A cautiously optimistic essay on OlympusDAO
0xA95A
January 26th, 2022

(3,3) is a meme that has taken crypto by storm, and while we might not be in the (3,3) phase of the project anymore, here is a look towards the future.

This article is a “the cup is half-full” look at Olympus, instead of the other side of the coin that seems to be popular. I only think of ohm as far as the decentralized reserve currency experiment is concerned any pivot from this idea moots the arguments that I’ve made in this essay.

There seems to be little love lost between most of CT and the downfall of Olympus. But if there’s one characterization that I don’t entirely agree with that has dominated the common parlance of Olympus talk is calling it a Ponzi, and I think it’s quite sad that the project itself tried to popularize that narrative on some level, you reap the seeds you sow.

What is a Ponzi, though? A quick search on google yields the following.

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi schemes are named after Charles Ponzi. ... Ponzi used funds from new investors to pay fake “returns” to earlier investors. Ponzi scheme organizers often promise high returns with little or no risk.

By comparison, at least I’m unaware of Olympus ever promising high returns at little or no risk. For as long as I was active in the server till September (before its monumental run perhaps), the conversation in this case usually ran around what would happen in the case of a bank run and how most investors wouldn’t have lost a lot when considering the RFV of the token. Perhaps it was the APY marketing campaign that came closest to ohm ever being an absolute Ponzi.

But what went wrong? I think the Olympus October run and the November top almost echoed the levels of craze that were seen in the GameStop run which were seen in stock markets earlier this year. But I think the comparison mostly stops there. Speculative price runs are a breed of virus that eventually bring down any asset that they take hold of Doge, Shiba, Floki, time, hex and while you might think that I’m just adding “Ponzis” in this list, I’m sure you are aware of the bags that you have owned over the past year. It’s all reflexivity.

Ohm was actually countercyclical in the first half of its existence until September. You could chalk this up to a variety of reasons, but it could have been majorly attributed to the fact that ohm was actually a stables hedge, with APY embedded, since the treasury was all stables, and after they started diversifying the treasury into non-stables (eth) it took a more cyclical turn even though it was a fraction of the treasury. I think the thing that led most to ohms insane run and its subsequent downfall was its (9,9) feature. Anyone who has ever done any fundamental analysis in stocks or has looked at a financial balance sheet would tell you that Olympus was almost trading at 20-30 times its book value and *expanding supply* at this rate, which means quick dilution. I think you cannot allow lending-borrowing practices on the underlying expanding token (sOHM) at a 100% collateralization rate, something that would’ve saved ohm, perhaps also would've tapered its upward run, would’ve been a collateralization rate which was a function of its RFV. This would’ve removed the excessive amount of leverage that dictated and still dictates every downturn the token has seen. Another reason for the downfall was the immense concentration of the distribution in whales that were early to as much as one whale holding 85k ohm (about 120 million dollars at the top, which was sold for about 30 million dollars recently).

But…but… only early people really made money on ohm, it was only people who participated in the IDO? Even by the time I had left, only about 12 presale participants were still left. At this point I’m mostly convinced that the only way to really make money on assets, unless you are a trader, is to be early to it and while people in this space do make insane amounts of wealth through airdrops sometimes that is also perhaps precisely why we call crypto a generational opportunity or find some asset which has been in the scene for a long time and is undervalued and you wait for a people to see its value and even then in strictly monetary terms you are “early to it”.

But now that the token trades near its RFV and almost all leverage has been removed out of its system and the ohm holding concentration looks much more distributed than ever before, I personally am one of the biggest proponents and would like to see ohm succeed, perhaps not so as much for profit (I don’t own any bags) but because it would be the first successful “currency” experiment that was successful in defi.

Why do we need a decentralized reserve currency at all? Or what would it mean to achieve that target? From here on, I talk about the possibilities and you as the reader might have to allow me to wonder about a decentralized financial ecosystem.

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution - Satoshi Nakomoto, Bitcoin Whitepaper

That is the first line of the bitcoin whitepaper abstract. Bitcoin in its original form and its earlier narratives wanted to replace “money” and be used for our daily transactions and other uses that you commonly use money for. Most of its opponents always have drawn attention to bitcoins volatility to highlight its inability to be a currency in any form (something even ohm opponents draw attention to). But something that is an undeniable usage of bitcoin however small the volume is that bitcoin is definitely used for cross border payments because of its convenience, censorship resistance and usability. What would bitcoin have to accomplish to become an actual currency? Bitcoin would have to be held by multiple treasuries across nation-states across the world and allow it to become a legal tender perhaps if it really kicked off you would even at some point see bitcoin-backed currency (this is really outlandish and I don’t think so either). But the other reason bitcoin’s “currency” dreams never took flight was because of its network being bottlenecked on the scaling level and while you might talk about bitcoin L2s, none of them has seen the sheer level of adoption that merits it any mention here and bitcoin’s network security is under question given the trajectory that it is on so its dreams of becoming a currency are currently under question, The narrative that has caught on for bitcoin is the “store of value” narrative.

