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OLYMPUSDAO: EVERYTHING YOU NEED TO KNOW

January 6, 2022 By Kiril Kuculoski

DeFi protocols are emerging left, right, and center. One project that promises
huge APY is OlympusDAO. But what exactly is OlympusDAO and why should you pay
attention to this project?

OlympusDAO is a DeFi protocol that hopes to create a stablecoin backed by
crypto. At the current time of writing, stablecoins such as USDT (Tether) are
backed by the US dollar. In a crypto environment where decentralization is a
buzzword, Tether gets a bad rep. But that’s not solely because Tether is backed
by the US dollar. In recent times, reports have exposed Tether’s scammy
development team and market capitalization.

The way Tether works is by burning more USDT in hopes of achieving a relative
price of $1. This form of maintaining price isn’t sustainable, with many experts
saying that USDT will inevitably bust. This is where OlympusDAO comes into play,
or so people think.



OlympusDAO, being backed by crypto, creates incentives for traders by giving
lucrative staking yields. It is estimated that OlympusDAO promises staking APY
up to 7,000%. This is precisely why many are calling OlympusDAO a Ponzi scheme.

But to truly get to the bottom of this mystery, we have to look at how
OlympusDAO works and how the DeFi space benefits from it.




WHAT IS OLYMPUSDAO?

OlympusDAO is a DeFi protocol and a promising project to cut the reliance on
fiat-backed stablecoins. That sentence is true when it comes to explaining what
the core mission of OlympusDAO is. But things get a little blurry when we
discuss the means the project hopes to achieve that.



Since many stablecoins are indeed in bed with the US dollar, it creates distrust
in the cryptocurrency space. Since the United States controls the US dollars,
many fear that markets are overly exposed to depreciating fiat assets.
OlympusDAO hopes to severe this connection and come up with a better stablecoin
than USDT, USDC, and more.

But how does the project hope to achieve that? The developer of OlympusDAO is a
mystery. The person goes by the name Zeus. Zeus could be a person, or it could
be a team of developers. It could also be something else more sinister. Whereas
stablecoins rent liquidity to the US dollar, the liquidity of OHM tokens is
owned by OlympusDAO.

Since Olympus is indeed a decentralized autonomous organization (DAO), it
doesn’t rely on any government or governing body. Instead, DAO cryptos follow a
strict set of rules encoded in a computer program.




HOW DOES OLYMPUSDAO WORK?

Being a DeFi protocol, OlympusDAO relies on liquidity. Liquidity and liquidity
mining are topics that we’ve explained in a previous guide here. But what you
need to know is that every protocol relies on liquidity. Otherwise, the protocol
will fail. In some protocols like Uniswap or Sushi, users provide liquidity and
they get rewarded in the process. With OlympusDAO, they provide the liquidity
necessary for the protocol to run.

With user-backed liquidity, protocols end up exposed in a few ways. For
starters, users can just abandon the protocol. One way protocols incentivize
users to provide liquidity is by offering higher returns. The process that
OlympusDAO introduces to prevent this from happening goes by the name “bonding.”

Bonding essentially means buying liquidity from users. OlympusDAO buys the
liquidity from users in exchange for OHM tokens. OHM tokens hope to be the next
stablecoin. The protocol exchanges discounted OHM tokens. At the current time of
writing, OlympusDAO holds 99.5% of the liquidity. By owning the liquidity
necessary for the protocol to run, Olympus protects itself from users abandoning
it by offering higher yields. The only difference is that the yield can be as
high as 7,000% annually. This is more than enough incentive for users to stick
around and reap the benefits.



If the price of OHM tokens goes below $1, the protocol will burn OHM tokens and
thus bring the price back up. So in short, let’s summarize a few things:

• OlympusDAO is a DeFi protocol hoping to be the next big stablecoin.

•  The protocol isn’t backed by the US dollar or any other currency, instead
backed by crypto.



• OlympusDAO incentivizes users to stake OHM tokens and get rewards in the
process.

• These rewards can go as high as an APY of 7,000%.

• OlympusDAO provides its own liquidity by bonding or buying liquidity.




OLYMPUSDAO AND (3, 3)

If you’ve been following this project, you might have come across a strategy
referred to by the protocol as (3, 3). We already mentioned that OlympusDAO uses
staking as a means to acquire value to OHM tokens. But what you should
understand is that OlympusDAO doesn’t just want to be a stablecoin, it wants to
be a store of value. A store of value simply means that your investment should
grow.

So how does (3, 3) work, and what is it? The (3, 3) is a staking strategy that
rewards users for staking OHM tokens. To stake OHM tokens, you need to buy OHM
tokens first and use the Olympus App. On the app, you connect your wallet and
stake OHM tokens. You can see right there the current APY. As we’ve said
numerous times before, OHM staking rewards come with very rewarding APY. At one
point, the APY rose to 8,000%. The rewards users receive come in the form of
more OHM tokens.

Users can then stake even more OHM tokens and lock their tokens for liquidity.
OlympusDAO then buys the liquidity from users.




OLYMPUSDAO AND (1, 1)

(3, 3) is the staking strategy of the protocol. But what about the bonding
strategy? The bonding strategy is referred to as (1, 1). The protocol uses
bonding to acquire value to OHM tokens. This is the process of selling
liquidity. In return, Olympus gives you discounted OHM tokens.


FINISHING THOUGHTS

OlympusDAO is a protocol with its own cryptocurrency – OHM. OHM tokens are
treasury-backed and operate differently from other stablecoins like USDT or
USDC. OlympusDAO hopes to be the next big thing in DeFi. By providing lucrative
APY to holders, Olympus maintains liquidity and price. But the extremely high
APY is why many are calling it the next Ponzi scheme in crypto.



KIRIL KUCULOSKI



Partner at Vega Capital Management - a private funds management company.

An experienced portfolio manager with 10+ years of proven and reputable track
record in investment management and financial analysis. Currently, a partner at
one of the fastest-growing private fund management companies in southeast
Europe, Kiril has been tending to a loyal international base of client-investors
and partners. When he is not crunching numbers and increasing his client’s
wealth, he reminisces about his Michelin-star restaurant cheffing years and
fondness of the culinary arts.




Filed Under: Crypto, Investing

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