Olympus DAO (OHM) is an incredible DeFi project attempting to create a global stablecoin asset backed by crypto, not USD. Some stablecoins, such as DAI, already fit that description, so what makes Olympus DAO and its OHM token different? The Olympus DAO treasury.
Olympus uses token staking and bonding to incentivize users to deposit or sell their collateral to the Olympus treasury in return for discounted OHM tokens.
To say that the Olympus DAO vision has made an impact is an understatement. A passionate user base propelled the OHM token to a $4 billion market capitalization — and the (3, 3), meme referring to the protocol’s game theory, is all over Crypto Twitter.
This beginner’s guide to Olympus DAO explains the OHM token, how the protocol works, and everything you need to know about (3, 3).
What is the OHM Token?
OHM is a reserve cryptocurrency issued by the Olympus protocol. However, you mustn’t confuse OHM with being a stablecoin like Tether or USDC. Think of the Olympus system as similar to the gold standard — it uses a reserve of valuable assets to issue and back OHM tokens.
Besides being a treasury-backed reserve currency, OHM is also used to govern the decentralized Olympus protocol. No one person owns, controls, or decides what happens in Olympus. Instead, OHM token holders vote on decisions to be made by the Olympus DAO.
How Olympus DAO Works
Olympus owns its liquidity instead of renting it. To understand, let’s back up a moment and talk about decentralized finance in a wider context.
Decentralized finance protocols such as Uniswap, Curve, and Sushi depend on users to provide liquidity to the protocol. That dependence is great for keeping markets efficient and liquidity distributed, but poor for shielding the protocol’s long-term value from the whims of the market.
There’s also the problem of incentives. To keep liquidity providers onboard, protocols must bribe them with higher returns. Otherwise, they’ll abandon ship and head to another platform.
Olympus solves the problem of liquidity migration by owning its liquidity. It does this by buying liquidity from its users in exchange for discounted OHM tokens in a process it calls bonding.
Treasury Bonds :-
Allows you to buy bonds and this is basically a mechanism where you can buy $OHM tokens from the treasury but at a discount. You might be wondering how to get that at discount. Well, first you must pay in another coin or token like Avalanche.
For this example, let's say $OHM is then $10,000 and you want to buy one $OHM token. The treasury allows you to buy $OHM at $9,600 effectively cutting you a four percent discount on it. But the catch is that you must pay with $AVAX and you must wait for few days to receive all of them $OHM. If the price stays the same, you made a profit.
Staking
Treasury also allows you which is a mechanism where you can deposit your $OHM tokens to earn even more $OHM tokens. Staking takes $OHM off of the market decreasing the total supply. But the main benefit to you is that it allows holders to gain all those extra printed $OHM tokens. Now here's the quick recap, when $OHM is backed by more than it needs it simply prints more tokens and give those tokens to the stakers. However, when $OHM is backed by less than it needs Olympus will actually starts to buy back $OHM
Another important thing worth thinking about is something called...
LP Rewards
Remember how we said that treasury actually buys their own liquidity through the bonding mechanism because of this Olympus owns a very large majority of OHMs liquidity 99.88% actually. Due to this they capture nearly 100% of all the trading fees involving $OHM. They actually earn millions of dollars from people simply buying and selling $OHM token. This acts as a major source of revenue for Olympus Dao, and this is what helps build the $OHM treasury to actually back their $OHM token.
Moving On, let's talk about..
The 3,3 Meme
Now the 3,3 meme that you probably see floating around here and there is representative of something bigger. It actually represents an idea out of game theory which is philosophical thought process of how to win games using economic and human behaviour.
First, let's explain something called..
Prisoner's Dilemma
Now let's say there are two criminals and they both have two options to either co-operate with law enforcement or not to co-operate. If a criminal co-operates that criminal gets a better sentence but their partner a worst sentence, and if they both co-operate and confess they both get a pretty bad sentence but if they both deny the accusations they actually both get of easier. Now assuming you don't know which idea partner is going to choose which one do you choose.
Now Olympus Dao extends this theory into their own realm of a 3×3 matrix. Using the same theory the best possible case is if you and everyone else stakes the $OHM token. While the worst possible case is if everyone sells. Again this means that the best possible case is if everyone stakes long term assuming everyone participating is rational and aware of this thought thought process. I will say unfortunately this relies on human. So how will you check back in a year or may be 10 years to see the outcome.
However, instead of guessing what might happen let's quickly go through the worst case scenario.
The first is what happens if the price falls what it's backed by one dai. Remember how I said each $OHM is supposed to be equal to one dollar. Well that's technically the very minimum that it should ever be. If fact there's something called the floor price which represents the price of which $OHM should not fall below due to the amount of money in the treasury.
Conclusion
Now some of you may be wondering how this project might be similar to Iron Finance and Titan token. OHM is actually completely different from the Iron Finance bank run which resulted in the collapse of the project. Iron and Titan were susceptible to bank runs all the way down to the zero. Olympus is susceptible to the same thing but this time there's actually a floor to the price and the protocol will actually buy back your tokens, and in theory you won't loose all of your money if a bank run happens you would only loose the difference between the current price and the amount of backing each $OHM.
Now as the time goes on and more people buy $OHM. The protocol will continue to collect fees since it technically owns over a 99% of its own liquidity. Meaning that the treasury should continue to grow at a quick rate. So yes the Olympus Dao protocol does have a risk but it should be noted that it differ from the Iron Finance risks. And the project has definitely brought some new ideas to light. It's an impressive experiment in behavioral economics in the world of crypto