Olympus DAO was hit arduous by the latest 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 forex protocol, which is able to robotically situation OHM based mostly 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%. However, 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 Own LiquidityAccording to 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. However, 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.
Footprint Analytics – TVL of Olympus DAOOlympus DAO is the primary protocol to make use of a bond mechanism to create an alternative choice to 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 forms of consumer actions: staking, bond shopping for, and promoting.
Bond purchases are a singular mechanism of the Olympus DAO that enables customers to buy discounted OHM from the treasury by backing belongings resembling wETH and DAI. However, getting the discounted OHM requires paying the corresponding worth of treasury belongings resembling wETH and DAI, and requires a ready interval of two to five days to totally acquire the bought OHM.
In addition to treasury-backed belongings, customers may pay LP tokens in change for discounted OHM, sometimes liquidity pair tokens related to OHM, resembling 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 the use of the LP token.
As a outcome, the seize of LP tokens and the stake perform of OHM permit Olympus DAO to seize 99.8% of OHM liquidity.
Screenshot supply – Olympus DAO websiteAdopting the Prisoner’s Dilemma Model of Game TheoryThe Olympus DAO attracts a lot of customers due to its (3,3) financial mannequin, which comes from the well-known “Prisoner’s Dilemma” mannequin of recreation concept.
The three behaviors of stake, bond, and promote design a (3,3) financial mannequin. When all customers take part within the stake, it may obtain a win-win impact for customers and the protocol, that’s the state of (3,3). However, the rationale why customers are keen to purchase and stake OHM is because of its excessive staking revenue.
Screenshot supply – Olympus DAO web siteWhen acquiring OHM by buying bonds, customers can pay belongings resembling wETH, DAI, and FRAX to extend Olympus’ treasury funds to help the worth of OHM. The development of the Olympus DAO treasury mixed with the settlement to manage 99.8% of OHM, then the OHM of the inherent 1 DAI can have a market value that’s lots of and even 1000’s of instances greater.
A better APY would additionally imply the next premium, which might result in a considerable amount of OHM as an incentive for inflationary output. At the identical time, there can be lots of OHM mining and promoting operations available in the market, and the worth of OHM and the pledged APY of the settlement can even lower. In the worst case, it could fall to a (-3,-3) part. This means a corresponding loss for each Olympus DAO and customers.
In this mannequin, customers who enter on the proper time can earn excessive short-term returns, however the grasping tokenomics created with the APY can be pushed by human nature. Therefore, excessive returns aren’t maintained for a very long time.
OHM Prices Are Free Floating and Determined by the MarketThe value of OHM is backed by DAO’s treasury belongings (resembling 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 value drops, the settlement will purchase again and destroy the OHM, pulling the worth again up.As clear from the Footprint Analytics chart, OHM is extremely risky. 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.
Footprint Analytics – OHM of PriceAn evaluation of the principle upside and draw back elements by means of OHM’s coin value actions.
OHM value will increase:
Olympus has launched a bond function that enables 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:
More customers staking OHM can even trigger OHM costs to fall.OHM’s costs are largely maintained by new purchasers.There is 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 must lock in tokens resembling ETH or LUNA to obtain a stake reward at a 1:1 value for stETH or stLUNA, the reward for staking wETH or DAI at Olympus is OHM, which remains to be very dangerous as the worth of OHM is extremely depending on market elements.
SummaryStill, in its early levels, Olympus DAO leads the mission with a (3,3) mannequin that requires customers to take part collectively in putting bets, and it solely is smart if there aren’t any rebels amongst all OHM stakers.
It is, due to this fact, harder to create a dynamic and balanced development in an ever-changing cryptocurrency market. And customers who desire a excessive APY must take the next danger.
Date and Author: Mar. 2022, Vincy,
Data Source: Footprint Analytics – Olympus DAO Dashboard
This piece is contributed by the Footprint Analytics group.
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