An attempt to analyze all the drama around Olympus DAO
Before you start reading, take into account that I'm just a random anon who joined Olympus DAO in July. I have been working on this project alongside other people, and my opinions may be positively biased because of that.
You should know that I'm not a writer nor an English speaker. I tried my best, but the text may still suck.
Some context first
Olympus DAO reached its peak in late-October 2021. Not only in price but also attention and number of forks. For two months, OHM's price action had been in an uptrend with almost no pullbacks. Every other day new useless forks with astronomical APY were advertised on your feed. People rushed to shill these forks so they could get a spot on the promised whitelists (only to buy first and dump right after launch). It truly was an exhausting shitshow, not to mention the several scams that rugged.
After majors started losing strength in November, OHM has not been able to keep up with the previously experienced growth and has been down only since then.
In this piece, I will discuss what I believe to be the reasons behind this price action. I will also argue why fundamentals are sounder than ever and give my opinion on how Olympus can succeed.
Spoiler alert: market exhaustion, miscommunication, external FUD, loss of narrative, and, finally, loss of attention.
First things first - Traders, rotators, and profit maxis will dump after important runups.
You can't continuously expect the same levels of growth for any given project. Olympus' market capitalization pulled a 15x in 2months (from $260M to $4B). Anyone in their right mind will agree that such growth can't come without pullbacks. People didn't necessarily need to be early project supporters to make money. They could have pulled up to a 15x in 2 months.
Lesson 1 - Despite Olympus' motto being (3,3) and chill, not everyone is here for the long run. Every player has a different gamebook. That is crypto. After big runups, those who are all about making quick money will dump. You should expect nothing else.
Market exhaustion. The role that forks have played.
As explained before, it is no secret that the market has been flooded with forks. These forks have appeared in every single chain and with every imaginable form.
The first mistake that Olympus made was to underestimate the impact that forks could have on the market.
The members of the DAO quickly realized that most of the forks were money grabs without real purpose or goals. Therefore, the official position was to ignore all forks which wouldn't be real competitors (especially after all the drama with Wonderland). And that's what happened. Besides those with a value proposition and potential for partnerships, the team ignored the others.
Nevertheless, the team missed that, even if ignored, these forks would still influence the market participants. People started playing the Olympus fork metagame. Some of them because they missed Olympus and were pissed, others because they saw quick profit potential. And the most important thing, everyone was getting bombarded with the fork meta 24/7.
The focus and the narrative were moving away from Olympus' core values. And, since all these quick cash-grabs were Olympus forks, these empty and directionless narratives slowly started to sink in people's minds as if that was what Olympus was trying to achieve.
Tunnel vision is dangerous. Don't leave anyone behind.
All DAO members have been working their asses off for months. Numerous initiatives, such as Olympus Pro, Olympus Grants, or V2 Bonds, have been built. Others, like the Olympus Incubator, will come to light soon. On top of that, some sub-DAOs and strong partnerships emerged, and we could see the first protocols taking gOHM in their treasuries.
Developments are great. But, if people are not well aware of their purpose, they are not as valuable. If they don't know about those developments at all, they become almost valueless.
The second mistake that Olympus made was to only focus on shipping. A wide variety of excellent initiatives started to get built, but the DAO didn't engage enough with the community during the process. The contributors were shipping and presenting stuff to the community, but I feel like a broader plan where all these pieces fit together was never shared.
Lesson 2: Solely focusing on shipping can be counterproductive. Make sure that no one is left behind. People need to know what is happening and where the protocol is heading at any given time. If all initiatives serve a purpose, ensure that the community knows it.
Haters gonna hate
FUD has always been around, but this time was different. The perfect cocktail had been brewing for some weeks. Market exhaustion, miscommunication during the migration, uncertainty in the majors, and the price slowly bleeding. Serve this mix with a couple of punches thrown by big CT names, and you know what happens next.
Several people have spread FUD around Olympus. However, the hardest blow struck in this article.
I feel like this article is short-sided, generalistic, neglects key aspects of Olympus' value proposition, and portrays the founders (especially Zeus) and the early supporters as scammers.
Disclaimer 2.0: I got involved in the DAO back in July. So I have been working with these people, and my opinions may be biased (up to you to decide).
Because of that, I feel entitled to refute some of the affirmations made by its author. Note that I have nothing against Jordi and I really enjoyed reading his articles (I especially laughed at the titles).
