Why DeFi Initiatives Are Flocking to OlympusDAO Bonding

Why DeFi Projects Are Flocking to OlympusDAO Bonding

Decrypting DeFi is Decrypt’s DeFi e mail e-newsletter. (artwork: Grant Kempster)

In a heated Senate listening to on stablecoins this previous week, one title came up excess of anybody in crypto would have anticipated: OlympusDAO and its OHM stablecoin. OHM is a so-called stablecoin that, in contrast to different stablecoins, shouldn’t be pegged to a fiat forex. Its worth has declined sharply just lately, however that hasn’t stopped a slew of DeFi initiatives from partnering with OlympusDAO as a result of they wish to faucet its white-label liquidity answer, OlympusPro. 

So, what’s it they’re all clamoring for? It’s easy: protocol-owned liquidity. 

A screenshot of the price of OHM
Supply: CoinGecko

In a nutshell, DeFi initiatives have been affected by mercenary yield farmers. These are sometimes massive bag holders who swoop in on basically any challenge with a token-incentive scheme going.

Main DeFi blue-chip challenge including token rewards for the following few weeks? They’re there. Small, unknown decentralized trade on Boba doing one thing comparable? Depend the mercenaries in. 

The scale of the challenge doesn’t matter. Simply the scale of the APY. 

And whereas this could create a hefty spike in a challenge’s whole worth locked (TVL), it hardly ever lasts. As quickly because the rewards scheme ends, these farmers withdraw their liquidity, promote their tokens, and transfer on in quest of the following alternative. 

Nansen, a blockchain analytics platform, additionally revealed that “a whopping 42% of yield farmers that enter a farm on the day it launches exit inside 24 hours. Round 16% go away inside 48 hours, and by the third day, 70% of those customers would have withdrawn from the contract.”

On and on this goes, leaving a challenge’s true believers holding a nugatory bag. 

Fixing this association is thus the promise of so-called DeFi 2.0 initiatives, like OlympusDAO. One specific function is Olympus’ bonding function.

Olympus bonds are much like conventional bonds. They provide customers a means to purchase discounted OHM tokens by swapping both a handful of cryptocurrencies or liquidity provision (LP) tokens from one other trade like SushiSwap.

A screenshot of the current bonds available on Olympus
These are all the present bonds obtainable on Olympus. Supply: OlympusDAO.

The OHM is distributed frequently to the bond-holder till it reaches maturity at 15 epochs, the place one epoch equals roughly 8 hours.

If, for instance, OHM prices $500 on the open market, customers should buy that very same token for $450 (plus wait time) by way of the bonding mechanism. That wait time additionally retains of us locked right into a protocol for much longer than the figures Nansen cites concerning typical yield farmers.

As a result of this OHM is cheaper as a bond, customers are thus incentivized to promote their liquidity in trade for the challenge’s native token. This additionally grows the protocol’s liquidity and lets customers get their arms on the token with out a number of the dangers of conventional liquidity provision like impermanent loss, which is what occurs when tokens in a pool change costs (both up or down), generally decreasing individuals’s publicity to the extra profitable token. 

And, simply as a reminder, this doesn’t even start to scratch the floor of OHM’s exorbitant staking returns. 

With OHM in hand, you may as well stake (i.e., lock up these tokens with the protocol) and get 1:1 staked OHM (sOHM) in return. As soon as staked, customers can earn greater than 4,297.3% APY on these holdings, which is paid out in OHM each epoch. Earlier this yr, that determine was a whopping 16,000%. 

However it’s the bonding mechanism, not the staking, that’s acquired DeFi initiatives excited.

The mechanism is exclusive sufficient that Olympus has now rolled out a bonding-as-a-service product known as OlympusPro. For a 3.3% price on all bond payouts in a challenge’s native token, the Olympus group will implement this bonding mechanism for you. 

Screenshot of partners on Olympus marketplace
Supply: Olympus Pro

To date, they’ve attracted a ton of curiosity throughout a number of completely different blockchains. 

It’s actually an fascinating experiment, and because the service beneficial properties extra traction, it could very nicely change into a key instrument for the remainder of DeFi. However count on OHM to proceed to have some controversy round it when politicians discuss stablecoin regulation.

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