Executive Summary
Olympus DAO represents one of the most innovative experiments in decentralized finance (DeFi), pioneering the concept of Protocol Owned Liquidity (POL). Launched in March 2021, it introduced a decentralized reserve currency model where each OHM token is backed by assets in its treasury, aiming to solve liquidity fragmentation in traditional DeFi.
Key innovations:
- Bond Mechanism: Users purchase discounted OHM by depositing stablecoins or LP tokens, creating sustainable liquidity.
- (3,3) Game Theory: A meme-driven equilibrium encouraging long-term staking for high APY (up to 8,000% historically).
- V3 Upgrades: Range-Bound Stability (RBS) and Inverse Bonds enhance price stability and cross-chain governance via gOHM.
How Olympus DAO Works
1. Reserve Currency Model
OHM is algorithmically stabilized by treasury assets (e.g., DAI, ETH) with a 1:1 backing ratio. Unlike stablecoins, OHM’s value floats freely but is protected by a floor price derived from treasury reserves.
📌 Key Terms:
- RFV (Risk-Free Value): Minimum value of treasury assets per OHM.
- Delta: Market price vs. RFV, reflecting protocol confidence.
2. Protocol Owned Liquidity (POL)
Traditional DeFi relies on rented liquidity (yield farming), leading to "mercenary capital." Olympus DAO flips this by:
- Bonds: Users trade LP tokens for discounted OHM, transferring liquidity ownership to the protocol.
- Staking: High APY incentivizes locking OHM, reducing sell pressure.
👉 Explore how POL outperforms yield farming
The (3,3) Meme Explained
A Nash equilibrium where users maximize gains by cooperating:
| Action | Impact | Outcome |
|--------------|---------------------------------|---------|
| Stake | Reduces circulating supply | (3,3) |
| Bond | Adds treasury assets | (2,2) |
| Sell | Increases sell pressure | (1,1) |
Example: If 80% of OHM is staked, the protocol sustains high APY while minimizing volatility.
Olympus V2 & V3 Upgrades
V2 Highlights:
- gOHM: Cross-chain governance token enabling shared staking rewards.
- Auto-Staking Bonds: Reduced gas fees via ERC-1155 NFTs.
V3 Innovations:
- Range-Bound Stability (RBS): Algorithmic market operations to stabilize OHM’s price within a moving average range.
- Inverse Bonds: Allows OHM holders to swap tokens for treasury assets, absorbing market volatility.
📌 Formula:
Lower Wall Price = MA × (1 − Wall Spread)
Upper Wall Price = MA × (1 + Wall Spread) Risks and Criticisms
- Sustainability: High APY relies on continuous bond sales and staking.
- Fork Proliferation: Over 110 OHM forks dilute innovation.
- Bear Market Vulnerability: Reduced speculative demand threatens POL stability.
FAQs
1. Is OHM a stablecoin?
No. OHM is a reserve currency backed by treasury assets but floats freely.
2. How does RBS prevent price crashes?
By using treasury funds to buy OHM below the lower wall price and sell above the upper wall.
3. What’s gOHM’s utility?
gOHM unifies staking rewards across chains and enables governance voting.
Conclusion
Olympus DAO redefined DeFi liquidity with POL and (3,3) game theory. While its model faces scrutiny, innovations like RBS and gOHM showcase adaptability. The protocol’s long-term success hinges on expanding utility beyond speculative staking.
👉 Learn more about DeFi 2.0 trends
Further Reading: