What is Olympus DAO？

2022-03-03, 04:23

【TR; DR】

Recent years have bore the the creation of several new DAO projects aiming to introduce more fiscal stability within the crypto market space， as well as unionise token holders so that decentralisation can be a focal point.

The concept of a DAO （or decentralised autonomous organisation） was introduced in 2016 by a series of developers in light of the decentralised ethos of cryptocurrency. Acting as a variation of a venture capital fund， DAOs are based on open-source code and without typical managerial structure. Instead DAOs rely on being entirely decentralised from any individual or group in an effort to mitigate the risk of human error or the manipulation of investor funds - thus promoting stability.

In order to prioritise stability， DAOs rely on crowdsourcing initiatives and automated processes to operate， which reduces financial barriers and enables anonymity when transacting funds, and the allocation of tokens that assist in governance. However， despite the continued effort of DAOs to remain as decentralised as possible， the initial concept was designed for the Ethereum network.

DAOs have faced much criticism in recent years due to their vulnerability to cyber attacks and hacking， as exposed by a report undertaken in 2016 - where concerns were further exacerbated following a monumental hack which saw hackers accessing 3.6 million Ethereum （an estimated $50 million at the time）. As many critics called for the concept of DAO and pioneering firms within this space to dissolve, many new DAOs have since emerged into the market with promises to resolve the former issues highlighted by the DAO system.

Positioned near the frontlines of upcoming DAO technology is the recently formulated Olympus， which seeks to develop an entirely decentralised and autonomous financial infrastructure for the purpose of transparency and fiscal stability. Drawing attention to the federal and governmental forces that control the dollar， even in stablecoin format， Olympus aspires to introduce their own ‘free-floating’ stablecoin， OHM， backed by a multitude of assets to mitigate the continual effects of inflation within the stablecoin space.

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What is Olympus？

As alluded to previously， Olympus is a fully autonomous and decentralised organisation supported by community governance that seeks to introduce a ‘decentralised reserve currency’ within the cryptocurrency market place. As stated in their whitepaper， Olympus recognises the ease many traders feel when transacting stablecoins， primarily due to their interchangeability and low-levels of volatility. However， despite stablecoins serving a ‘decentralised’ purpose， Olympus highlights that with many being backed by the dollar itself， these stablecoins lack credibility as entirely decentralised reserve currencies.

In order to resolve the issue of centralisation within the cryptocurrency space， Olympus introduced their OHM token， with the purpose of serving as a decentralised reserve currency. As opposed to being backed by the American dollar or federal gold reserves， OHM is backed by a multitude of assets with the intention of becoming an algorithmic reserve currency - not a stablecoin.

Stablecoins are formulated with the intention of remaining static， valued solely in line with the fiat currency backing them. However， Olympus strives to support the valuation of Olympus based on intrinsic fractional treasury reserves and algorithmic factors that will enable OHM to ‘free float’, thus providing traders with a valuation to fall back on.

With each OHM token backed by at least one DAI， instead of being pegged to it， the Olympus protocol buys back and burns OHM as it falls beneath the current valuation of DAI， which effectively can boost the OHM valuation above the current price of DAI. However， due to being backed by DAI， OHM has the capability to trade above the current value of DAI， referred to as ‘DAI + premium’， which would not be possible if OHM was pegged by DAI.

Olympus consists of a protocol managed treasury， protocol owned liquidity （POL）， bond mechanisms， and staking rewards that are designed to control supply expansion - each of which supports the growth and stability of the protocol at large. The bond mechanisms seek to generate profit for the protocol through the provision of bond purchasing opportunities， whilst the treasury is tasked with utilising this profit to mint OHM and distribute them to stakers.

In addition， the POL infrastructure enables the Olympus protocol to produce its own liquidity. Through this systematic integration， Olympus is able to facilitate transactions and purchases at all times， as extraneous variables （that would typically impact liquidity） lack relevance， thus enabling the Olympus protocol to back their own tokens through the internal provision of liquidity， as well as limiting costs and ‘renting liquidity’.

What is the （3，3） and （1，1） System?

Unlike other DAOs， Olympus has developed a system which is hypothesised to promote optimal function within the protocol. The （3，3） system encompasses this hypothesis， which essentially denotes that if all users of the Olympus protocol work collaboratively， this can lead to the greatest gain for all - which Olympus has stated to be derived from a ‘game theory standpoint’.

The （3，3） system can be further elaborated when placed in the context of the protocol， which provides each user with three capabilities - staking （+2）, bonding （+1）， and selling （-2）. The introduction of a ‘+’ or ‘-’ system demonstrates the contribution this has to the protol， with both staking and bonding deemed integral to the protocol’s development， and selling detrimental. However， only staking and selling have a direct influence on the valuation of OHM, whereas bonding does not.

When this system is applied to activity within the marketplace， it can produce rewards for traders who participate in beneficial transactions. If trader one stakes and bonds their OHM this can lead to them receiving half of the benefit （or +1）. However， if a trader two performs two contradictory actions （such as selling and bonding）， they will also receive half of the benefit （+1）, yet trader one would receive half of the downside （or -1）. If both trader one and trader two perform detrimental actions to the protocol， such as both selling， they both receive half of the downside （-1）. This system is further visualised in the chart below.

（Chart courtesy of Olympus）

What is the Current Value of OHM?

As a majority of the market has bled red， OHM has similarly followed suit， with a downwards trajectory across the past month spiralling OHM from $86.4 to $55.67. However， across the past year， OHM has soared above $1000， ultimately climbing to an all time high of $3,209.43 in November of 2021， as the remainder of the market bullishly strove to new heights.

Whilst OHM may currently be at its all time low， the Olympus protocol has revealed plans for a 12-month action plan to assist in the rejuvenation of the project’s valuation， after various criticisms arose and sceptics questioned the reliability of the protocol. In an initiative set to build ‘a strong ecosystem around a Web-3 native reserve currency’， Olympus has expanded the power of its treasury and motivated users to ‘bootstrap it’.

In addition， Olympus has also stressed the importance of their upcoming developments to the protocol in line with the targets of the project. Whether it be increasing the eco-friendliness of the token， incentivisation of stakers， enhancing on-chain governance， planning DAO swaps， or the multitude of upcoming additions to the protocol - Olympus DAO are aspiring to improve their infrastructure.

Author：Matthew W-D, Gate.io Researcher
*This article represents only the views of the researcher and does not constitute any investment suggestions.
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