The CoinCept - What is Olympus DAO?
TL;DROlympus is a decentralized reserve currency protocol. It aims to create a digital currency to compete with the Dollar. Why is Olympus needed?One of the goals of cryptocurrency was to eliminate the cons of fiat like centralization, inflation, and unaccountability. However, cryptocurrencies like Bitcoin & Ethereum are volatile to be used as currency. For an asset to be a currency it should stabilize enough the price should not change drastically every week or month. Stablecoins such as USDT, USDC, DAI achieve stability as they are pegged 1:1 with dollar Though they are stable they depend on the dollar. The dollar is controlled by the FED & the US government. If the dollar depreciates then the stable coin depreciates. This defeats the ultimate goal of crypto to be decentralized. An interesting project to solve this problem is Olympus DAO. OHM is its native currency. “OlympusDAO hopes that OHM can function as a currency that is able to hold its purchasing power regardless of market volatility.” Currently, Olympus DAO focuses on supply growth rather than price appreciation. Is OHM a stable coin?Not exactly. Rather OHM aspires to be an algorithmic reserve currency backed by other decentralized assets. OHM is Backed not pegged. Pegged == 1 & Backed >= 1 What does it mean? Each OHM is backed by crypto assets like DAI, FRAX in its treasury. This gives it an inherent value that can't go below it. With the potential to be more valuable than the underlying assets. Incase of pegged tokens, the price is tied to that of the underlying assets. When OHM trades below 1 DAI
When OHM trades above 1 DAI
It is Free-floating As the price is not pegged, the value of OHM is determined by the free market. OHM is intended to stabilize eventually. But now it may be volatile. 4 essential components of Olympus
How does it work?
Now the Two key mechanisms to achieve stability in the long term.
StakingPrimary value accrual strategy of Olympus Takes the OHM out of the market and helps in stabilizing the price. Why stake? Earn rebase rewards. These rewards come from the bond sales and can vary basis the number of OHM staked and the rewards set by monetary policy. Lock in your share of the total token supply & avoid facing dilution. After staking, holders receive an equal amount of sOHM. sOHM represents proportional ownership of total OHM supply & OHM & sOHM are pegged 1:1. sOHM balance increases with every epoch based on the current APY. Unstaking burns your sOHM and you get an equal amount of OHM. Stake here: https://app.olympusdao.finance/#/stake BondingSecondary value accrual strategy of Olympus. OHM is minted in bonding What is in it for you? Allows users to get OHM at a discount by selling assets to Olympus. There are 2 different bonds – reserve bonds & liquidity bonds
Why bonding? Protocol accumulates more assets & grows its treasury. Protocol Owned Liquidity (POL) - With POL, Olympus buys the pool's liquidity ownership. Advantages of owning the Liquidity
Bond here: https://app.olympusdao.finance/#/bonds But people can sell their discounted OHMs for arbitrage. Olympus solves this by the staking incentives. People lock their OHM to get higher yields than bonding. Almost 90% of the OHM remains staked month after month since the launch in April 2021. What is 3,3?You may have seen twitter handles with (3,3) in their names. Let us understand what (3,3) is all about. This is quite a simplified scenario to demonstrate the positive sum environment which can be created by cooperation. Assuming a simple example where Olympus has 2 players. There are 3 possible actions in Olympus
The green cells are dominant strategies. It happens when the players cooperate.
Conflicting moves such as one player staking & other selling and one player bonding & other selling are neutral with 0. The only negative sum outcome is when both the players sell. If you liked this post from The CoinCept , sharing it with your friends will make our day. |
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