Olympus: Currency Reimagined
Updated: Dec 16, 2021
The crypto market is fickle. This is especially apparent in decentralized finance (DeFi) where users seeking large annual percentage yields (APYs) may jump from project to project chasing the largest return on investment. This movement has been fatal for many DeFi projects due to lack of liquidity caused by a mass exodus of capital. Lack of liquidity can cripple any DeFi project no matter how sound its principles and tokenomics are. This happens because DeFi projects historically have not owned their liquidity. Instead, liquidity has been borrowed from users in short term windows sometimes as short as a few hours. If you’ve participated in the DeFi space you’ve most likely seen projects go from offering 80,000% APY to offering a negative APY in the span of a few days. This change wouldn’t be nearly as sudden if that project had owned some or all of its own liquidity. Olympus is the first DeFi project that owns its own liquidity. Olympus does this by backing every single $OHM with at least a single $DAI. $DAI is a widely used stable coin pegged to USD and backed by assets such as $ETH and regulated by MakerDAO. Today, $OHM is backed by a combination of three stable coins (DAI, FRAX, LUSD) and two regular crypto currencies (ETH, and SUSHI). At the time of writing this the Olympus treasury has a total of $174,553,083 in risk free assets and $760,032,208 in risk assets. Today, $OHM is backed by $163 and is trading at around $764. Even if every individual $OHM owner was to sell at once the Olympus protocol would buy all $OHM for $163 or higher. This backing allows for market speculation and ensures the protocol can successfully offer 7,000% APY. With the treasury structured the way it is today Olympus can offer a sustainable 7,000% APY for 316 days. All of these numbers are meant to fluctuate to support the longevity of the project. The stated goal of Olympus is to create a stable coin that is not pegged to the US dollar but accurately tracks and maintains its purchasing power. Olympus aims to be a free floating reserve that is backed by a large basket of assets that is able to maintain its purchasing power despite market fluctuations. As of today, most crypto is bought using $USDT (Tether) which is a USD pegged stable coin. We all know USD historically fails to maintain its purchasing power. Olympus is the first project attempting to dethrone USD pegged stable coins like $USDT to become the primary currency of exchange in the crypto market.
How does the Olympus protocol function?
Simply put, Olympus functions by minting $OHM for one or more $DAI and buying $OHM for less than one $DAI. This ensures that the protocol is always turning a profit. I will try to simplify and explain the basic function of Olympus, though the exact mechanisms behind this are complex and beyond the scope of this article. For further reading visit the Olympus protocol’s info page here.
Staking: Users buy $OHM and stake it through the Olympus website to earn rebase awards. Rebase awards come from the proceeds the protocol makes from selling bonds. The rebasing awards compound and are released every eight hours on average.
Bonding: Olympus secures its own liquidity through bonds. $OHM bonds are sold at a discount compared to the $OHM market price but are priced much higher than the 1 $DAI it costs the protocol to mint new $OHM. Through these bonds $OHM is vested to the bonder over a period of time. The protocol only mints new $OHM when $OHM is trading at a market price above the reserve price and always burns $OHM and buys $OHM back when it is trading below reserve price.
Those who bond benefit from a stagnant or upward price trend while stakers benefit either way. Because all of this is happening on a blockchain the protocol has up to date accurate data and may act accordingly. The smart contracts that govern Olympus have all been audited by Peckshield and Omniscia. Olympus is only about eight months old, and there have been no major setbacks. As with all DeFi projects we must be wary of things such as smart contract risks and admin key vulnerability. This monetary experiment has done exceedingly well up to this point. Olympus DAO has even started Olympus Pro which is a liquidity-as-a-service software. Olympus Pro uses similar smart contracts for bonding as Olympus does. Adoption of Olympus Pro has been incredible with DeFi projects like GroProtocol and Fantom launching on Olympus Pro. Olympus has already become a mainstay in DeFi and continues to innovate.
Who is behind Olympus?
Olympus was created by a pseudo-anonymous group of developers, which is in no way out of the ordinary for DeFi projects. The “head” developer of Olympus calls himself Zeus and has been the face of the project since its inception. Olympus is currently run by a DAO which votes on proposals of protocol change and has the power to dictate anything from how the Olympus website looks to what assets Olympus holds in its treasury. Community members are all allowed to propose changes and vote on proposals. All votes are weighted by the amount of $OHM or $sOHM the voter has in their wallet. Once a proposal reaches enough votes it is sent to the seven person DAO board who are tasked with vetoing only the proposals which are deemed malicious to the protocol by a majority of the seven DAO heads. This final check is to secure the longevity of the protocol and check potential minority rule. Olympus was initially funded by Zee Prime Capital, Nascent, D64 Ventures, Maven11 Capital and a few individual investors. Olympus has a transparent token distribution which can be seen in the picture below where 88.2% of $OHM is distributed to the community.
Olympus is a brand new type of DeFi project with a brand new type of tokenomics. The amount of forks we have already seen in the few months that Olympus has launched is astounding and heavily contributes to my bullishness on $OHM and Olympus DAO. Olympus is a long term project by design and is much less risky than some DeFi projects in this space offering similar APY. So far Olympus remains the most legitimate out of all its forks both in identity and protocol structure. With $OHM becoming exponentially more liquid on decentralized exchanges and liquidity pools choosing to participate is Olympus is a move that could place you smack dab in the middle of DeFi 2.0 season.
Written by David Coryat, Crypto native and Analyst at Istari Capital LP.
This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this report constitutes a solicitation, recommendation, endorsement, or offer by Istari or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. Please be advised that Istari Capital LP is invested in the project discussed in this article or in projects related to this article.