can only generate holder returns in one of two ways: 1) Grow its net asset value (NAV); 2) Achieve price appreciation such that later investors will buy from early investors at a premium. If you think a company or a coin is only worth the amount of cash it has, then Tesla is a Ponzi, as its market cap-to-cash ratio is a whopping 37:1 (as of Q1 2021) and does not generate a penny of dividend to shareholders. The Bitcoin protocol has a market cap-to-cash ratio of infinity as it does not hold a single USD, nor does it generate income not denominated in bitcoin.
Third, Olympus is not a piggy bank whose sole source of income is new infusions of cash. In fact, OHM has a compelling value proposition - it aims to become a crypto stable currency that is backed by real crypto assets in its own treasury (DAI, SUSHI, LP tokens, Bonds, etc as decided by the DAO). Currently, OHM has an intrinsic floor of 1 DAI per 1 OHM, but that's not its market price just as TSLA is worth more than the amount of cash it holds.
In OHM's growth and expansion phase, the premium of market value over intrinsic value will be high as the Protocol builds up its treasury. The buyers price-in the intrinsic value (NAV) and a premium of future dividend expectations. In OHM's mature and stability phase, the Protocol will convert OHM price volatility to supply volatility by conducting open market operations from its treasury to maintain the price of OHM at a market equilibrium price that balances supply and demand. The premium of OHM will then necessarily shrink. However OHM stakers will be protected as their supply will rebase accordingly to maintain their purchasing power. This is the opposite of what happens in a Ponzi scheme.
Why is the current market price $xxx?
It is extremely important to understand how early in development the Olympus protocol is. A large amount of discussion has centered around the current price and expected stable value moving forward. The reality is that these characteristics are not yet determined. The network is currently tuned for expansion of OHM supply, which when paired with the staking, bonding, and yield mechanics of Olympus, result in a fair amount of volatility. Price reached these levels because the market is ready to pay a hefty premium to capture % of current Market Cap. We would expect significant price volatility during our growth phase so please DYOR whether this project suits your goals.
Then what’s the point in buying it now?
When you buy and stake $OHM, you capture a percentage of the supply (Market Cap) which will remain close to a constant because the protocol will significantly increase your staked $OHM count over a 1 year time utilizing the compounding effect of the treasury mechanics. Since we are just starting, the market cap is low so you’d be capturing a larger percentage of it. It is logical to assume that the APY will be higher at lower market cap levels. These mechanics make the price of OHM increasingly irrelevant over the long term. Read on to understand how.
What is epoch?
Epoch is the period of 2200 blocks (roughly 8 hours). At the end of each epoch a rebase happens and profits made by the treasury during the epoch are distributed to stakers.
What is a rebase?
Rebase is a process of adding the staking rewards to your staking OHM total at the end of an epoch. Let’s say you have 1 OHM. That is your base. If you decide to stake that 1 OHM on Olympusdao.finance/#/stake you will see a parameter called Upcoming rebase there. Lets say upcoming rebase states 0.63%. This means that once epoch ends your base will be multiplied by 1.0063 i.e. you will now own 1.0063 OHM compared to 1 OHM before rebase. This amount is displayed as Staked. Staked is your new base. If upcoming rebase says next epoch will be 0.60%, once the epoch ends your 1.0063 staked OHMs will be multiplied by 1.0060 i.e. your Staked number will be 1.0063 x 1.0060 = 1.0123. This is similar to claiming your staking rewards, and staking every 8 hours on some other platforms, except, the Olympus staking system allows us to provide these compounding returns automatically, gas free - you don’t have to do anything.
What is APY?
The annual percentage yield (APY) is the real rate of return earned on a staked deposit taking into account the effect of compounding interest. It takes into account 3 epochs per day rebases with the number of days in a year (365). This means: If the rebase would stay constant at 0.63% in every epoch throughout a year - your 1 OHM staked would grow to OHMs after 365 days. Or as calculated; APY = (1+0,008043) ^ 1095 - 1 = 968.58 = 96,858%
APY is not linear but exponential!
It starts slow, but speeds up drastically the more the time passes by. Remember, every 8 hours, your sOHM auto-compounds without any intervention or gas fees.
Example of 2% a day compounding interest = 132,329% APY, over a one year period with 100 starting capital
Is the price kind of irrelevant long term?
By now you should be able to understand why we say so. Let’s say the market decides in 1 year time the Intrinsic Value of $OHM to be around $2. Now you are starting to see this expensive $xxx per OHM is simply just paying the premium of the long term benefits. Because your 1 OHM has grown to 1081 OHMs as previously described, and you have made nice $1274 profit. 1081 x $2 = $2162
But what will intrinsic value be in x years?
We don’t know. That value will be determined by the market based on our treasury performance. We would assume that it would be closer to the $2-$10 range than $100 - $1000. We have a great resource to help you explore possible scenarios. We suggest making a local copy of the calculator found here. Play with it, feel free to type in any price, rebase, etc and check out the outcome.
WTF is up with this high APY?
Let’s say there is 100,000 OHM staked, that it trades at $800, and that it needs 2% per day to pay the rebases of 0.66%. So protocol needs to mint and distribute 2000 OHM to pay the rebases. Because 1 OHM is backed by 1 DAI, the cost of 2000 OHM needed to pay rebases is 2000DAI = $2.000. At a market price of $800 per OHM, protocol actually needs to sell only 3 OHM to get 2000 DAI which will back those 2000 OHM
Last but not least, sending Aloha to all the Ohmies that worked on this ELI5 doc!!!