DeFi protocols are emerging left, right, and center. One project that promises huge APY is OlympusDAO. But what exactly is OlympusDAO and why should you pay attention to this project?
OlympusDAO is a DeFi protocol that hopes to create a stablecoin backed by crypto. At the current time of writing, stablecoins such as USDT (Tether) are backed by the US dollar. In a crypto environment where decentralization is a buzzword, Tether gets a bad rep. But that’s not solely because Tether is backed by the US dollar. In recent times, reports have exposed Tether’s scammy development team and market capitalization.
The way Tether works is by burning more USDT in hopes of achieving a relative price of $1. This form of maintaining price isn’t sustainable, with many experts saying that USDT will inevitably bust. This is where OlympusDAO comes into play, or so people think.
OlympusDAO, being backed by crypto, creates incentives for traders by giving lucrative staking yields. It is estimated that OlympusDAO promises staking APY up to 7,000%. This is precisely why many are calling OlympusDAO a Ponzi scheme.
But to truly get to the bottom of this mystery, we have to look at how OlympusDAO works and how the DeFi space benefits from it.
What Is OlympusDAO?
OlympusDAO is a DeFi protocol and a promising project to cut the reliance on fiat-backed stablecoins. That sentence is true when it comes to explaining what the core mission of OlympusDAO is. But things get a little blurry when we discuss the means the project hopes to achieve that.
Since many stablecoins are indeed in bed with the US dollar, it creates distrust in the cryptocurrency space. Since the United States controls the US dollars, many fear that markets are overly exposed to depreciating fiat assets. OlympusDAO hopes to severe this connection and come up with a better stablecoin than USDT, USDC, and more.
But how does the project hope to achieve that? The developer of OlympusDAO is a mystery. The person goes by the name Zeus. Zeus could be a person, or it could be a team of developers. It could also be something else more sinister. Whereas stablecoins rent liquidity to the US dollar, the liquidity of OHM tokens is owned by OlympusDAO.
Since Olympus is indeed a decentralized autonomous organization (DAO), it doesn’t rely on any government or governing body. Instead, DAO cryptos follow a strict set of rules encoded in a computer program.
How Does OlympusDAO Work?
Being a DeFi protocol, OlympusDAO relies on liquidity. Liquidity and liquidity mining are topics that we’ve explained in a previous guide here. But what you need to know is that every protocol relies on liquidity. Otherwise, the protocol will fail. In some protocols like Uniswap or Sushi, users provide liquidity and they get rewarded in the process. With OlympusDAO, they provide the liquidity necessary for the protocol to run.
With user-backed liquidity, protocols end up exposed in a few ways. For starters, users can just abandon the protocol. One way protocols incentivize users to provide liquidity is by offering higher returns. The process that OlympusDAO introduces to prevent this from happening goes by the name “bonding.”
Bonding essentially means buying liquidity from users. OlympusDAO buys the liquidity from users in exchange for OHM tokens. OHM tokens hope to be the next stablecoin. The protocol exchanges discounted OHM tokens. At the current time of writing, OlympusDAO holds 99.5% of the liquidity. By owning the liquidity necessary for the protocol to run, Olympus protects itself from users abandoning it by offering higher yields. The only difference is that the yield can be as high as 7,000% annually. This is more than enough incentive for users to stick around and reap the benefits.
If the price of OHM tokens goes below $1, the protocol will burn OHM tokens and thus bring the price back up. So in short, let’s summarize a few things:
• OlympusDAO is a DeFi protocol hoping to be the next big stablecoin.
• The protocol isn’t backed by the US dollar or any other currency, instead backed by crypto.
• OlympusDAO incentivizes users to stake OHM tokens and get rewards in the process.
• These rewards can go as high as an APY of 7,000%.
• OlympusDAO provides its own liquidity by bonding or buying liquidity.
OlympusDAO and (3, 3)
If you’ve been following this project, you might have come across a strategy referred to by the protocol as (3, 3). We already mentioned that OlympusDAO uses staking as a means to acquire value to OHM tokens. But what you should understand is that OlympusDAO doesn’t just want to be a stablecoin, it wants to be a store of value. A store of value simply means that your investment should grow.
So how does (3, 3) work, and what is it? The (3, 3) is a staking strategy that rewards users for staking OHM tokens. To stake OHM tokens, you need to buy OHM tokens first and use the Olympus App. On the app, you connect your wallet and stake OHM tokens. You can see right there the current APY. As we’ve said numerous times before, OHM staking rewards come with very rewarding APY. At one point, the APY rose to 8,000%. The rewards users receive come in the form of more OHM tokens.
Users can then stake even more OHM tokens and lock their tokens for liquidity. OlympusDAO then buys the liquidity from users.
OlympusDAO and (1, 1)
(3, 3) is the staking strategy of the protocol. But what about the bonding strategy? The bonding strategy is referred to as (1, 1). The protocol uses bonding to acquire value to OHM tokens. This is the process of selling liquidity. In return, Olympus gives you discounted OHM tokens.
OlympusDAO is a protocol with its own cryptocurrency – OHM. OHM tokens are treasury-backed and operate differently from other stablecoins like USDT or USDC. OlympusDAO hopes to be the next big thing in DeFi. By providing lucrative APY to holders, Olympus maintains liquidity and price. But the extremely high APY is why many are calling it the next Ponzi scheme in crypto.
Partner at Vega Capital Management - a private funds management company.
An experienced portfolio manager with 10+ years of proven and reputable track record in investment management and financial analysis. Currently, a partner at one of the fastest-growing private fund management companies in southeast Europe, Kiril has been tending to a loyal international base of client-investors and partners. When he is not crunching numbers and increasing his client’s wealth, he reminisces about his Michelin-star restaurant cheffing years and fondness of the culinary arts.