What is Olympus DAO? OHM Explained
Olympus DAO (OHM) is a fantastic DeFi project backed by crypto trying to make a global stablecoin asset. There are already some stablecoins like DAI, who fit in this description, so what is the difference between them and Olympus DAO and its OHM? Treasury of Olympus DAO is the difference.
Olympus DAO was created by an anonymous developer named Zeus to address the over-reliance market of cryptocurrency on flat-backed stablecoins. In their words, Olympus is a decentralized reserve currency protocol based on the OHM token. A basket of assets has backed every OHM token in the Olympus treasury. This project is made to create a policy-controlled currency system in which Olympus DAO will control the behavior of OHM at a high level.
Intro to Olympus DAO
The majority of stable coins, which have a $139 billion market capitalization, are backed by the US dollar. The United States controls the dollar, but Federal Reserve has there monetary policy. In this situation, cryptocurrency markets are fully exposed to depreciating flat assets, which questions whether stablecoins live up to their name.
Crypto markets have an unhealthy addiction to US dollars; Olympus DAO decentralized reserve OHM currency is intended to break this addiction. USDT and USDC are pegged to the $1 mark, but the point of OHM is to work as a store of value.
Olympus DAO uses a protocol-owned reserve of cryptocurrency assets to back the issuance and value of OHM tokens. Instead of renting it, Olympus DAO owns its liquidity.
How does Olympus DAO work?
Olympus owns its liquidity, and we need to talk about decentralized finance in a broader context to understand this. Sushi, Uniswap, and curve are decentralized finance protocols that depend on users to provide liquidity to the protocols. This dependence keeps the liquidity disturbed and market efficiency, but shielding the protocol’s long-term value from the market’s whim is poor because of this disturbance.
In this case, incentive problems are also there. Protocols must bride liquidity providers with higher returns to keep them on board. Otherwise, they will head to another platform. By owning its liquidity, Olympus solves the issue of liquidity migration. Olympus exchanges its discounted OHM tokens and buys liquidity from the users, and this process is called bonding.
Olympus keeps the protocol liquid and protects the value of the reserve-backing OHM by owning the majority of its liquidity (currently holds 99.5 %). By owning a majority of the liquidity and reaping the rewards from its LP tokens, Olympus grows its treasury further, which helps Olympus raise the reserve’s floor value and OHM again.
When OHM’s value outpaces the value of the reserve’s floor, i.e., the market value of the asset in reserve, the protocol issue OHM drop its prices by diluting the supply. If the prices of OHM go below $1, they boost their value by burning OHM from the supply.
By looking at the prices of OHM today, everyone wonders if they are made to act as stablecoins why they trade over $1,000. The answer is simple; the market decides the value of OHM as they are designed to float freely. However, the nominal value of the treasury-held assets determines the Risk-Free Value (RFL) per OHM (currently $150 million).
What is an OHM token?
OHM is the main token of Olympus DAO backed by crypto. When users bond with their crypto assets, they will be minted. Then they can decide whether to sell on other platforms or to stake the OHM tokens. To differentiate, backed crypto means its value can be more significant than the asset of underlined crypto. A pegged crypto shows that the crypto price is sticking to the price of one specific asset. Therefore, the price of the OHM can be much higher can the value of backing crypto.
Price of OHM
We should not forget that becoming the reserve currency for the crypto industry is the main objective of Olympus for OHM. The coins price always exhibit significant volatility at the beginning of the project, and OHM is no exception. OHM was initially designed to be a free-float currency. If it intends to fulfill his role as a reserve currency, particularly as a unit of account and medium of exchange, the price of the OHM needs to be relatively stable.
OHM Staking (3, 3)
OHM intends to be a store of value, not a mere stablecoin. It is the key point to remember. Relative to the principal investment, a store of value should increase or maintain its value. For accruing value to OHM to achieve store of value status, staking is used by Olympus as a primary resource. This strategy is known as (3, 3).
Staking OHM token works in a very simple way. You either bond your liquidity in exchange for OHM or buy OHM on the market. Then Olympus app is used to stake your OHM in return for rewards, which are more OHM, which the treasury derives from bonding sales. Being incredibly high is the reason OHM tokens are known for. As of now, they are just settled above 8,000% APY.
OHM Bonding (1, 1)
Protocol’s primary strategy for accruing value is OHM staking, but locking up liquidity and producing rewards staking depends on bonding. The job of bonding is to aggregate value in the Olympus treasury while staking keeps OHM tokens locked up. In a nutshell, Olympus secondary strategy for accruing value is bonding. It is referred to as (1, 1).
In summary, it’s been eight months since Olympus DAO is operating, and recently to expand further in the DeFi world, they have released a pro version of their platform. People are showing that they are willing to sail on a long-term journey with Olympus DAO, as most OHM holders are currently staking their tokens on the platform. This will help Olympus DAO to acquire more and more shares in the DeFi market. In the decentralized finance space of 2021, Olympus is considered one of the most important innovations. By seeing the growth of his market capitalization from zero to $4 billion in just six months, we can say that Olympus DAO is the future decentralized currency.