What is Olympus DAO? What is Decentralized Reserve Currency? What is (3,3)? Evaluation of the Protocol “Bond” Structure model of Olympus DAO.
The DeFi market is going through the DeFi 2.0 season with new innovations that solve the difficulties of DeFi 1.0. Olympus DAO is one of the pioneering projects in this trend. This article will explain the operation model of Olympus DAO to you.
What is Olympus DAO?
Olympus DAO is a Decentralized Reserve Currency backed by assets stored in Olympus Treasury and 100% controlled by the community. The value of OHM will be maintained and stable over time, just like Dollars has Gold as a collateral, OHM also has assets stored in PCV (Protocol Controlled Value) of the project behind.
Specifically, Olympus DAO is the protocol responsible for creating a currency, $OHM, whose value is guaranteed by Decentralized Assets such as DAI, FRAX, wETH, which prevents the value of this currency from being devalued or over inflated like the dollar at the moment.
The remarkable thing about Olympus DAO is that it is completely separate from the usual game economy at the moment (specifically, the Liquidity Mining trend) by using the Protocol “Bond” Structure model to design the project’s economy.
Operation model of Olympus DAO
The model above gives us an overview of how the protocol works, specifically:
- Users buy OHM on DEXs like Uniswap or Sushiswap or use assets like DAI, FRAX or LP Token deposit into the protocol and receive OHM at a discount (details will be discussed below)
- After owning OHM, users take OHM to staking to receive sOHM which is a synthetic asset representing ownership of OHM in the staked pool
- After a period of time, users redeems the amount of sOHM they owns to receive the original OHM + ROI
Of course, this model does not include cases like waiting for OHM to increase in price and then selling (which is not recommended) or sOHM being used to put into lending protocols to unlock liquidity and earn profits.
The point to note is that when the user deposits this amount of LP Token into the protocol, the protocol will always own this token and the user will receive back the OHM token as a result of the liquidity contribution to the project.
→ The project owns the liquidity, not the users.
Use the Bonding mechanism to buy Discounted OHM
In addition to buying OHM directly from AMM DEXs, users can buy OHM discounted compared to the market price by depositing assets such as OHM-DAI LP, DAI, LUSD, OHM-LUSD LP, FRAX, OHM-FRAX LP, wETH and get OHM Discounted. OHM Discounted will not pay immediately and will be vested after a period of time → avoid arbitraders from performing arbitrage actions.
For example: Currently OHM is priced at $1,000, you can use DAI to buy OHM directly from Olympus DAO at a -5% discount of $950/OHM. The condition is that you have to take a 5-day vesting time, i.e instead of immediately receiving 1 OHM, you will receive 0.2 OHM/day.
This is an extremely interesting and groundbreaking mechanism, when the project has completely separated from the liquidity mining model that has been used for a long time. More analysis of this model and its effectiveness are below.
Evaluation of the Protocol “Bond” Structure model and comparison with the Liquidity Mining Model
Current issue of Liquidity Mining
A recent Nansen study showed that 42% of LPs are out of farming pools after only 24 hours of joining and 70% of LPs are withdrawn after only 3 days of joining. Projects owning hundreds and millions USD of TVL, after 3 days that number is only 30%.
This is due to the rapid growth of yield farming, where projects compete to increase APY in turn to attract users to use their products, creating an endless spiral where Users joined the pool initially to receive a high yield, leading to a sudden spike in the token price, then exited all at once, causing the token price to plummet and repeat with other projects.
→ The problem is that the project does not actually own that liquidity, but only rents it, where the cost is the project’s native tokens used to pay the lenders (liquidity providers)
Protocol “Bond” Structure helps to solve temporary liquidity problems
Liquidity Mining opened an exciting Summer Defi when Synthetic or more specifically Compound opened that movement by allowing users to deposit an amount of LP Tokens to mint the project’s COMP token.
→ Assets owned by the protocol are only temporary as users only deposit assets into the pool to receive short-term yield and can exit at any time.
Meanwhile, Protocol “Bond” Structure is where users deposit assets into the pool and receive a token amount of the project. But the difference is that now the protocol is the owner of the token and the user will not be able to run away like before.
→ The assets that the protocol owns is permanent.
With the Protocol “Bond” Structure model, all assets deposited by users will be controlled by the project, so it will not happen that a group of users holding a large amount of liquidity suddenly withdraw their liquidity and dump it on those who come later.
The liquidity coming to the project will stay with the project forever and in theory the amount of assets in this treasury will always increase over time → along with the future value of the assets.