How is any of this relevant to ohm? It’s the idea of the need for a currency. The entire crypto ecosystem now hinges upon stablecoins and while stablecoins are good they are still a distorted representation of the currency-pegs we use, what is the current currency of the crypto ecosystem assuming we were living in a crypto world with no fiat anchor? Bitcoin. Because Bitcoin is used in a variety of places and every major exchange and CEX usually adds a bitcoin pair for the token immediately after the fiat pair. The gap that ohm is trying to fill is that of having a peg that is neither bitcoin nor a stablecoin, and in the ideal sense of the crypto ecosystem, so that it becomes the base token for a variety of assets to be measured in. While I’m aware that the risk-free value of $ohm is measured in x dollars, it’s exactly the idea of moving away ohm being backed by 1$ like every other algostable has tried to each ohm being backed by x RFV amount that the idea of being a reserve currency is about.

When did we all forsake ourselves? That we aren’t enthusiastic about the prospects of something like this being a possibility is something I often wonder about. Something that’s always been fascinating to me about decentralized finance was the sheer genius of the entire ecosystem. Within the years that it has grown and since the summer of defi when it went mainstream, we have now almost rediscovered the entire financial ecosystem almost replicating everything that is available and beyond while keeping our building blocks composable and in some cases even going beyond and discovering new primitives, which we might see adopted in mainstream finance. When you consider this, a decentralized reserve currency that replicates the gold/silver standard that we previously used to have is but one experiment that we should be excited about.

Have you ever wondered that you actually (3,3) with the currency that you use every day? now you would ask me what is the RFV of your token i.e your currency and while until the early 20th century we did have an RFV namely the gold standard today we don’t, our (3,3) lies entirely in trust and backing by the governments of the respective nations we live in, our currencies are backed by guns.

Ohm was in its expansion phase and I still think that it is in its expansion phase but something that is undeniable about the success of the project is the number of hands it has put itself in. Putting yourself in the hands of 80k holders (this number is probably only counting wallets, assume 40k unique holders for convenience) in <1 year of the launch of the project is quite the view to look at.

The (3,3) phase was more about the expansion of supply to me rather than participants engaging together, but that was still an important aspect of the system so as to not let the price of the token go below the RFV and this has been observed in a variety of ohm forks. But why was the expansion phase important? There are a few ways you bootstrap a treasury, you either do a sale of tokens or you do an expansion → slow growth of the treasury. And while the earlier might sound convincing, I recall a stablecoin project which had raised almost a billion dollars in the summer of 2021 and failed to maintain a dollar peg for the first few months and while it has since turned a fresh new page, it just proves that raising your treasury through a sale isn’t a panacea/universal solution. What excited me about the sheer growth of the ohm treasury even though you might call bonds analogous to TWAP sale of tokens, is the number of people that have bonded over time consistently with the system.

Something that has undeniably seen an uptick due to Olympus, is inter protocol diplomacy due to its Olympus-pro offering. And while a diverse treasury due to such token accumulation has its issues, something you can’t help but wonder in the case of taking that idea to its extreme is, let’s say crypto does grow 5x from here and a lot of protocols have been using OlympusPro to bootstrap their liquidity and OlympusDAO due to this holds their token in non-trivial amounts. There is a vested interest across all the protocols to help ohm maintain its peg lest the collapse affects their own treasuries or let ohm dilute these tokens for maintaining its RFV, and while this sounds like guerilla warfare, this vested interest in helping a currency maintain its status is how the US dollar reigns supreme as well. This is somewhat different than the curve-wars bribe meta that is popular for maintaining the pegs of a variety of stablecoins.

This article is not meant to be financial advice nor is it a call for you to load up on your bags because I don’t think the success of ohm would quite be measured in the multi-billion mcap that it has achieved or will have achieved. The final metrics for Olympusdao is its usage and the day even one user starts talking about a pair in “token-ohm” parity instead of “token-fiat/btc” parity I think ohm has achieved something worthy, and something that will be a case study in several universities across the world where economics is studied.

Thank you for reading this article, any feedback is appreciated.

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