The Caveman Classic: Papyrus coins and Gold coins
A common argument is that Olympus is a Ponzi because it is not fully backed. People argue that free money is promised without providing further context.
The reality is that the gold standard was abandoned a long ago. Since that moment, currencies stopped being backed by commodities, and the so-called hard money became fiat. Yes, you guessed it. Fiat is "backed" by governments.
Olympus wants to become a decentralized and censorship-resistant reserve currency. It aims to be independent of the governments' monetary policies. Because of that, it can't be pegged to any stablecoin.
Unlike governments, Olympus is not a trusted entity (yet), and therefore it needs to provide guarantees to its users that OHMs are worth something.
A non-pegged and free-floating asset that is backed by a basket of valuable assets.
But why would people want papyrus coins instead of using their gold coins?
Because of their properties. Papyrus coins can solve problems that gold coins have. For example, whereas gold is a better store of value, US dollars are a better medium of exchange and unit of account. The same happens with OHM.
The difference between USD-pegged stablecoins and OHM relies on the approach to the money trilemma. Instead of pegging its value to the US dollar, OHM sacrifices having a fixed exchange rate by embracing an independent monetary policy and free capital flow.
But why would people risk using papyrus coins issued by Olympus (a newly born entity which, despite promising independent monetary policy, hasn't been able to prove its value) instead of using the papyrus coins issued by governments?
Because of incentives. You give them incentives first. Then, as the network effects, the trust on the issuing entity, and the utility of the currency increase, you slowly reduce those incentives.
To summarize, a new monetary system can't be created out of thin air. Therefore Olympus' value proposition is to back its OHMs with a basket of assets. But, far from being a Ponzi scheme, it incentivizes growth by initially bootstrapping assets by aggressively printing new money.
Bitcoin is an easy-to-understand example where you can see a similar strategy. Bitcoin initially managed to onboard people with a highly inflationary policy. Once it had the network effect and the user trust, its low inflation started being a valuable attribute for people to invest in it.
Get absurdly high, on your APY%
That is probably the poorest and more biased argument in the whole article. As explained in the paragraph above, you need incentives to onboard people into a new monetary system. Otherwise, why would they abandon old-fashioned US dollars?
Yes, APY is huge, but it has also been declining since the protocol's inception. Furthermore, there is a framework to decrease APY as supply grows (which, by the way, was approved by the community). The policy team has been beating this drum for a while, so it is unfair and biased to point out that random forks did the opposite instead of focusing on what Olympus is doing.
Another common critic is that high APY means staker dilution, but the reality is that this doesn't have to be true. Although it usually is, it depends on bond sales, which at the same time depend on several factors: Capacity, BCVs, and Demand.
Dilution exists when:
OHM minted from bond sales > minted OHM that stakers receive after a rebase.
So it is unfair to put Olympus (with a policy team that carefully monitors bond sales, capacity, and BCVs) and its forks in the same bag.
What's the purpose of the policy team?
Its purpose is to make the most out of bond demand while maintaining reasonable dilution levels.
How do you make the most out of bond demand?
By tunning capacity and BCVs in such a way that they adapt to demand. Ideally achieving continuous bond selling with low discounts.
Sidenote: during the migration, because bond sales stopped, stakers have increased their share of the marketcap.
“So why tell them the one hidden assumption it needs- the assumption that there are always unlimited new suckers joining at higher and higher prices!”
This quote is just funny to me. I would like to know if someone (Jordi included) has ever invested in something without expecting someone else to come and buy at higher prices in the future. That is the game that you play with any investment, ser.
(3,3) is a memetic strategy (like HODL) that aims to convince people that their investments will grow with the protocol. And, if Olympus succeeds, they will benefit from being early. I see it as a way to counteract the effect that an increasing stack can play in human psychology.
The pOHM mechanic is supposed to be an incentive to hold until MC is big enough and there is enough liquidity. This also ties the investors with the protocol’s success and aligns with the idea of giving OHM utility (if OHM is highly useful, it is more likely that pOHM holders don't sell and use it as collateral).
Nevertheless, I won't eat crow. I agree with Jordi. pOHM is an excellent deal and I would have preferred that dilution could affect it as well. But, like in any other protocol, those who got in seed rounds amass a substantial % of the pie. I hold assets where the team and VCs initially held more than 20% of the supply, but I still believe that they are good investments for me.
You need to do proper due diligence before investing in any project (specially focusing on tokenomics) and decide if it makes sense for YOU. There's nothing else I can tell you here.
