ZoneBitcoin EditorialThere are several fashions on Twitter, and at the moment the big fashion is to put the NFT PFP that we just bought. We can also put our domain name .eth. But, above all, there is this new note 3,3. It is a kind of tribal cry saying "I have OHM and you should have some too"...
Trust me, if you haven’t heard of it yet, it won’t take long for your ears to ring. Olympus Dao was the protocol that introduced the term algorithmic stablecoin into crypto jargon. The founder’s (known as “Zeus”) ambition is to create a solid and stable central bank. A bank that could even be a model for central banks according to some enthusiasts….
How?
Using reserve assets. In this case, OlympusDAO has its own reserves instead of seeking them through liquidity providers.
OlympusDAO therefore wants to achieve price stability while maintaining a fluctuating price in a floating market. So the OHM token (on Ethereum) is very different from USDC or USDT in that it is backed (and not indexed) at a certain price.
Understanding the difference between stablecoins
To fully understand the power of OlympusDAO, you must first understand the underlying mechanism of stablecoins.
For example, DAI is what is called an over-collateralized stablecoin. This means that the DAI has a greater number of tokens in reserve than it displays. This provides a sort of protection against excessive price fluctuations.
To zoom in on the DAI, you need to know that it is created on the protocol Maker when a user deposits Ether or other crypto as collateral to borrow DAI. DAI is only generated in this way (even if you can buy it on exchange platforms, the creation process remains unchanged).
And, then to borrow $100 of DAI, a user will have to deposit $150 of ETH for example (a 1:1,5 ratio). If the value of the guarantee reaches the displayed ratio, then the loan can be liquidated automatically by the smart contract (unless the user comes to re-deposit tokens). Conversely, if the ratio explodes, then the user will be able to borrow even more DAI.
There are several types of algorithmic stablecoins. Tokens like AMPL (from Ampleforth) are very different in their mechanism from the FEI token for example.
Who are the founders of Olympus?
Olympus is managed by a DAO, which means that it is the community that will manage and participate in the protocol in a decentralized way. We know the anonymous co-founders as "Zeus", "Apollo", "Unbanksy", or "Wartul". We do not know if they are Greek but in any case, we are sure that they appreciate Greek mythology.
Zeus is rumored to be a bright teenager and he has a big presence on Twitter. That said, the design of OlympusDAO rather shows a certain maturity in the financial modeling of the protocol.
The protocol has been invested by renowned venture capitalists such as Zee Prime Capital, Naissant, D64 Ventures, Maven11 Capital, and a few other personalities from the crypto sector.
What makes Olympus unique?
It is often said that it was Olympus Dao which opened the door to what is today called DeFi 2.0. He brought a certain original experience to the usual protocol.
The great singularity of OlympusDAO lies in this: Thanks to the Bond system, Olympus is able to reverse the dynamics used in first generation DeFi. The protocol can then own and control its own liquidity. This means that instead of incentivizing or hoping for providers from elsewhere to continue providing liquidity, the protocol can do so itself.
Olympus has a treasury that can mint and sell new OHMs when trading is above the price of 1 DAI and it can Buyback and burn OHMs when the price is below 1 DAI.
Please note: : A buyback( a buyback or share repurchase) occurs when a company buys its own shares on the stock market. This makes it possible to reduce the number of shares in circulation (and indirectly inflate the earnings per share and a fortiori the value of the share). This also speaks to the amount of liquidity available to the company.
OHM is created by a process called "Bonding". A bond as in "Treasury bills" are debt securities issued that are redeemable at maturity. These are bonds whose buyers therefore become creditors.
In other words, a "bond" is simply a loan made by a company that, instead of going through a bank, will borrow the money from an investor. In exchange for this capital, the company pays interest paid as a percentage of the value of the loan.
Thus, users sell assets such as FRAX, DAI or another token into the treasury and then receive an OHM at a reduced price (discount) in return.
Users can also choose to provide FRAX-OHM or even DAI-OHM as liquidity to the Sushiswap liquidity pool and receive OHM at a discounted price. Please note that the voucher is delivered after a vesting period of 5 days.