Evaluate the effectiveness of the Protocol “Bond” Structure model
The project shows a steady growth, which is different from the performance of projects using Liquidity Mining. The project’s volume of TVL and Treasury Assets has steadily increased day by day and TVL has reached the milestone of 2.3B after nearly 9 months of launch.
The initial signs show that the project grows very steadily and does not depend on market fluctuations (or in other words, the psychology of users). This is achieved because the project has held almost all of the project’s liquidity token, even the project has always announced that they are no longer dependent on the liquidity provided by users.
Currently, Olympus DAO owns over 99.9% of OHM liquidity (liquidity of pairs such as OHM -DAI, OHM -FRAX, …) in the market.
Why does OHM Staking offers a very high yield?
Olympus DAO creates a huge profit model, in the early stages APY can be up to 200,000%. High APY comes from 2 sources:
- Profits from Treasury (from selling Bonds, transaction fees, lending, …)
- Rebase rate: To put it simply, your profits will be reinvested continuously every 8 hours. Therefore, APY will be calculated as follows:
APY = (1 + Rebase rate)^365*3
Profits are compounded to increase APY, for example, Olympus DAO wants to have an APY target of 100,000%, every day Olympus DAO only needs to generate 1.63% Yield.
Currently, when it is big enough, Olympus DAO has a policy of reducing Yield’s source and focusing on project stability. Specifically, now Olympus DAO has reached a supply of 1,000,000 OHM, with a maximum APY 5 days of 0.3058%.
When the supply reaches 10 million, APY will decrease to 0.1587%, and continue to decrease when the supply reaches 100 million, 1 billion,…
What is (3,3)?
Those who observe the Olympus DAO a lot can see that they are very familiar with this phrase (3, 3), anywhere in the community, from discord, twitter, medium, youtube,… (3, 3) can watch as the slogan of Olympus DAO.
(3,3) is the best of all possible cases in the Olympus DAO “Game Theory”. When everyone benefits.
Game Theory is applied to the protocol, it will analyze the behavior and decisions of the participants. You can simply understand that each user will have a point (1), based on the activities, the point level will change differently, there are 3 main activities including:
- Staking (+2): The most profitable action, both helping to increase the value of the OHM token and the return for stakers.
- Bonding (+1): Not as high as stakes, but bonding provides assets to Olympus Treasury.
- Selling (-2): This action will hinder the increase in supply for OHM and cause a price drop if the selling quantity is high. Of course, Olympus will not encourage participants to Sell in the protocol, all will be incentivized for the common good of the community.
You might wonder why Stake and Sell with values of +2, -2, respectively, are worth 3, -3 in the table? Because Stake and Sell are 2 activities that have an impact on the price of OHM.
For example, when you want to Stake, you have to buy OHM, that increases the price of OHM, then your Stake reward will also increase. So when 2 people participate in Stake, the value they receive will be higher (because of the higher price) and they will receive (3, 3) instead of (2, 2) like the original.
Conversely, when many people sell at the same time, it will lower the price and reduce the Stake reward, creating a double negative effect, so the entire player instead of suffering (-2, -2) has to suffer (-3,-3).
Meanwhile, the activity of Bond has no effect on the price, so the value is always (+1).
The success of Olympus DAO has opened up a new way for other projects to follow instead of copying the exact model of using liquidity mining to distribute tokens to users. According to subjective assessment, we find this model very beneficial for the project because:
- Token price is not pumped or dumped too much in a short period of time due to high/low demand from users
- The project controls 100% of the liquidity.
- This model also satisfies both private sale buyers and true holders of the project, who will accompany the project in the long run.
This could be considered as a breakthrough product, opening up many new directions for the market to replace the current liquidity mining model.
How will projects like Olympus DAO benefit the Aurora/Near ecosystem?
Protocol Owned Liquidity (POL) could be used as a service to the projects launching on Aurora/Near. This will be useful especially for projects going multi-chain that suffer from lack of liquidity when they deploy on Aurora/Near.
Is there any projects like Olympus DAO on Aurora/Near?
Yes! Currently, we have up to 4 Decentralized Reserve Currency projects under development and plan to launch on Aurora in the near future.
Those 4 projects are:
- Etna DAO: EtnaDAO (@EtnaDAO) / Twitter
- Empyrean DAO: Empyrean DAO (previously Celestia) (@empyreanfi) / Twitter
- EROS: a sister project of Rose
- Renaissance DAO: an NFT-focused reserve currency protocol .
Disclaimer: This is a personal research article, for informational purposes only and should not be considered investment advice.
Thank you for reading till the end. Looking forward to receiving comments from everyone, thereby clarifying the author’s opinion.
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