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.
By owning the vast majority of its liquidity (Olympus currently holds 99.5%), Olympus protects the value of the reserve-backing OHM tokens and keeps the protocol liquid. That allows Olympus to grow its treasury further by reaping the rewards from its LP tokens, which again raises the reserve’s floor value, as well as that of OHM.
When the value of OHM outpaces the reserve’s floor value, i.e. the market value of the assets in reserve, the protocol issues OHM to dilute the supply and drop its price. If OHM prices go below $1, the protocol burns OHM from the supply to boost their value.
If you look at OHM prices today, you’re probably wondering why they trade above $1 if they’re meant to act as stablecoins. The answer is OHM is designed to float freely so that the market decides its value. However, the risk-free value (RFV) per OHM is determined by the nominal value of the treasury-held assets.
OHM STAKING
OHM Staking (3, 3)
The key point to remember about OHM is it’s intended to be a store of value — not a mere stablecoin. A store of value should maintain or increase in value relative to the principal investment. Olympus uses staking as a primary resource for accruing value to OHM to achieve store of value status. This strategy is referred to as (3, 3).
Staking OHM tokens works in a straightforward way. You either buy OHM on the market or bond your liquidity (see the following section) -
in exchange for OHM. Then you use the Olympus app to stake your OHM in return for rewards, in the form of more OHM, which the treasury derives from bonding sales.
OHM staking rewards are known for being incredibly high. Right now, they’re nestled just above 8,000% APY.