Olympus Finance (OHM)
Launched in March 2021, Olympus Finance is taking the DeFi market by storm. Their six-figure APY rates of up to 200,000% are attracting more and more eyeballs.
One of the major reasons behind such massive returns is Olympus Finance’s unique approach towards creating a stable crypto asset.
Most of the stablecoins are dollar-backed. Considering that US dollars, like any other fiat currency, is not immune to inflation, the purchasing power of such stablecoins will decrease with time. (can you hear those money printers still going…)
To combat this, Olympus maintains stability while creating a floating-market-driven price. This is done by price-based buying and selling of their native cryptocurrency — OHM tokens.
That’s Olympus Finance in 25 words or less. Keep reading to understand Olympus Finance in detail.
What is Olympus Finance (OHM)?
Olympus Finance (OHM) is an algorithmic floating cryptocurrency that maintains a stable purchasing power and at the same time has a market-driven value. In simple words, OHM is an algorithmic stablecoin that maintains a floating market-driven price without the 1:1 dollar collateral backing.
OHM is different from other stablecoins as it is not directly pegged to the US dollar. Instead, each OHM token is backed by 1 DAI unit in their treasury.
Now that you have understood what OHM token is, let’s dive into how to earn passive income using OHM tokens.
Staking
Staking is the profit distribution model of Olympus Finance.
When you stake OHM tokens to the staking contract, you will receive an equivalent amount to sOHM tokens. These sOHM tokens are profit accruing tokens. Through sOHM you will receive a portion fraction of profits.
Moreover, sOHM tokens cannot be transferred or traded, you can only hold them to earn profits. Thanks to Olympus Finance’s rebasing mechanism, holding sOHM is the most profitable as rebasing allows you to compound your yield. Most importantly, OHM does not rebase out of thin air, the rebasing is done after buying actual OHM units.
Put simply, rebasing is the process of minting new OHM tokens that are paid to stakers.
Here’s how rebasing works:
Say, there are 500k OHM staked and 500k sOHM distributed against them. Now, say the protocol makes a profit of $5k and uses this profit to mint 5k OHM. Now, there are 505k OHM against 500k sOHM. In this case, sOHM supply needs to increase. So, sOHM is rebased by 1%.
Bonding
A bond in the Olympus Finance ecosystem is a representation of your liquidity pool (LP) share.
To create a bond, you add liquidity to the OHM-DAI SushiSwap pool. Now, you have to trade your LP share for OHM. This is called bonding.
Bonding allows you to get more OHM tokens than you would get in the market. Yes, with your LP bonds you can buy OHM tokens at a discounted price.
How does OHM work?
As mentioned before, OHM is pegged with DAI tokens in a 1:1 ratio. For each OHM token, there is a DAI token held in the treasury.
To maintain a market-driven price, the tokens are burned and minted by the protocol based on price fluctuations. When OHM trades below 1 DAI, some OHM units are removed from circulation and burned by the protocol. On the other hand, if OHM surpasses 1 DAI, new OHM units are minted and sold in the market.
In short, the treasury always holds DAI for each OHM token. This implies that OHM will not fall below its intrinsic value in the long term.
Also, as there should only be 1 DAI for each OHM token, every time the protocol purchases or sells OHM tokens, there is a profit. How? Because the protocol either receives more than 1 DAI for the sale or spends less than 1 DAI on the purchase.
Olympus Finance also makes a profit by sending DAI tokens to yield generators. They can do this, as the protocol requires a few percent of reserves no matter how bad the price difference is.
Initially, 90% of all profits are rewarded to stakers. The remaining 10% to the Olympus DAO. The rewards are paid in OHM backed by DAI units. This mechanism maintains a stable intrinsic value.
Think of OHM rewards like fiat money. You don’t want the value of your dollars to appreciate, instead, you always think of accumulating more dollars. The best part is that holding OHM will give you both, more OHM units plus the value of your OHM holdings will appreciate over time.
As of today, 16 May, each OHM token is trading at $496.58, according to CoinMarketCap .
Reading this, you might wonder — If each OHM is backed by $1 worth of DAI i.e 1 DAI, why is OHM valued at over $400?
Let’s understand this by understanding OHM yields.
First month in review and Olympus Finance yields
It’s been over a month since OHM was launched. Here’s how OHM performed in this one month:
- The OHM liquidity started small at $3 million and ran up to $7 million at its peak;
- The treasury pool ownership rose from 0% to 76%. On the other hand, the protocol-owned liquidity increased from 17% to 80%;
- There are now over 1,434,944 DAI tokens in the risk-free value of treasury assets;
- The distributor contract has over 1.1 million OHM. This can maintain a whopping 100,000% APY staking reward for over 4 months;
- The total value locked (TVL) in Olympus smart contracts has reached $127,173,085.
Thanks to such massive growth, OHM yields are in six figures:
To understand why OHM has massive value, we should understand what is a runaway.
The number of days that the Olympus treasury can sustain a certain rebase rate based on their current reserves is called runaway. Say, if Olympus Finance can offer a 1% rebase for 5 months then the runaway period is 5 months.
Let’s understand why runaway is important with an example.
Say, you purchased 10 OHM tokens against 10,000 DAI i.e. each OHM is worth 1000 DAI at the time of your purchase.
If Olympus offers a 0.65% rebase, after a month you will have 17.92 OHM units. This is a massive increase. Wait, what if the price of OHM takes a nosedive. Say, OHM falls 30% and now each OHM is worth 700 DAI.
If we do the math -
17.92 OHM × 700 DAI = 12,544 DAI
This shows you would still get more DAI than you invested. Meaning you would not incur a loss even if OHM falls 30% given the rebase rate of 0.65%.
A 0.65% rebase turns to 120,528% APY. Now, if you go to Olympus Finance and see that they have enough treasury to maintain 159 days of runway at that APY, you know that you would make profits even if OHM falls 30%.
This is how you can calculate your profits or losses based on runway period and the rebase rate.
Long story short, OHM will not go below a floor price given Olympus has enough treasury to sustain the runaway period.
The bottom line
Olympus Finance has indeed a standout solution for maintaining a stable purchasing power that is immune to inflation. Moreover, their staking and bonding mechanism changes the way you multiply your earnings.
It would not be wise to comment on the project considering it is only a month old. Nevertheless, looking at their one-month progress it is evident that the project can achieve massive success given they follow their growth trajectory.
For more information on Olympus Finance please visit them at:
Website: https://olympusdao.eth.link/#/
Twitter: https://twitter.com/OlympusDAO
Blog: https://olympusdao.medium.com/
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Disclaimer: My research and articles are for educational and information purposes only. My views are my own. They are not investment advice.