How to use the OHM token
OHM token holders can also decide to stake OHM token, which will then reduce the supply of OHM on the market and therefore increase the value of the protocol as a whole. The rewards for staking are very high and will reduce over time.
There is also the possibility of automatic staking with compound interest to accumulate more OHM.
The protocol recognizes, however, that the price of OHM could potentially decline in value over the long term. This is why we encourage the OHM accumulation strategy.
From this observation, Olympus Pro was launched to allow other protocols to launch with similar financial mechanics. This would allow other protocols to survive in the long term without having to rely on mercenary capital deposited by users looking for high APY. This toxic capital which disappears as soon as a new, more attractive protocol appears…
Olympus Game Theory
According to an article published by the team on Medium, the Olympus model is based on a two-player system with 3 possible actions:
- Stake (Buy)
- Bond
- Sell
“Players are more likely to sell when they anticipate a contraction in supply and/or prices. Players are more likely to create bonds when they do not have a strong directional bias but do not anticipate a significant decline.
Staking has the effect of raising the price by +2. The sale has the effect of lowering the price by -2. The player who moves the prize gets half of the profit. Bonding has no effect on the price but offers a 1″ discount.
Here is the image to describe these behaviors:
This is how we understand the 3,3 meme and all others of its type. This table reveals that cooperation is the best way to make the protocol optimal.
The team specifies in this article, for example, that it does not push users to use this protocol if the goal is not to cooperate with everyone.
Here's what the article says, and it should at least be clear: "Working together produces optimal results, so I urge you not to get involved unless you intend to be in it for the long haul. Don't be that guy who sold Bitcoin at $50 and bought it back at $20. That's more like Bitcoin than you probably think. Unlimited supply doesn't necessarily mean there won't be shortages."
The governance of OHM holders
The other particularity of OHM which makes the protocol even more interesting is certainly the governance actually given to OHM holders.
This marks a huge difference with other stablecoin protocols like DAI, or stablecoins pegged to fiat. Basically, monetary policy is then determined by the holders of the token.
What this means is that they are holders of the real currency and not of a governance token like for example UNI. Thus, the holders of the OHM token and the "governors" are the same people. Any change in the monetary policy of OHM will have direct consequences for all holders. (Some protocols have two tokens, a utility token and a governance token. This can create dualities in the choices made by decision makers... Something that cannot exist with OHM).
Additionally, naturally, it encourages the active participation of holders. It also encourages decision-making through the lens of the community. This pushes you to act for what is best for everyone and for the OHM rather than for yourself.
It is not for nothing that the developers of Olympus insist on the theory of games and 3,3 as we saw in the table.
Final Word on Olympus Dao
From the start, the community on Discord received 50,000 OHM to early adopters of the protocol. So the support from the original gang is very strong. The community introduced the same 3,3, which is increasingly used and visible in the Twitter sphere.
In any case, dozens and dozens of forks (code copies) have appeared from the OlympusDAO protocol and on networks other than Ethereum.
We can cite Wonderland on Avalanche for example.
Either way, it's clearly a fascinating monetary experiment. The problem that OlympusDAO wants to solve is one of the most complicated that exists in decentralized finance but also (and above all) in traditional finance.
We can also welcome its incentive mechanism with its very attractive 4-digit APYs. This is also what explains the crazy growth of its users.
That said, be careful, we don't have perspective yet at this stage of development... Indeed, there are also numerous criticisms and the protocol is divisive. Some say it's a Ponzi, which is not the case (we will see it in another article).
Finally, let's recall the tokenomics of OHM:
- A floating currency (neither with indexation like the gold standard nor completely volatile like bitcoin, it is somewhere in between).
- There are currently more than 1,7 billion OHMs stored on the network.
- OHM is an ERC-20 token on Ethereum. The network is governed as a DAO and constantly offers new OIPs (Olympus Improvement Proposals) to token holders.
An article will follow on this laboratory experiment that is OlympusDAO…
Take the time to fully understand the issues before doing anything. This remains experimental and we don't yet know if it's a Ponzi or not... Be careful.
Note: No financial advice is given in this or any other article on zonebitcoin. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.
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