OlympusDAO Investment Report | Deep Dive
Review Date: OCTOBER 5, 2021
Since launching six months ago, Olympus DAO has grown to an approximately ~1.7 billion market cap with a treasury balance of $250 million dollars. As a cryptocurrency collateralized reserve currency, each OHM is backed by a value of assets (E.G. DAI, FRAX), providing the protocol with a price floor or market intrinsic value that it cannot fall below. With the goal of becoming a community-driven, decentralized bank, OlympusDAO hopes to create an alternative to the dollar and other traditional fiat-based currencies by leveraging OHM as a global unit-of-account and medi- um-of-exchange currency.
As one of the fastest-growing sectors in blockchain, stable coins have become an essential part of every Defi trader’s portfolio. Offering stable yield returns on borrowed assets in any market condition, stable coins have grown to become the lifeline of the Defi ecosystem – acting as a haven for many during squeamish market conditions. While many stable coin protocols, for example, Tether, Ampleforth, DAI, differ in implementation and structure; they have ena- bled users to transact in units more familiar with traditional finance. Evidently stable coins have become the bridge between traditional and crypto economies and while there are two main types of stable coins: custodial backed and algorithmic ones, Defi is currently over-reliant on custodial backed stable coins linked to the US dollar, with USDT, USDC, and bUSD accumulating the most trading volume weekly. While stable coins provide more stability, they still force us to rely on the risks of fiat systems we are attempting to transcend from. One project trying to solve this problem is Olympus DAO, by creating a free-floating currency, OHM, that is backed by cryptocurrency collateralized assets like DAI & FRAX. Leveraging the power of their in-house treasury and cult-like community, Olympus hopes that OHM can function as a currency that can hold its purchasing power regardless of market volatility. Olympus is a “non pegged stable coin” that attempts to be less volatile than traditional cryptocurrencies while not being pegged to any fiat currencies. Instead, the value of its OHM token floats based on the value of its underlying treasury of assets and parameters set by the DAO. It achieves this through minting OHM when it is greater than its intrinsic value and burning OHM when it is less. The end goal of the project is to become a crypto-native currency that is used as an al- ternative to the USD or other fiat currencies
Unique Value Proposition
While Bitcoin and Ethereum continue to dominate decentralized finance, a relatively new asset class: stable coins, has provided traders with peace of mind as new explorations by providing traders with an underlying safety net. Although the Defi summer of 2020 led to many life-changing opportunities for investors, it also “netted” cyber-criminals ap- proximately $1.9 billion. One way traders have begun hedging against these unforeseen risks is by leveraging stable coins. Attempting to provide Defi with a stable coin that also provides yield-bearing opportunities, OHM is ushering in a new class of algorithmic stable coins by being an independent currency that realizes its value by providing li- quidity, minting new coins, and rewarding stakers. At its core, OHM is an actively managed central bank with its own independent currency. Instead of being subject to inflation and loss of purchasing power like traditional stable coins, Olympus is attempting to recapture the levers of economic power. To accomplish this, OlympusDAO is currently at- tempting to become the decentralized go-to stable coin for blockchain by rewarding stakeholders with over 7000% APY/APR. Although these returns are unsustainable, they provide Olympus with the liquidity to grow their treasury reserve assets and become a high-caliber stable coin protocol that is community-driven and not backed by central- ized fiat assets.
As an asset-driven protocol at its core, Olympus is creating a new type of currency, OHM, which intrinsically derives its value from various DeFi assets its community chooses to hold in the DAO’s treasury. As a grand experiment that can only take place in crypto, OHM is pushing the boundaries of what a currency is. Currently, during their bootstrapping phase, Olympus is selling they can purchase OHM at a discounted rate. By incorporating bonds into their protocol, Olympus has grown their treasury and locked liquidity into OHM. Combining the backers and assets to fund their own reserve and rewarding its community with 90% of the protocols fees, OlympusDAO is creating a defi movement with its own ideology and motivations. Besides bonding to receive OHM, currently the easiest way to become an “Ohmie’’ and add value to the ecosystem is by buying OHM and staking it. According to OlympusDao’s founder, anonymous developer ‘Zeus’, the goal of Olympus is to “create a currency where when there is excess demand of OHM, there is a person to sell, and when there is excess supply, there is people to buy OHM from Olympus’’ 1. By implementing a moderating mecha- nism in their treasury, OHM will attempt to reduce the amplitude of volatility of its protocol.
