The DeFi ecosystem, born from the hand of Ethereum and its Smart Contracts, lives in a state of constant innovation. With protocols as a driver of change, we are finding new ways to deepen financial decentralization every day.
What is Olympus DAO? It is a platform that aims to take DeFi to its new phase, which they named DeFi 2.0.
But this is not all, they intend to completely emancipate us from the US dollar, and take us to a world in which the unit of measurement is a cryptocurrency, collateralized by other cryptocurrencies.
I invite you to join me in this article and discover the new Olympus DAO proposal.
Olympus DAO is a decentralized application mounted on the Ethereum network. This platform pursues the ambitious goal of taking decentralized finance to its next stage and emancipating it from dependence on FIAT currencies.
It is for this purpose that they created a cryptocurrency, which acquires its value or its collateralization from other cryptocurrencies, which they intend to become the unit of measurement of the crypto world. Its name is OHM and it has three main characteristics:
We have several examples of stable currencies that have the first two characteristics, but all of them have a price that is “tied” to a FIAT currency. Generally it is the US dollar, but they often “tie” their price to other currencies such as the Euro, the Yen or the Pound Sterling.
It is then point three, which endows OHM with a unique feature that lays the foundation for leaving behind dependence on the US dollar.
On the other hand, in their eagerness to solve problems identified by the Olympus team in the DeFi ecosystem, they are presenting modifications in the liquidity provision mechanisms. For the first time, liquidity will no longer belong to the users, but to a Smart Contract.
However, I will elaborate on these methods later. Now it is time to focus on the deficiencies that the Olympus DAO team intends to address.
The ecosystem of decentralized finance, known as DeFi, has grown unprecedentedly from its famous summer until today. In just over a year its total value climbed from about $10 billion to $105 billion. Of course, it is time to celebrate this growth.
But it is also the time to look in the mirror and ask ourselves, have we achieved our original objective?
The DeFi ecosystem was born with the purpose of leaving behind the burdens of the traditional financial system. On the way to $105 billion, unthinkable advances were achieved, including a permissive economy, with no restrictions for those who wish to participate and an infinite number of financing options.
However, a large part of the ecosystem depends on stablecoins. This dependence is not bad per se. The stablecoins facilitated the entry of a gigantic mass of users who feared crypto volatility.
The negative side, we find it in that which gives value to the great majority of the “stablecoins”. I am talking about the US dollar. Indirectly, we continue to depend on the dollar, its inflation, its constant depreciation over time and its centralized government.
Ultimately, we ended up basing a substantial part of the ecosystem on everything we wanted to move away from in the beginning.
On the other hand, the second major problem, which the Olympus DAO people identify, is the method of liquidity provision.
The “DeFi Summer” had its origin, we can say, thanks to the Compound platform. This lending and deposit protocol, was the first to offer, beyond the rate of return on deposits, its own token as a reward.
This led to an avalanche of platforms following in the same footsteps, and the DeFi summer exploded. But, according to the folks at Olympus DAO, the underlying problem with this dynamic is that small investors are at the mercy of the big guys. The latter can withdraw liquidity from a platform when they find better returns, leaving small investors with big losses.
It is these problems that Olympus DAO, through the revolution that will take us to the next stage of our ecosystem, aims to solve.
So far, Olympus DAO’s promises sound highly attractive, but how will they achieve this revolution that they themselves are trying to promote? For ease of understanding, I will break down the solutions proposed by the platform into two main sections.
The new unit of measurement in the crypto world is called OHM. It is an algorithmic stable cryptocurrency, with a free or floating quote and fully collateralized by cryptocurrencies.
Sounds promising, doesn’t it? Now, let’s understand what each point means.
While it sounds complex, this title tells us that the Olympus protocol is involved in regulating the OHM price. Beyond having a free/floating quote, when the price of OHM exceeds the intended limits, an algorithm, emits more OHM with the objective of “flooding” the market and bringing the price down. In the opposite case, the same protocol would buy OHM and “burn” or destroy them. In this way, it would make it scarcer and increase its price.
Summarizing this subtitle in one sentence, we can say that an algorithm intervenes the money supply with the objective of stabilizing the price of OHM.
No, I am not denying the previous paragraph. This feature means that OHM is not tied to any FIAT currency like the rest of the stable currencies. Its price floats freely according to the mood of the market.
But, this freedom has a ceiling and also a floor, in which the algorithmic side of OHM intervenes.
