OlympusDAO’s native OHM is taking the market by storm, up 95.8% this week alone and 31.1% in the past two weeks. At the time of writing, OHM is trading at $ 812.76, up 7.3% on the 24 hour chart.
With a market cap of just $ 68 million, OlympusDAO may have gone unnoticed by many investors. However, there is a mechanism called bonds that promises to be one of the most important and lucrative in the DeFi sector.
According to research firm Messari, this protocol seeks to create a stable currency that will support any OHM with DAI and OHM-DAI. The aim is to maintain “fundamental control over inflation” and a currency with undiluted purchasing power.
Unlike Tether and other stablecoins, OHM is not tied to any other asset. Its stability is achieved through the DAO (Decentralized Autonomous Organization) when variables are changed to provide greater profitability for the stakers.
This is done via the purchase agreement, which is linked to the treasury of the protocol and a liquidity pool (OMH-DAI) on the decentralized exchange Sushiswap (see below). Messari explains:
If OHM trades through 1 DAI, the protocol will coin and sell new OHM. If OHM is below 1 DAI, the log will buy back and burn OHM. Either way, the protocol makes a profit. Olympus DAO distributes 90% of these profits to OHM-Staker and 10% to DAO.
How OlympusDAO’s bonds work
The bonds are a treasury component to maintain liquidity. Users can trade stake liquidity provider tokens to get OHM directly with the protocol, an OlympusDAO developer explained.
Once the trade is complete there is a 5 day vesting schedule. During this time, the user can redeem the tokens but has incentives to receive them at a discount. The latter is determined by the number of bonds in the log; more bonds correspond to a lower discount.
As the developer said, OlympusDAO uses this mechanism to inhibit its own growth in order to become “more stable”.
The liquidity of a bond is locked in the treasury and is used to support new OHM dollars. This liquidity now belongs to the market and thus also to the token holders. The more liquidity the protocol builds, the more secure the holders can feel.
The users essentially contribute to OlympusDAO by adding liquidity. In retaliation, the user receives a reward in OHM at a much cheaper price for a certain period of time. This way, both the user and the protocol can benefit from it.
We are already seeing this. Since bonds launched a week ago, the log has accumulated 26% of the pool (liquidity worth ~ $ 1.7 million). Pic.twitter.com/kGoPQYGDyq
– ZΞUS Ω (3, 3) (@ohmzeus), April 8, 2021
OlympusDAO offers LP a variety of strategies around OHM with which they can achieve a greater profit than on the spot market. The developer claims:
All of this is to create a long-term, sustainable bootstrapping mechanism for the protocol, where the participants are the main beneficiaries. A good system shouldn’t provide an opportunity to do it. it should offer them in the long run with falling returns. This is how you produce wealth; slowly through compound profits.
Ethereum is traded at $2096.58 gaining 1.2% on the 24 hour chart after falling off its ATH at $ 2,198.