Hi friends 👋

The exciting and slightly terrifying thing about crypto is it is often not exactly clear if you are investing in the next revolutionary financial innovation, or a confusing techno-ponzi that is destined to come crashing down.

This cognitive dissonance/confusion is very much the feeling I had when I first looked at OlympusDAO.

Olympus DAO is an attempt to create an "internet-native reserve currency" called OHM [Full disclosure - I own a small amount of OHM].

Internet-native reserve currency is kind of a confusing phrase, so let's take a step back to understand what that means.

Why do we need an internet native reserve currency?

The strange thing about the crypto economy at the moment is the reliance on stablecoins, which many flee too when the market crashes.

When you think about it it is a bit ironic considering that one of the core aims of Bitcoin was as a way to escape the fiat financial system, and there are now over 100Bn in coins pegged to the dollar.

If crypto-dollars become the backup when the market dumps, it doesn't seem like crypto is creating much of an alternative to the existing financial system, but maybe just a mirror image with more memes.

Enter OHM

So the idea behind OHM is to create an asset that is stable, but not pegged to the dollar. By being backed by other crypto assets, it gives OHM a value below which it shouldn't (theoretically) fall below. Therefore it is a third way between existing stablecoins that peg to the dollar, and Bitcoin/Ethereum type coins that are not backed by any other asset.

It's a novel idea. But on top of that idea, there are two further innovations that are also exciting.

Olympus has two main components, staking and bonding. Staking is how yield from treasury assets is distributed to participants. At the moment the current staking APY is over 7000%. This is normally the thing that people notice first about Olympus.

Bonding trades the native token, in this case OHM, at a discount to the market price, in exchange for assets. By acquiring assets such as OHM-DAI LP, Olympus is able to own almost all it’s liquidity - around 600m of liquidity at present.

This bonding/staking mechanism has proven quite successful, with hundreds of millions of dollars of assets bonded into the Olympus treasury allowing it to maintain an APY of over 7000% at present.

Olympus also bonds liquidity pair tokens, and now owns basically all the liquidity for key pairs such as OHM-DAI.

This matters because it helps escape the problem that many earlier Defi projects had which is that as soon as they stop paying liquidity rewards, liquidity providers tended to move on to the next protocol and 'farm' that one instead.

By owning it's own liquidity, Olympus sidesteps that particular problem, ensuring there is always going to be good liquidity if you want to buy or sell OHM.

What about stability?

In order to be anything like a 'reserve currency', or even just a normal currency, OHM needs to be able to maintain its value in bull and bear markets, so that people actually want to hold it and use it instead of stablecoins.

To see how it's doing so far, let's look at the last week or so, when Bitcoin and the broader crypto market has fallen a fair bit.

Ok so its definitely not particularly stable.

Ohmies (that's what they like to be called) would respond that this is the growth phase, and that stability comes later.

Fair enough, but whether that transition can be made to stability is an open question.

Will the Ohmies stick around when yields start to diminish? Or will they jump to the next 'fork' that offers insane yields?

Is it too good to be true?

Skeptics argue that Olympus is just the latest in a long like of failed algorithmic stablecoin experiments, a ponzi scheme or worse that's ultimately designed to collapse. Certainly the 7000% APYs are not sustainable indefinitely (though with current runway, it can be sustained for 300+ days).

But I think the skeptics have it mostly wrong, because more than anything Olympus represents one of the most novel experiments in money we have seen for a while, and the community of Ohmies are some of the most passionate and the most active builders in crypto.

Even if it never becomes a currency, its innovative model is going to continue act as a black hole, sucking in all sorts of assets into the future.

And that's before we even get to the dozens of other projects that are being incubated in the Olympus ecosystem, or the strength of the community and the memes. Those are a topic for another day.

In the meantime, check out Olympus as a fascinating economic experiment.

Until next time

Jamie

Check out OlympusDAO:

👉 OlympusDAO Website

👉 OlympusDAO Discord

If you enjoy Block Breakdown, you can join the premium version for $5 per month, or $50 per year to access subscriber only benefits. This is the introductory price, and it will increase in future, but if you subscribe now you will always stay at this lower price.

🚨 Disclaimer: This is not investment advice. Everything in this newsletter is for entertainment and education purposes only. Do your own research. Think for yourself. Any financial interests the Block Breakdown team has in any project mentioned will be clearly highlighted.