Some might have heard of Olympus DAO:
https://www.olympusdao.finance/
They right now advertise APY of 5000%, yes 5000% (let's set aside debate if it it ponzi).
This is how they explained it:
https://docs.olympusdao.finance/main/basics/basics#how-is-the-apy-calculated
5000% means about 100% per week. I staked few OHMs just for fun, but see ROI (5-Day Rate) of about 5%
What am I missing?
Thanks
I'm awaiting for the Ohm fork on the Fantom network called LIF3
I'll be early to the project so (hopefully) will be early to exit
Got this email from Blockworks on Ohm
The Buyer of Only Resort
In 1992, when Stan Druckenmiller went to George Soros with his idea to short the British pound, he already had 100% of their fund committed to the trade.
Soros’ response was, “What is wrong with you?”
For a one-way bet like that, he thought 100% was too conservative — he told Druckenmiller to double it.
Soros was willing to go all-in because he recognized that the Bank of England was the only buyer of Sterling at the rate then fixed by the Exchange Rate Mechanism.
Further, they only had $44 billion of reserves to buy it with, and Soros could borrow effectively unlimited amounts to short it.
He knew how much the Bank of England could buy and he knew he could sell more.
It was an easy trade for him.
RIP OHM?
I was reminded of that legendary episode while watching the sell-off in OHM over the weekend.
The idea behind OlympusDAO was to break DeFi’s reliance on mercenary liquidity providers by owning its own liquidity and enabling other protocols to do the same.
The problem with owning your own liquidity is that … you own your own liquidity.
OlympusDAO quickly became the only market maker in its OHM token.
Which means that, like the Bank of England,
OlympusDAO has been the sole buyer of its own token all the way down.
In the same way that Soros drained the Bank of England’s reserves by making them buy the pounds he was shorting, the market has drained the OlympusDAO treasury by selling it OHM.
Market value of OlympusDAO’s treasury:
The largest portion of the treasury is held in the USD stablecoin DAI (in orange above). This amount has been falling as OlympusDAO spends it on OHM as the sole market maker in the liquidity pools.
It’s not the only factor in OHM’s demise, but I suspect it may be the primary one.
The value of OlympusDAO’s treasury fell $500 million from the highs while OHM’s market cap fell by $2 billion — which looks suspiciously like the 4x multiple that OHM typically traded at.
However big a factor, it was perhaps the weak link in the plan that made OHM’s tokenomics a little too much like Ponzinomics.
OlympusDAO and its forks are not Ponzis — but they
were highly reliant on creating new buyers, which they did mostly by developing a cult-like following.
It turned into a race between how many OHM they could sell to the cult vs. how many OHM they had to buy from the market.
They seem to have lost the race.
SPAC to the Future?
It did not have to end this way.
For a long while, OHM was effectively selling $1 bills for $4, or more.
When I bought OHM at $1,000 while the treasury was worth $250, OlympusDAO was selling me $1 of assets at a 4x markup.
That’s nice work if you can get it — as per the founder of Trader Joe’s, cults can be a good business.
And it’s not unprecedented, either. It looks to me a lot like an exchange-listed REIT.
REITs typically trade at a premium to NAV, of, say, 1.2x.
Their business model is to sell shares to investors at 1.2x NAV and buy assets at 1x NAV.
Each sale of shares above NAV creates value for existing shareholders of the REIT.
OHM was doing the same. Each sale of OHM above the value of the treasury created value for the previous owners.
If you paid 4x treasury for your OHM (like I did), you gifted some value to previous owners — and then you just had to hope that enough people would come in to buy afterwards and gift value to you.
The REIT analogy breaks down, however, when it comes to the treasury.
REITs raise money at above NAV and then invest it in productive assets.
OHM was mostly investing it in providing liquidity for its own token.
This is perhaps why the founder of Wonderland TIME, the largest OHM fork, announced this morning that the protocol had shifted to become a SPAC.
Instead of using its treasury to buy back TIME — and hence have the value of its treasury fall along with the token price — it would grow the treasury by investing it in productive assets.
I think there is merit to that idea.
But calling it a SPAC is, well, not correct.
The defining feature of a SPAC is that investors have the option to redeem their holding for the per share value of the trust.
SPACs typically sell shares to investors at $10 and then put that money into a trust while they look for a business to buy.
When they do find a deal, if you don’t like it, you have the option of returning your shares for $10, which is typically a little more than what you paid for them — if you buy at $10 or less, there’s no downside to owning a SPAC.
TIME and OHM holders would surely like the option of returning their tokens for what they paid for them.
But that is not an option — nor will it be for new buyers of TIME, because it’s not a SPAC.
Like the Bank of England, I suspect OHM and its forks will have to concede defeat: converting to a pseudo-SPAC model is unlikely to save the day.
But these were always experimental efforts and each iteration brings us closer to the goal of providing crypto-native liquidity to the burgeoning asset class of digital assets.
If, like me, you lost some money in OHM, consider it a contribution to the greater good.
And if you didn’t, be sure to thank someone who did.
