🕉️Olympus DAO

TL;DR: Olympus DAO -Range Bound Stability Case Study

Olympus DAO and OHM Token:

• Goal: Serve as a decentralized reserve currency for Web3.

• Mechanism: Uses manual and algorithmic treasury operations for price stability.

Bond System and Protocol-Owned Liquidity:

• Innovation: Zero-coupon bonds offer discounted tokens for various assets.

• Benefit: Redirects liquidity pool fees from speculators to the Olympus treasury.

Range Bound Stability (RBS) System:

• Function: Automatically stabilizes OHM price with market operations.

• Mechanisms: Uses buying/burning and minting/selling OHM based on price cushions.

Cushion and Wall Operations:

• Cushions: Use Sequential Dutch Auctions to buy or sell OHM within a price range.

• Walls: Allow direct trades with the treasury at fixed prices.

RBS System Parameters and Operations:

• Reserve Factor: Portion of treasury deployed in RBS for liquidity.

• Price Targets: Based on 30-day moving average; adjusts to Liquid Backing Price if necessary.

• Goal: Absorb volatility and maintain OHM price stability.

Background

Olympus (OHM) is a decentralized cryptocurrency governed by the Olympus DAO, with the stated aim to serve as a reserve currency for the Web3 financial ecosystem. It proposes to do this through the OHM token, which aims to preserve price stability to act as a reliable medium of exchange. The value of the OHM token is supported by manual and algorithmic treasury operations that mitigate volatility via price stability mechanisms governed by Olympus DAO.

Olympus$V_1$ popularized a novel form of token issuance and distribution via their bond system. These are zero-coupon bonds that effectively offer discounted tokens in exchange for various other assets, from stablecoins to Liquidity Provider (LP) tokens representing various AMM-pooled assets. Observing the trends of ‘mercenary liquidity’, where stakers only provide liquidity for high-yield returns until a better opportunity becomes available (which, for 70 percent of stakers, was about three days), Olympus made a case for Protocol-Owned Liquidity. Liquidity pool trading fees that were previously being free-ridden by speculators chasing high yields were now feeding (often significant) revenue into the Olympus treasury.

While market downturns cleared out much of the speculative mania around the OHM token, Olympus continued innovating with Olympus V2 adding flexible vesting periods for bonds, which would allow for a more dynamic response to market demand. Gauntlet wrote a paper on the OHM bonding mechanism as a potential tool for the inclusion of optimal control mechanisms in DeFi liquidity management and treasury diversification.

“The appearance of optimal control and model predictive control in DeFi appears to have originated in the Ω (OHM) protocol.” - Chitra et al.

Olympus positions the OHM token somewhere between a stablecoin and a price-fluctuating crypto asset. While fiat-pegged stablecoins have become ubiquitous, establishing themselves as a popular liquidity layer across Web3, they still have some significant limitations. The underlying reference currency is often controlled by governments or financial institutions, which means that they can be subject to changes in monetary policy that can lead to depreciation in the value or redeemability of pegged tokens. This creates uncertainty for users who transact using these stablecoins, and may also lead to a loss of purchasing power over time. Olympus aims to solve this problem by creating a decentralized, non-pegged reserve currency that is backed by a basket of assets (50+ unique tokens in treasury, including LP tokens and balancer portfolio tokens), and establish itself as a reserve currency for the Web3 ecosystem.