OHM is the native token of Olympus, a decentralized protocol that aims to create a stable and self-sustaining currency backed by a diversified treasury of assets. OHM is not a typical cryptocurrency that follows the market trends or the price movements of other coins. OHM is designed to be a reserve currency that maintains its purchasing power over time, regardless of external factors. In this blog post, we will explore what drives the value of OHM, how it differs from other stablecoins, and what are the benefits and risks of holding OHM.
What is Olympus and OHM?
Olympus is an algorithmic currency protocol that operates on the Ethereum blockchain. Olympus uses a novel mechanism called bonding to issue and manage its supply of OHM tokens. Bonding allows users to exchange other assets, such as DAI, ETH, or LP tokens, for discounted OHM tokens. The exchanged assets are then added to the Olympus treasury, which acts as a reserve and a source of income for the protocol. The treasury also earns revenue from protocol fees and external investments.
OHM is the native token of Olympus that represents a claim on the treasury assets. OHM holders can choose to stake their tokens and receive rewards in the form of more OHM tokens. The rewards are determined by a variable called the rebase rate, which adjusts the supply of OHM according to the demand and the market price. The rebase rate is calculated by a formula that takes into account the treasury value, the total supply, and the target price of OHM.
The target price of OHM is initially set at 1 DAI, which is the minimum value that each OHM token can have. However, OHM is not pegged to 1 DAI or any other fiat currency. OHM is a floating currency that can appreciate or depreciate depending on the market forces. The target price serves as a price floor that ensures that OHM holders always have a guaranteed redemption value for their tokens. The actual market price of OHM can be higher than the target price, reflecting the premium that users are willing to pay for holding OHM.
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What Drives the Value of OHM?
The value of OHM is driven by three main factors: the treasury value, the rebase rate, and the market sentiment.
- The treasury value: The treasury value is the total value of all the assets held by the Olympus treasury. The treasury value represents the backing and the collateral for each OHM token. The higher the treasury value, the higher the redemption value and the security of OHM. The treasury value can increase from bonding, fees, and investments.
- The rebase rate: The rebase rate is the percentage change in the supply of OHM per epoch (eight hours). The rebase rate determines the amount of rewards that stakers receive for holding OHM. The higher the rebase rate, the higher the incentive and the demand for OHM. The rebase rate can increase from bonding, burning, or positive price deviation.
- The market sentiment: The market sentiment is the collective attitude and expectation of the users and investors towards Olympus and OHM. The market sentiment influences the supply and demand of OHM on the open market. The higher the market sentiment, the higher the premium and the price of OHM. The market sentiment can be affected by various factors such as news, events, partnerships, competitors, regulations, and trends.
How Does OHM Differ from Other Stablecoins?
OHM is often compared to other stablecoins such as USDC, DAI, or FEI, but it has some key differences that make it unique and innovative.
- OHM is backed but not pegged: Unlike most stablecoins that are pegged to a fiat currency or a basket of assets, OHM is backed by a diversified treasury of assets that can appreciate or depreciate over time. OHM does not have a fixed exchange rate with any other currency, but rather a floating price that reflects its intrinsic value and market demand.
- OHM is algorithmic but not elastic: Unlike some algorithmic stablecoins that adjust their supply to maintain a peg, OHM adjusts its supply to reward its holders and create value for its protocol. OHM does not contract its supply when its price falls below its target, but rather increases its rebase rate to incentivize staking and bonding.
- OHM is decentralized but not distributed: Unlike some decentralized stablecoins that rely on collateralization or overcollateralization by users, OHM relies on its own treasury to back its tokens. OHM does not require users to lock up their assets or take on debt to mint or redeem its tokens, but rather allows users to exchange their assets for discounted or guaranteed OHM tokens.
What are the Benefits and Risks of Holding OHM?
Holding OHM can offer several benefits and risks to users and investors. Some of the benefits are:
- High rewards: OHM holders can stake their tokens and receive high rewards in the form of more OHM tokens. The rewards are auto-compounded every epoch, resulting in exponential growth of the staked amount. The rewards are also independent of the market price of OHM, meaning that stakers can earn passive income regardless of the price fluctuations.
- Price stability: OHM holders can enjoy a stable and predictable value for their tokens, thanks to the treasury backing and the target price mechanism. OHM holders can always redeem their tokens for at least 1 DAI, or more if the market price is higher. OHM holders can also hedge against inflation and currency devaluation, as OHM is not tied to any fiat currency or central authority.
- Governance rights: OHM holders can participate in the governance and decision-making of the Olympus protocol. OHM holders can vote on proposals, suggest changes, and influence the direction and development of the protocol. OHM holders can also benefit from the network effects and the innovation of the Olympus community.
Some of the risks are:
- Price volatility: OHM holders can face significant price volatility and uncertainty, as OHM is a floating currency that is subject to market forces and sentiment. OHM holders can experience large price swings, both up and down, depending on the supply and demand of OHM on the open market. OHM holders can also lose money if the market price falls below their entry price or their opportunity cost.
- Protocol risk: OHM holders can face various protocol risks, such as smart contract bugs, hacks, exploits, or attacks. OHM holders can lose their tokens or their value if the Olympus protocol is compromised or malfunctioning. OHM holders can also suffer from regulatory risk, as Olympus operates in a legal gray area and may face scrutiny or intervention from authorities.
- Opportunity cost: OHM holders can incur opportunity cost, as they forego other potential investments or returns by holding OHM. OHM holders can miss out on other profitable opportunities or higher returns by locking up their capital in OHM. OHM holders can also lose their competitive edge or diversification by concentrating their portfolio in OHM.
Conclusion
OHM is a novel and innovative currency that aims to become a stable and self-sustaining reserve currency for the decentralized finance ecosystem. OHM is backed by a diversified treasury of assets, rewarded by a variable rebase rate, and governed by a decentralized community. OHM offers high rewards, price stability, and governance rights to its holders, but also exposes them to price volatility, protocol risk, and opportunity cost. OHM is not for everyone, but for those who believe in its vision and value proposition, it can be a rewarding and exciting investment.
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