Technology: How OlympusDAO works
Hoping to become the standard medium of exchange for DeFi that is not pegged and backed by a basket of crypto assets, OlympusDAO offers DeFi a currency with the following features:
- Algorithmic: Each OHM token is backed by 1 DAI in the DAO treasury. With the capabilities of minting and burning only executable by the DAO itself, OHM has an unlimited supply, and tokens are minted or burned when OHM trades above or below 1 DAI. Because the treasury must hold 1 DAI and only 1 DAI for each OHM, every time it buys or sells, it makes a profit. It either gets over 1 DAI for the sale or spends less than 1 DAI on the purchase. The fact that the protocol holds DAI for each token allows us to say with certainty that OHM will not trade below its intrinsic value in the long term. This allows investments to be made with defined risk (1 DAI is your guaranteed long-term price floor), because the protocol can and will buy indefinitely below 1 DAI.2
- Free Floating: By conducting open market operations, the price of OHM is largely allowed to “float”. In effect, this means that rather than being pegged to the price of another asset, such as USD, the value of OHM is determined by the open market and the demands of supply & demand. Because of this, its price in dollar terms can and has been volatile, much like any other non-pegged asset. However, unlike other non-pegged as- sets, OHM is considered to have a “floor price” or “risk-free value (RFV)” that is worth the amount of assets backing each token. The current RFV of the protocol treasury is equivalent to the stable coins, and, to account for risk, a discounted value of the LP tokens in it.
OHM is currently trading at a premium compared to its RFV. This may be because of several factors, such as the de- mand to stake OHM, and/or the future expectation of earnings distributed to OHM holders from the treasury assets being deployed within Defi. In addition, because issuing new OHM only requires $1 worth of collateral, the premium also represents the amount of OHM that can be minted in the future. For instance, based on the RVF and circulating supply metrics listed above, the protocol can increase the current supply of OHM 26x. Of course, this is subject to change but means that as the value of the treasury grows, the capacity to issue more OHM will also increase.
- Bonding: As another value accrual strategy of Olympus, bonding allows traders and the treasury to transact OHM for a specified product: acting as a mechanism that is a cross between a futures contract and an option.
Using bonds, the protocol quotes the bonder with terms for a trade at a future date. These terms include a pre- defined amount of OHM the bonder will receive and the time when vesting is complete. The bond becomes redeemable as it vests, i.e. 5-day term becomes redeemable 2 days into the term, giving bonders the ability to claim 40% of the OHM agreed upon in the bond contract. As a more profitable alternative to staking for OlympusDAO, the bonding mechanism of the protocol is closely monitored to facilitate market operations and protect token holders. By motivating new users to their platform through their intuitive bonding mechanism, OlympusDAO has grown to become a self-governed community-driven market that rewards the community’s DAO and its users by bolstering the treasury. OlympusDao’s unique method of injecting future liquidity has garnered it a new relationship with protocols through its LP bonding. By enabling protocols to own and control their own liquidity, Olympus is motivating third-party providers to continue to provide liquidity. In addition, if OlympusDao sees the asset as a valuable store of value to keep in its treasury, it can provide a constant, and growing, the floor of liquidity that is available in perpetuity. 3
- Stakers: With over 90% of all future profits of OHM flowing into the pockets of OHM stakers, it is no wonder the protocol boasts one of the highest numbers of stakers relative to holders. This lucrative incentive to hold OHM undoubtedly caused the price of OHM to be where it is at today ($~750), significantly higher than its floor price of $1 DAI. Evidently, there are many reasons OHM holders would want to stake their tokens. Currently, the pro- tocol is offering over 7000% APY to stakers that is compounded three times a day, one of the key contributing factors to how Olympus offers such high yields. In addition, the high OHM denominated returns can help offset the price risk that comes with the volatility of the token.
Olympus has seen significant growth in the short months – since its launch in the beginning of February, OHM has amassed a market cap of $1.6B, placing it with- in the top 100 coins.
Token Utility & Tokenomics:
Currently, the major use cases for OHM are:
- Access to compounded interest for staking OHM
- Governance of the protocol as an ohmie
- One of the first crypto-backed protocols with a self defined “floor” or fair value price that is equal to or greater than its treasury Offering these key features, Olympus has grown to become the most prominent crypto-backed stable coin protocols, with over 90% of its holders staking its native token.
Nature of Token Supply
As a crypto-backed medium of exchange, OHM has an unlimited supply as it mints and burns new OHM to act as an inflationary or deflationary force for the protocol. With this mechanism, Olympus is leveraging its unlimit- ed supply and internal treasury to keep OHM equal to or greater than 1 dollar in value. While it may seem coun- terintuitive to purchase OHM at a value greater than a dollar, one must consider the underlying revenue and profit generated by the protocol. Most recently, Olym- pusDao had a record-breaking revenue-generating day, in which it amassed $6.3 million dollars for the DAO and OHM community.
