Tokenomics / Ponzinomics case study: Olympus DAO

Summary

The script delves into Olympus DAO, a project with a token OHM that soared from $8 to $1,400, only to plummet by 99.3%. It aimed to become a stablecoin with a $1 floor price but allowed trade above it. Olympus DAO's treasury strategy involved discount OHM sales and staking with high APY rewards, funded by excess profits and trading fees. Despite amassing a $850 million treasury, the project was speculative, with high rewards unsustainable without continuous high-priced OHM purchases. Its success narrative attracted clones offering even higher rewards, leading to a desertion of speculators and a market collapse.

Takeaways

• 📈 Olympus DAO's main token, OHM, experienced a dramatic rise and fall, launching at $8, reaching an all-time high of $1,400, and then dropping by 99.3%.
• 🏛 The project's long-term goal is to become a new, nation-independent stablecoin with a value of one OHM equivalent to one US dollar, but this is only a price floor, not a strict peg.
• 💼 Olympus DAO has a treasury mechanism that allows users to buy OHM at a discount, with delivery after a waiting period, similar to a bond, and accepts payment in tokens that share in trading fees.
• 💰 High APY staking rewards are offered to users who lock up their OHM, funded by the treasury's profits and ongoing revenues from OHM trading activity.
• 🔄 The treasury's ability to mint new OHM at $1 without violating its reserve requirement creates a scenario where supply might create its own demand, but this is risky and speculative.
• 🚨 The high market cap of OHM, reaching over seven times its treasury value, indicates a significant speculative bubble and a big bet on the project's leadership and governance.
• 🚫 The project's utility for the short term is purely financial speculation, with no meaningful advancement towards its long-term aim of becoming an internet reserve currency.
• 📊 The treasury's value and profits are exposed to being overstated by speculative sentiment, including the value of OHM and its derivatives in the balance sheet.
• 🔄 The treasury's claim to recurring revenues is also subject to a positive feedback loop, where higher trading volume during speculation periods inflates the perceived value.
• 📉 Supply policies in Olympus DAO were designed to appeal to speculators, but the underlying design does not support the high valuations that investors were paying for OHM.
• 🌐 Olympus DAO's success led to the creation of clone projects offering even higher APY rewards, which siphoned off its speculative investor base and contributed to its downfall.

Q & A

What was the main token of Olympus DAO and what was its initial launch price?

The main token of Olympus DAO was OHM, and it launched at $8.

What was the all-time high price of OHM and what was the return on investment at that point?

The all-time high price of OHM was about $1,400, delivering a 176-fold return on investment.

What was the daily trading volume of OHM before the crash?

The daily trading volume of OHM before the crash was about half a billion dollars.

What is the long-term goal of Olympus DAO in terms of its stablecoin?

The long-term goal of Olympus DAO is to become a new, nation-independent stablecoin with one OHM having the value of one US dollar.

How does Olympus DAO's stablecoin value claim differ from a strict peg?

Olympus DAO's value claim isn't controlled as a strict peg; instead, it's offered as a price floor, allowing the price of OHM to trade freely in exchange markets above one US dollar.

What mechanisms did Olympus DAO create to grow its treasury?

Olympus DAO created two mechanisms: one allowing users to buy OHM at a discount with a five-day wait, and the other being staking, which offers high yields funded by the treasury's excess profits and trading fees.

What were the high APY rewards offered by Olympus DAO, and how were they funded?

Olympus DAO offered APY rewards that at one point stood at over 7000%. These rewards were funded by the excess profits earned by the treasury and the ongoing revenues from trading activity captured by the protocol.

How did Olympus DAO's design potentially lead to its own downfall?

Olympus DAO's design led to its downfall by spawning several clone projects that offered even higher APY rewards, causing its speculator base to desert, and by relying on speculative sentiment which was unsustainable when the market turned.

What was the role of 'Zeus' in Olympus DAO, and why was investing at seven times the treasury value considered a big bet?

'Zeus' was the pseudonym of the head of Olympus DAO. Investing at seven times the treasury value was considered a big bet because it relied heavily on the abilities of 'Zeus' and the governance capabilities of the DAO, which were unproven at the time.

How did the treasury's claim to recurring revenues become prone to overstatement?

The treasury's claim to recurring revenues was prone to overstatement because the value of fees and trading volume depended on the value of OHM, which was influenced by speculative sentiment, creating a positive feedback loop.

What was the key trick used by Olympus DAO to convince investors that their supply policies were not inflationary?

The key trick used by Olympus DAO was to commit only to defending a $1 price floor for OHM, while having ample reserves to credibly defend that policy, even though the market price was much higher, creating the illusion of value without supporting the speculative prices.