DeFi Deep Dive #10: Olympus Finance

Profiling Protocols Featured on DeFi Llama

🦙 DeFi Llama tracks over a hundred protocols. How well do you know them all? Each week our staff of llamas perform a deep dive on one of the protocols🦙

What’s up, OHM-ies!

Olympus DAO is building a decentralized reserve currency called OHM. Much like traditional stablecoins, OHM is backed by dollar-pegged cryptocurrencies (ie DAI, FRAX). However, it does not have a strict 1:1 peg with the backed assets, instead utilizing a floating market price with an implied floor price of the backed assets.

The Olympus protocol is designed to adjust the supply of OHM based on its price. When OHM trades significantly above its backed assets, it mints new OHM. When OHM drops below its backing, the protocol buys back and burns OHM.]

The DAO controls all major actions within Olympus. Since its launch, OHM has voted to stake its excess reserves into protocols like AAVE and Convex to earn yield on its treasury, currently $70MM

OHM holders have two actions they can perform with the protocol, staking and bonding.

Staking is referred to as (3, 3) per the game theoretical parlance, and intended to be a long term strategy. Yield from bond sales are distributed to stakers at every rebase interval. This yield is currently a whopping 16,000%, you should research for yourself whether such high yields are likely to persist.

Bonding (1, 1) is a more active short-term strategy. Bonds serve as “a cross between a fixed income product, a futures contract, and an option.” Bonds vest at a fixed price over a span of days, and since the price of bonds can fluctuate wildly on secondary markets this requires active management to optimize.

Some investors are rightly nervous of the 5 (previously 6) digit APY, which is often a sign of scams. However, it’s worth highlighting that OHM has performed relatively well during the crypto market downturn of the past few months, seeing its TVL continue to rise throughout. If you are worried that OHM is simply in a growth stage and could collapse just as quickly, consider this thread on how OHM may perform in a doomsday scenario.

The protocol is designed with a heavy nod to game theory. Rounding out the staking and bonding actions are selling actions, which they consider to be a negative value. They’ve therefore built out their incentive structure to penalize selling in true Prisoner’s Dilemma fashion:

With such a strong control over their treasury, their DAO has a lot of power. As of a month ago, Olympus DAO had 98% control over their Sushi pool.

Having compounded such a large treasury, they are now looking for opportunities to spread OHM as the default reserve currency in DeFi. In this recent podcast, they discuss the idea of a “treasury-as-a-service”, to allow other protocols to tap jnto OHM’s reserves when they are most in need.

They are also looking into adjusting their tokenomics a bit for the long term, slashing rewards for the sake of increasing supply. It may be unpopular with the high yields, but it’s encouraging to see them looking for the long term.

A protocol as complex as OHM, we’ve really only scratched the surface. For more detail, this thread is recommended:

If you are interested in Ohm, check out their active Discord, Github, Twitter, blog, or website.


Would you like us to profile any of the protocols listed on DeFi Llama? Send us a note in the comments!