Token Supply & Distribution
OHM currently has a circulating supply of 2,162,229. Hoping to launch a fair com- munity offering for its token, Olympus held a first-ever discord offering in which 50,000 OHMs were sold at an average price of $6 per OHM. According to “Zeus”, the protocol’s founder, the initial supply of OHM will be 68,260. 50,000 will be offered to launch event participants, and 18,260 will be added as initial liquidity. 68,260 was chosen because it is Planck’s constant ( a relevant theory that theoriz- es that an individual cannot measure an asset price and the direction of an asset). See the image attached below for OHM’s distribution
Exchanges & Fiat Gateways
OHM can be bought on decentralized exchanges, such as Uniswap or Sushiswap.
Olympus started off with DAI and created a full force of its community behind it. This allowed OHM to move for- ward with addition of new bonds and new partnerships with FRAX, which proved to be a tremendous success.
Due to the fact that DeFi is typically secured by Ethereum, Olympus added ETH (wETH) to the treasury as it allows OHM to decentralize and diversify its backing which added value to both protocols.
OlympusDAO’s founder is anonymous and goes by the pseudonym Zeus on twitter.
“There’s a strange irony to the fact that the most utilized cryptocurrency is really just a digitized dollar. While functional stablecoins may achieve a stable USD value, that does not mean they’re stable in purchasing power. Their real value changes just like dollars in a bank account…” – Zeus
Customers & Partners
One of the big waves Olympus is building is partnerships. Recently the protocol proposed a partnership with Alche- mix and Olympus, where Olympus will bond the alUSD3-curve pool, this partnership would benefit both protocols as Alchemix locks liquidity, something they were paying a lot for and provides diverse stables for Olympus treasury- curve tokens, trading fees, and even convex tokens. Capable of bonding liquidity for protocols- Olympus is leveraging partnerships that are growing in symbiosis.
Other partners reaping the benefit of OlympusDAO include:
- Frax Finance
- Rari Capital
- Abracadabra Money
- With future potential partnerships with Aave, Alchemix, TokeMak
OlympusDAO’s competitors include:
- Float Protocol
OlympusDao’s raised an unknown amount of capital from Nascent, Maven 11, D64, Zee Prime capital, Defi Alliance.
OlympusDAO’s success is in part thanks to their com- munity the ‘Ohmies’. They are one of the most passionate communities in crypto with more than 8200 holders of OHM and 11,000 members in the Olympus discord. Their presence is so prominent, there is now “Ohmie culture” and (3,3) is turning into twitter’s most popular crypto handles, up there with .eth. (3,3) is based o
game theory, if everyone cooperated in OHM, it would generate the most profit for everyone.
Within the OlympusDAO Protocol, a trader can either stake (buy), bond, or sell. If both actors stake, it’s best for both and for the protocol (3,3). It is also positive if one stakes and the other person bonds, because staking OHM takes it off the market while bonding provides liquidity & DAI for the treasury( 3,1). This showcases the importance of the Ohmie community because when one person sells, it completely diminishes the effort of another who is staking or bonding- (1,-1). The worst outcome for both actors as well as the protocol is when both sell- (-3,-3).
Creating a cult-like community, OlympusDAO has amassed the following audience base across top social networking platforms.
Twitter: 34.4k followers
Youtube: 1.62k followers
Telegram: 1,686 members, 174 Online
Discord: 21,461 members, 4,327
Online Medium: 4.4k
Ultimately, as an economic experiment that was inspired by Bitcoin and other decentralized financial protocols, OlympusDAO attempts to usher in a new medium of exchange that can be adopted universally. With a self-defined floor that is backed by its in-house treasury assets, OHM is one of the first cryptocurrencies offering limited downside to investors. In conclusion, OlympusDAO has taken over Defi – exploding from a protocol with a $25 million dollar market cap in early March of this year to over $1.7 billion at the time of writing this report. Offering one of the most enticing returns in Defi, Olympus has garnered one of the largest communities. As one of the biggest experiments in blockchain, however, OlympusDAO arguably grew past the point of it being a viable long-term investment – trading at over 27x it its risk-free market value. Although this protocol is pushing the envelope of how a currency behaves and functions, at its current market price, OHM is acting more as a store-of-value as stakers hold the token in order to earn 7000% APY. With that being said, if one believes in the future of this protocol, the best way to accumulate OHM would be to leverage its amazing yield-bearing opportunity. With the current APY they are offering, 1 staked OHM today will net you approximately ~73 OHM in one year. After evaluating the project in its entirety, the Token Metrics team scored OlympusDAO objectively, and the results were the following:
Fundamental score – 78%