Zeus the pseudonymous creator of Olympus has prompted a discussion with mere mortals to modify its crypto-native reserve assets that are being pegged as ‘Internal Bonds.’ The fast-evolving sphere of blockchain technology has been ripe with innovative approaches and tokenomic models ever striving to mend an apt decentralized, stable and secure network.
The labor for designing a better-decentralized ecosystem thrived with the advent of blockchain technology. In comparison to the floral prison of conventional finance, the recompences of decentralized finance (DeFi) is its ubiquitous vary of economic instruments for customers.
However, given its nascency, the ecosystem is laden with a plethora of flaws, like impermanent loss and shortcomings with liquidity mining that require many customers to compromise on a threat.
A brief history of Zeus entering the market
In the beginning, the ‘base’ asset was Bitcoin. The issue that raked the existence of this cryptocurrency, unlike what we are used to now, was the volatility associated with Bitcoin. All upheavals in the crypto-verse were associated with it. The only place to go neutral on the market was longing for a Bitcoin and staring beyond the future.
The void molded by this volatility saw the emergence of the Ethereum ecosystem and Stablecoins came along – whether they were centralized (like USDT or USDC) or decentralized (like DAI), they gave the world of crypto an exit valve. Positions could be exited into something that was ‘stable,’ pegged to the value of one US dollar.
The emergence of Stablecoins led to a Cambrian explosion in crypto, but behind the veil, the risk of locking horns with a centralized agency was always ripe as it was on the use of the US dollar or its equivalents. And indeed, that risk has now come to the fore, as Stablecoin providers get into ever more frequent skirmishes with the regulators.
Since its inception, the tokenomic model that mitigated this threat has witnessed several variants is the ‘rebase’ model, designed so that token balances can fluctuate over time depending on changes in the token price and the supply in circulation.
Zeus’ Olympus with its token OHM is a similar rebase project and a crypto-native reserve asset that has caught the attention of many in the crypto space over the past few months. It is backed purely by decentralized assets without owing allegiance to any form of fiat.
The factors behind the Rise of Olympus
The OHM relies on setting up staking rewards that more than outweighed – over a period of time – the potential dollar losses from market moves, the incentive structure effectively removed all reason for any stakers to sell their staked OHM. It was done by rewarding staking using a ridiculously high annual percentage yield (APY) of north of 150,000 percent in OHM’s early days, and currently around 8,167 percent.
In simple words, in the beginning, Olympus was required to amass a treasury to ensure that its currency OHM is backed by a basket of assets to hold its floor price (currently 1 DAI). The creation of this treasury or a reserve is done through the initial sale and distribution of OHM and subsequent issuance of “bondings” currently referred to as “external bonds” by Olympus.
Olympus distributed its initial OHM supply to investors during a fair launch offering at its inception. During this time, the crypto wallet also started its OHM-DAI Sushiswap Pool. Now investors can either stake their OHM in the pool for which they are rewarded, known as staking rewards or trade their OHM with other investors.
Meanwhile, Olympus monitors the price level of OHM-DAI, and if the price of OHM goes below one DAI, it will redeem liquidity from the pool and burn until the price of OHM gets equal to one DAI or goes above it.
In this whole process, Olympus buys treasury assets from investors at their risk-free value and pays them back with OHM at a discount after a certain vesting period, which is currently fixed at five days. The discount rate of the OHMs is known as the premium of bonding.
The initial version of “bondings” launched with OHM-DAI LP, where investors were encouraged to exchange their LP tokens (essentially their liquidity in the Sushiswap pools) in return for discounted OHM. Soon after, Olympus also introduced bondings for other LP tokens and other treasury assets such as DAI, FRAX, etc.
However, this bonding is not precisely what we understand as conventional bonds. On the other hand, Zeus seeks to build a future along traditional bonds to address various issues like lack of liquidity and long-term stable returns.
The nitty-gritty of Zeus’s Internal Bonds
According to a white paper published in this regard in its attempt of taking this model a step ahead, Zeus of Olympus has suggested the crypto-natives, “that Olympus position itself toward a bond-emphasized model of token emissions and distribution, dubbed as “Internal Bonds.”
These Internal Bonds would be similar to the current “external” bonds. However, bonders will be issued OHM instead of delivering a token such as DAI or ETH.
The move is an attempt to provide an alternative to staking. As per Olympus’ proposal, holders will benefit from the greater utility with the new model in place, as opportunities that were previously unable to compete with astronomical staking yields will now be viable.
Meanwhile, the protocol’s cost of capital can be reduced, as staking’s no-strings-attached expense to holders (where beneficiaries can be short-term players) is diminished.
In its attempt to explore a bond-centric future, Zeus of Olympus also suggests that to facilitate the buying of OHM bonds, the crypto-community will strongly encourage third-party development of bond vaults.
These vault applications would allow users to engage in automated bond strategies. We expect vaults to compete on a strategy to optimize yield for depositors. They may also serve as social groups akin to houses or clubs, creating new sub-communities within the larger Olympus community.