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For all the wannabe ohmies out there scratching their heads about the fuck @ohmzeus is up to over at @OlympusDAO. You may or may not have heard about $OHM. Fear you not gracious #DeFi degen. I got you. Check the mother of them threads below.
Q: How is $OHM different to that other algorithmic stablecoin?
A: Most algo-stable attempts we have seen so far tried to peg to 1 $USD. Though not even the US Dollar is stable in itself. Rather it is subject to the swings of monetary policy of the Federal Reserve and US Government.
Something that tries to align with instability cannot be stable. So even if these other attempts would achieve the peg over the long run, their effective purchasing power would change with whatever they try to peg against. Now, $OHM does not peg to 1 $USD.
$OHM does also not peg to 1 $DAI. $OHM is backed by 1 $DAI. The difference is that one tries to be stationary while the other only ensures a solid floor. The rest is up to market dynamics, where the floating price of $OHM is effectively reconciled based on supply and demand.
On the open market, the @OlympusDAO protocol is only one participant. Right now the backing asset of $OHM is $DAI. @OlympusDAO could also introduce another backing asset in the future. This would make things a little more complicated though.
So introducing more backing assets is something that a lot of smart people will figure out once the time has come.
A: This is one of the most important and most misunderstood fundamentals to grasp about $OHM. The @OlympusDAO protocol mints and burns $OHM. The market at which $OHM trades is a separate entity from the protocol itself.
On the one side there is the protocol minting 1 $OHM for any amount of $DAI it receives, as long as this amount is greater than 1. This means that $OHM is fully backed by $DAI, contrary to most inflationary protocols that print money out of thin air.
Spoiler, you don’t want to get into what we call suicide pools, because the native token is meant to be dumped by ravaging farmers. So now, @OlympusDAO provides $OHM to the market and from there the market on the other side takes over with its own dynamics.
People are willing to pay a premium for $OHM, which is why it trades above 1 $DAI. That may have several reasons. One of the more dominant reasons being profitability, because (3, 3) and wagmi. Damn those 6 digit APYs.
Note that a lot of people get stuck between the difference of “backed vs pegged”. The difference is that pegged aims to be stable, e.g. around 1 $USD. Backed in turn means there is a stable floor price while being open end.
Sky's the limit, which the market decides once again for itself based on supply and demand. So, pegged == 1, while backed >= 1. Now when you back something, you don’t need a US Dollar per se, because the US Dollar is pretty much controlled by the US Government.
And so the first backing asset for $OHM is $DAI. Again, backing assets for the treasury can be added later for the sake of diversification, which would further foster the reliability of $OHM and its underlying protocol.
Q: Where is this auto compounding 0.66% $OHM reward per epoch coming from?
A: @OlympusDAO emits staking rewards every 2200 blocks. This is the length of one epoch. One epoch being roughly 8 hours long, resulting in 3 rebases every day. If you go (3, 3), meaning you stake $OHM and I stake $OHM, we beat the market to it via game theory: 90% $OHM staked.
Staking rewards as of time of writing are about 0.66% per epoch, which means your stake is auto compounded 3 times a day, amounting to roughly 2% profit. Every. Single. Day. These insanely high rewards can be granted during expansion because the premium paid for $OHM is so high.
1 $OHM trading around 850 $DAI means that the treasury makes 849 $DAI more on every $OHM sold than it needs to make in order to back 1 $OHM with 1 $DAI. Building up the treasury like that enables the protocol to pay stakers so handsomely which makes all of us win.
So in general the APY is higher the higher the price of $OHM is. The price of $OHM is indirectly controlled by the protocol because of how many $OHM are minted upon market operations like sales and bonds.
The protocol does also acquire $OHM / $DAI liquidity via bonding in order to extend protocol controlled value (PCV). That makes the treasury earning fees on the LP, which is another income stream. Half the LP right now is protocol controlled, making my ohmies sleep well at night.
Since the treasury amounts liquidity and risk free value (RFV), it can further put funds to work in order to hedge against risk and make additional profits. Those ambitions though shall be exercised in the future.
Q: Why does the $OHM price not matter long term?
A: The mission of the @OlympusDAO is generational wealth creation. If you invest in $OHM, you should only put money into it if your time horizon is at least one year. That means you should treat the money staked in $OHM as being locked up for a minimum of 12 months.
So only put money into $OHM that you under no circumstances need to survive for the months and years to come. That time horizon is important in order to gain the momentum that the protocol can realize for you.
And the protocol can only realize its vision if being staked over longer periods of time. This is once again why we (3, 3). You stake. I stake. We win. The numbers show clearly how strongly the ohmie game theory plays out. Around 90% of $OHM are staked at all times.
Now what happens when you just stake is that you effectively get more $OHM. We do not bet on higher prices. We bet on capturing a share of the market cap for each and every ohmie staked.
And because the premise of the protocol is to accumulate more $OHM we only aim to achieve to trade in a certain price range. This here is no moon boys number go up game. You stake.
You get more $OHM. And more $OHM auto compounds more $OHM at a faster pace for you as the months fly by. This is why the price of $OHM in the long term is irrelevant for everyone staking their $OHM.
You cannot lose money over a one or two year time period, as you would break even before 2 years end assuming we would ever hit the ground at 1 $OHM trading at 1 $DAI. Given black swan events can always happen, such a scenario is one of the most unlikely.
So if you buy 1 $OHM for 800 $DAI, you would end up with roughly 1344 $OHM in 12 months from now, assuming the reward rate per epoch does not drop significantly below 0.66% for longer periods of time.
That means, even if 1 $OHM would trade at 1 $DAI in one years time, your net profit would be around 544 $DAI per $OHM. Another way to look at it is that 1 $OHM purchased and staked today results in 2 $OHM within roughly 5 weeks.
That means that the price could drop by half within that timeframe and you would still break even. Please note that the decentralized systems we deal with are not stable.
The numbers provided in reward rates and APYs provide rather a ballpark than an exact number to calculate with. Everything around us is dynamic and subject to change. And with (3, 3) we aim to change for the better.
If you have any questions feel free to reach out and make sure you come to Discord. The hordes of amazing ohmies are waiting to welcome you. Long live the protocol, and may @ohmzeus be with you.