This floor is equal to the amount of assets backing each token. For example, if the collateralization is 500 DAI, that will be the floor on which the algorithm will intervene with the methods described above.
The value or backing of OHM comes from other cryptocurrencies deposited on the platform. Initially, the only cryptocurrency enabled to collateralize OHM was DAI.
It was established that each OHM, in order to be issued, must be collateralized by a cryptocurrency whose quotation is one dollar. In this way it is possible to maintain a protocol with an orderly issuance.
However, we find that, to date, the Olympus treasury has expanded its holdings to other cryptocurrencies. Today we have the example of FRAX, another Algorithmic stable coin. Also in the Olympus DAO reserves, and thus collateralizing OHM, were enabled LP tokens (liquidity providers tokens) of FRAX-OHM from Uniswap and DAI-OHM from Sushi Swap.
It goes without saying that these decisions were made by the project’s governance, through open voting.
Here we encounter Olympus’ second major innovation. Although, to date, OHM has been far from finding stability, this is not a fact to worry about at first. The protocol is in its initial phase, and at this stage, its objective is to grow in adoption and liquidity, with stability being a goal to be achieved in a second stage.
So, what liquidity attraction tools have you developed at Olympus DAO? The following…
It is the method that allows the platform to generate value and issue new OHMs. Those who “stake” or deposit their OHMs will receive rewards. These are received in the form of sOHM, a fungible token, therefore usable in other DeFI protocols.
To calculate the amount of sOHM to be received, three factors must be taken into account:
As long as the “staked” OHMs are maintained, the number will grow proportionally to the amount of sOHMs received.
You may ask, why would an OHM holder want to deposit them in Olympus DAO? Beyond the desire to contribute to this project, the juicy APY is no small cause.
As of today, the APR for “staking” is 507% per year, but its APY reaches the number of 14,000%. Yes, this number is real and comes from two points. The overcollateralization of each OHM and the duration of each “epoch” or epoch. These epochs last 8 hours and it is at their end that the rewards become visible in the holdings of OHM depositors.
At the end of the cycle, when the staker decides to withdraw his OHM, he will return his sOHM, which will be destroyed, and will receive the equivalent amount of OHM.
A not minor detail is that to date 93% of the OHMs created are deposited in Olympus DAO.
This is the second mechanism available to Olympus to generate value and it is here where the paradigm of liquidity changes: it begins to belong to the protocol and not to the users.
We can understand bonds as a sale of OHM at a discount and a way for the protocol to acquire its own liquidity. But better, let’s learn it with an example.
Suppose OHM is trading at $580. Olympus offers a DAI Bond for $550, which means buying an OHM $30 cheaper. This offers me, as a user, an immediate profit. However, I have to wait for a 5-day vesting period, and the OHM is mine. In the meantime the protocol takes over 550 DAI. This means that it becomes the owner of the liquidity that collateralized that OHM and is able to act, by means of the algorithm mentioned in the previous sections, if necessary.
Olympus offers bonds with each of the tokens enabled to collateralize OHM. Among these tokens, there are two LP tokens, which, being Liquidity Providers tokens in Sushi or Uniswap, will continue to generate profits that will be accumulated by the Olympus treasury.
This is DeFi 2.0, platforms that own their own liquidity. Welcome to a new stage.
Of course it is. This article is just a bird’s-eye review of one of the platforms that has attracted the most attention in recent crypto-time.
The interesting game theory that users have been building around the possibilities offered by the protocol and some investment possibilities that will surely be available in the future are left out.
Anyway, I didn’t want to close this piece without dedicating a paragraph to the pillar of Olympus DAO and that is its users. To date we have 8200 OHM holders and more than 11,000 members on Discord.
This group, called “The Ohmies”, is beginning to be catalogued as “the new federal reserve”, since they are in charge of deciding the direction of the “new crypto unit of measure”. It is they, together with the team behind Olympus, who took OHM in just 5 months to the 10th position, in terms of Market Cap, among all the stablecoins in the market and to the fifth, among the algorithmic ones. Here goes, my brief tribute to them.
The DeFi ecosystem has grown exponentially in a relatively short period of time. Although it is still an incipient movement, a certain solidity is beginning to be perceived in the environment.
Those who lead the way into the future are the bold ones who are not afraid to take giant steps, taking huge risks. It’s time to innovate at DeFi, to go beyond the known.
The foundations of both the ecosystem and the Olympus platform itself are in place. Only the future will show whether this grand experiment will be a success or a massive learning curve…