Guide to Olympus DAO $OHM
$OHM is a stable(ish) coin which avoids the pitfalls of unbacked algorithmic stable coins — such as $ESD $DSD etc — in that each $OHM is backed by 1 DAI deposited in the protocol — the deposited DAI is locked and can only be used by the protocol to maintain the value of $OHM.
Through $OHM, Olympus DAO is seeking to create a new yield bearing money GOD which will be used as a store of value and unit of account with a floor price of 1 DAI.
Each minted $OHM is backed by 1 DAI — only the protocol itself can use that DAI.
The mechanism to maintain the price of $OHM is by the protocol market buying $OHM when the price is under the value of 1 DAI and selling $OHM when the market value of $OHM is above 1 DAI.
Maintaining the value of $OHM example 1: If the value of 1 $OHM is $0.98 and the value of 1 DAI is $1 then the protocol will use one of the deposited DAI to purchase 1 $OHM from the market — this will make the protocol a profit of 2 cents because each $OHM is backed by and has a floor price of 1 DAI. The protocol will keep selling DAI for $OHM until the value of 1 $OHM is 1 DAI.
Maintaining the value of $OHM example 2: If the value of 1 $OHM is $1.02 and the value of 1 DAI is $1 then the protocol will mint and sell 1 $OHM for 1.02 DAI from the market — this will make the protocol a profit of 2 cents because each $OHM is backed by and has a floor price of 1 DAI. The profit above 1 DAI will be distributed to stakers maintaining their % ownership of the protocol. The protocol will keep minting and selling $OHM for DAI until the value of 1 $OHM is 1 DAI.
3. VALUE ACCURAL
The main mechanism for value accrual of the protocol comes from using most of the underlying DAI to generate yield. For example by depositing it in a yield aggregators vaults (this is similar to the way the FRAX protocol deals with and accrues value from its deposited USD see https://app.frax.finance/).
Owning $OHM gives you ownership in the long term value accrual of the protocol.
4. I’M A NEWB HOW SHOULD I APE IN?
The easiest way for less technical people to participate in the protocol is to simply buy $OHM stake it — and that’s it.
Your 1 $OHM will never be worth less than 1 DAI and if staked should always equate to the % share when you brought in.
5. I’M AFRAID WHAT ARE THE RISKS?
As far as DEFI goes the biggest risk is that $OHM and DAI lose their peg because of a bug in the smart contract or oracle or that the yield aggregator loses the underlying DAI. While these are risks we have seen FRAX faithfully maintain a not dissimilar peg mechanism for the last several months successfully and yield aggregators such as YEARN are some of the most trusted names in DEFI.
6. WHEN DOES IT LAUNCH?
You will be able to purchase on 14 March 2021 through the Sushiswap DAI:OHM pool.
7. FURTHER READING
There are a number of other mechanisms proposed for the protocol and further reading can be found at https://ohmzeus.gitbook.io/olympus/