Olympus DAO was hit onerous by the current market sell-off, with OHM buying and selling as little as $32 on March 9, down 97.7% from its all-time excessive of $1,415 set final April.
Olympus DAO is a decentralized reserve foreign money protocol, which is able to routinely situation OHM primarily based on the worth of the cryptocurrency. As of the tip of October, staking OHM was over 8,000% APY, and is presently at 1,039%. Nonetheless, each its TVL and token costs have plummeted within the face of such excessive APY.
What stopped OHM from persevering with to develop?
Olympus DAO Controls Its Personal Liquidity
Based on Footprint Analytics information, Olympus DAO reached a peak TVL of $860 million by attracting customers to stake and create LP tokens at over 1,000% APY. Nonetheless, as a result of market sell-off, TVL has fallen straight right down to an equilibrium state and presently stands at $260 million, a 70% drop.
Olympus DAO is the primary protocol to make use of a bond mechanism to create a substitute for the “liquidity mining” mannequin, offering liquidity by issuing OHM at a reduction and creating LP tokens, creating the idea of “protocol-owned liquidity”.
Olympus DAO helps three kinds of consumer actions: staking, bond shopping for, and promoting.
Bond purchases are a singular mechanism of the Olympus DAO that permits customers to buy discounted OHM from the treasury by backing property comparable to wETH and DAI. Nonetheless, getting the discounted OHM requires paying the corresponding worth of treasury property comparable to wETH and DAI, and requires a ready interval of two to five days to completely receive the bought OHM.
Along with treasury-backed property, customers may also pay LP tokens in change for discounted OHM, sometimes liquidity pair tokens related to OHM, comparable to OHM-DAI LP. With stablecoins forming the LP token, this ensures that the treasury can management many of the liquidity and earn a price by means of the LP token.
Consequently, the seize of LP tokens and the stake operate of OHM enable Olympus DAO to seize 99.8% of OHM liquidity.
Adopting the Prisoner’s Dilemma Mannequin of Sport Concept
The Olympus DAO attracts numerous customers due to its (3,3) financial mannequin, which comes from the well-known “Prisoner’s Dilemma” mannequin of sport principle.
The three behaviors of stake, bond, and promote design a (3,3) financial mannequin. When all customers take part within the stake, it will possibly obtain a win-win impact for customers and the protocol, that’s the state of (3,3). Nonetheless, the explanation why customers are keen to purchase and stake OHM is because of its excessive staking revenue.
When acquiring OHM by buying bonds, customers pays property comparable to wETH, DAI, and FRAX to extend Olympus’ treasury funds to help the worth of OHM. The expansion of the Olympus DAO treasury mixed with the settlement to regulate 99.8% of OHM, then the OHM of the inherent 1 DAI can have a market worth that’s lots of and even hundreds of instances increased.
The next APY would additionally imply a better premium, which might result in a considerable amount of OHM as an incentive for inflationary output. On the similar time, there will probably be numerous OHM mining and promoting operations out there, and the worth of OHM and the pledged APY of the settlement may even lower. Within the worst case, it could fall to a (-3,-3) part. This implies a corresponding loss for each Olympus DAO and customers.
On this mannequin, customers who enter on the proper time can earn excessive short-term returns, however the grasping tokenomics created with the APY will also be pushed by human nature. Subsequently, excessive returns aren’t maintained for a very long time.
OHM Costs Are Free Floating and Decided by the Market
The worth of OHM is backed by DAO’s treasury property (comparable to wETH, DAI, and FRAX). Underlying logic:
- When the worth of OHM rises, the protocol pushes down the worth by issuing further OHM.
- When the OHM worth drops, the settlement will purchase again and destroy the OHM, pulling the worth again up.
As clear from the Footprint Analytics chart, OHM is very unstable. Two peaks of over $1,100 have been recorded, however as of March 9, the worth was at an all-time low of $32.60.
An evaluation of the principle upside and draw back elements by means of OHM’s coin worth actions.
OHM worth will increase:
- Olympus has launched a bond characteristic that permits customers to purchase discounted OHM to kind LP tokens and earn between tremendous 1000% and 8000% APY.
- The rewards earned by customers are compounded 3 instances a day, accelerating the expansion of the asset pool.
OHM costs fall:
- Extra customers staking OHM may even trigger OHM costs to fall.
- OHM’s costs are largely maintained by new purchasers.
- There may be presently no sensible use for OHM—the demand for OHM comes from customers who need to use OHM to acquire excessive APY and supply liquidity for OHM buying and selling pairs, pegging their LP tokens to discounted OHM.
- On January 17, a whale bought off 82,526 OHM cash (value $13.3 million on the time), triggering a drop to a brand new low.
In distinction to the Lido stake protocol, the place customers don’t have to lock in tokens comparable to ETH or LUNA to obtain a stake reward at a 1:1 worth for stETH or stLUNA, the reward for staking wETH or DAI at Olympus is OHM, which continues to be very dangerous as the worth of OHM is very depending on market elements.
Nonetheless, in its early levels, Olympus DAO leads the mission with a (3,3) mannequin that requires customers to take part collectively in inserting bets, and it solely is smart if there aren’t any rebels amongst all OHM stakers.
It’s, due to this fact, tougher to create a dynamic and balanced development in an ever-changing cryptocurrency market. And customers who need a excessive APY have to take a better threat.
Date and Creator: Mar. 2022, Vincy,
Knowledge Supply: Footprint Analytics – Olympus DAO Dashboard
This piece is contributed by the Footprint Analytics neighborhood.
The Footprint Neighborhood is a spot the place information and crypto lovers worldwide assist one another perceive and achieve insights about Web3, the metaverse, DeFi, GameFi, or some other space of the fledgling world of blockchain. Right here you’ll discover energetic, various voices supporting one another and driving the neighborhood ahead.
What’s Footprint Analytics?
Footprint Analytics is an all-in-one evaluation platform to visualise blockchain information and uncover insights. It cleans and integrates on-chain information so customers of any expertise degree can rapidly begin researching tokens, initiatives, and protocols. With over a thousand dashboard templates plus a drag-and-drop interface, anybody can construct their very own custom-made charts in minutes. Uncover blockchain information and make investments smarter with Footprint.