Long Live the USD King
"The reason for $OHM’s existence is supposed to be to add utility as a Store of Value by being better than both the Dollar and BTC/ETH. But that endgame is hard, and all that matters to people is the story."
Why even try then? According to Jordi, if the endgame is hard to achieve you shouldn't challenge the status quo. You better stick to old-fashioned US dollars.
The fact is that those who spread FUD around Olympus don't believe it's possible to create an independent and decentralized monetary system. That is completely fine. The problem is they believe that the team thinks this goal is unfeasible too. This mindset makes them biased and completely fades all the little steps (such as partnerships and integrations) that the ohmies are achieving.
The ultimate drug: (9,9)
Another of the few points where we agree. Leverage is not good, and all the liquidations that we have recently seen prove that some people were too greedy and overleveraged. Extreme leverage is not sustainable.
Nevertheless, leverage exists everywhere and can't be avoided. The fact is that the fuse pool managed by the team has a 33% LTV and the one managed by Tetranode reduced its LTV as per the team's request.
That showcases that the team is concerned about leverage. But there is also the awareness that, if these tools are not provided by the team, someone else will (with someone else being Tetra for example).
Lesson 3 - Creating more uses cases for OHM is crucial. Not only to reduce sell pressure but also to avoid excessive leverage. More healthy leverage tools need to be created (hopefully, partnerships such as Vesta Finance will help here).
Fair price and premiums
What is Olympus' fair price?
That is probably the hardest question to answer. Spoiler alert, I don't have an answer for that.
What I can tell you is that Olympus is not a hedge fund. Yes, it has a treasury, and the market value of this treasury is considered as backing. But, that doesn't mean that Olympus should trade at NAV or that it is a hedge fund.
Because of the value proposition. Olympus is currently building the infrastructure to become an independent monetary system that will give its users the ability to influence its monetary policy. This infrastructure consists of deep liquidity pools, the creation of a network with integrations with different partners, lending and borrowing markets, liquidity rails, etc.
I personally think that all these properties make Olympus something greater than a simple hedge fund. For me, comparing it to a hedge fund is an oversimplification.
Should Olympus have a Premium?
It is up to the market to decide. Until now the market has priced in this growth potential with a substantial premium.
I still believe that this premium should exist, but I also believe that it shouldn't be as high as it used to be (because as we've seen, an important part of the premium was due to leverage).
On the other hand, those who see Olympus as a hedge fund will argue that the expected premium should be 0 (MC = NAV).
No one can tell you which is the premium that you should expect. You must figure it out by yourself.
Reflection: Growth and future expectations are priced in the marketcap of the different assets.
If Olympus should trade at MC = NAV, should Uniswap (which doesn't acquire fees to its token holders and which treasury is 100% in UNI) trade at 0? Of course not, because people believe that someday Uniswap may start distributing a % of the fees to UNI holders.
Now what? Is this the end?
Hell no. It is just a bump in the road. It's just a matter of acknowledging what happened, learning some lessons, and working towards the protocol goals.
What will bring Olympus closer to its goals?
Regain the narrative. Remind everyone of the end goal and how to get there.
Share a public roadmap and the current workstreams.
Keep building partnerships and incubating protocols. Create a network effect.
Implement a permissionless version of Olympus Pro.
Increase protocol-driven demand. Do not only rely on user demand.
Leverage Olympus' unique attributes: Capacity to bootstrap Protocol Owned Liquidity (a.k.a. massive demand for bonds).
Increase OHM/gOHM use cases to reduce sell pressure. Especial mention for on-chain governance and ability to mint stablecoins.
Grow the treasury. Make it as productive as possible while minimizing risk exposure.
What could help as well?
No protocol is perfect. There are a couple of ideas that could help refine the protocol mechanics.
Implement inverse bonds. Inverse bonds are a deflationary mechanism that would allow people to sell to the protocol OTC. The protocol would use treasury assets to buy and burn OHM at a discount. This mechanism would protect prices and prevent liquidations like the ones we have seen recently. Nevertheless, this behavior is achieved by diminishing the treasury value.
Implement a mechanism to disincentivize people who stake and dump. It could be done by either rewarding long-term stakers or implementing time locking systems similar to veCRV.
Now we just wait and see what happens next. We let the market take its natural course.
Ohmies will (3,3), hatters will spread FUD, and contributors will keep building.
What will you do?