Making $17,600 Per Month Passively With OHM Staking(Olympus DAO)
So several months back I started thinking about whether or not it would be possible to create an algorithmic stable coin and when I went down the research rabbit hole I ended up discovering Olympus Dao.
Now when I went to the website I saw that the staking APY was over 7,000%. Yes, you heard that right 7,000%.
Of course, I’m usually pretty sceptical of insane APYs as these tend to be associated with microcap pump and dumps.
BUT
When I looked at OHMs market cap it was over $800 million dollars.
So I’m asking myself, how the hell could a project with an $800 million dollar market cap be paying over 7,000% in rewards?
To put that into perspective, if you put $1,000 into OHM after one year you’d have $70,000.
That is, of course, assuming that the price of OHM remains the same.
But after doing that calculation and being the degenerate I am, I decided to jump into OHM…
Initially, I bought just one OHM to stake it and to help me learn more about the project. At the time this was about $400 plus gas which cost me another $150. But I thought what the hell, I’ll make that back in a few weeks. Now, what I was really doing was book marking the project psychologically so I would be forced to learn more about it.
And sure enough, after a couple of days I started diving into the docs to better understand what exactly is OHM. And how on earth can it not be a ponzi?
I made a full explainer video on my youtube channel, which I’ve included below. But feel free to keep on reading if you prefer! 😊
What Is OHM
Olympus Dao is a decentralised finance protocol, which markets itself as a decentralised reserve currency. Its aim is to create a free-floating reserve currency, OHM, that is backed by a basket of assets. This is similar to the idea of a gold standard, except that OHM is backed by other decentralized assets such as stable coins like Frax, which provide a free-floating value that users can always fall back on.
So in theory, each OHM is back by one DAI. DAI being an algorithmic stable coin that is pegged to the US dollar. The treasury has since expanded to include assets like Ethereum. But still, the mechanics behind the protocol imply that the protocol would buyback and burn OHM if and when it ever trades below one DAI. Whilst on the other hand OHM could always trade above one DAI because there is no upper limit imposed by the protocol.
So where does the treasury come from? Well, this is where OHM gets interesting.
Seigniorage
Olympus has a feature called bonding, where users can buy OHM directly from the treasury at a discount to the current market price. The treasury can mint one OHM for every DAI held by the treasury. So market participants are incentivised to buy OHM at a discount to the current market price, whilst the treasury is motivated to sell OHM at a premium above one DAI. This process is called seignorage and it enabled the treasury to suck in assets totalling over $750 million dollars at present and climbing.
At a high level, the treasury is split into two parts: Liquidity Pools and Risk-Free Value.
Risk-Free Value is the underlying backing per OHM. If the treasury stopped taking in assets today and stopped minting OHM, this is the value of assets in the treasury per OHM in circulation.
Liquidity Pools are well… liquidity pools. The treasury puts equal parts OHM and DAI into a pool on a decentralised exchange to provide liquidity for buyers and sellers of OHM.
Now, until recently this was quite unique to OHM. As traditionally protocols would need to incentivise third parties to provide liquidity, which left the protocol at the mercy of these third parties. They’re essentially renting liquidity and have to provide incentives to do so.
Because of its treasury and bonding, OHM flipped this on its head and said forget it, we’ll own our own liquidity. Which was a great move, because now they earn all the fees as a liquidity provider. They don’t have to pay out high farming rewards to incentivize liquidity providers. And they can guarantee the market that the liquidity is always there to facilitate buy and sell orders.
You might be thinking that’s great for the treasury but how does it benefit holders? Well, that’s where staking comes in.
Staking OHM
When you buy and stake OHM, you capture a percentage of the supply which theoretically will remain close to a constant, because your staked OHM balance increases along with the circulating supply. In other words, you earn rewards in the form of new OHM which is issued to stakers every epoch, which is roughly every eight hours. And this is where the insanely high APY comes into play.
APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of OlympusDAO, your staked OHM represents your principal, and the compound interest is added periodically on every epoch. Because of this, your balance grows exponentially over time.
At the current APY, your balance doubles roughly every two months. This means that even if the price of OHM were to fall 50% you’d still be break even. This compounding effect makes the price of OHM almost irrelevant over the long term. Although some might argue otherwise. I myself wouldn’t say no to a hundred bagger.
But what would happen if there was a bank run on OHM? Well, here’s where the giga-brains at OHM put game theory to play.
Game Theory Behind OHM
With OHM your funds are not protected by regulators, but it does have an incentive structure that protects its stakers. And someone from the Olympus community kindly provided a full-on breakdown of this scenario on Discord. Here’s out it would play out.
In the case of a theoretical bank run on OHM, we assume that the majority of stakers would panic and unstake their tokens from Olympus — the staking percentage which stands at roughly 92% quickly collapses to 3.3%, leaving only 210,000 OHM staked.
Next, you assume that the risk-free value inflows to the treasury completely dry up.
Finally, you assume that those last standing stakers bought in at an average price of $500 per OHM. The initial investment of these stakers would be $105 million dollars. But the current risk-free value of the treasury is approximately $195 million dollars.
Remember that every OHM is backed by one DAI. So over the course of one year, the protocol would continue to mint OHM until there was 195 million OHM in circulation. Meaning the remaining stakers almost double their money in twelve months.
But OHM isn’t just about 3,3. There’s a lot more to it. And the DAO has continued to innovate and ship new products. So what does the future look like for OHM?
Future Of OHM
Well, I ain’t no psychic so how the hell should I know? 😜
BUT
I am loving the pace at which the team is launching new initiatives which add new revenue streams to the treasury. One of which is bonding as a service, which is where Olympus is helping other protocols launch their very own protocol owned liquidity. For doing so, Olympus charges a fee of 3.3% in the protocols native currency. Thus, building up diversified treasury reserves and aligning long-term incentives with partners.
That sums up Olympus. If I fluffed any of the information, let me know in the comments. It’s a lot to take in and I myself am still learning every day.
How Much I Make With OHM
What you’re really here for I suppose is to know exactly how I make $17,800 per month in rewards…
Well, once I’d learned enough about OHM, I aped in.
I ended up putting in close to $40,000 as I got more and more confident in the project. Today I have just over 250 OHM and at the current APY I’m making over 2 OHM per day which means that I’ll earn about 80 OHM in the next 30 days. Now the current price is around $220 which means I’ll make $17,600 dollars.
This assumes the price remains stable. And god knows it’s been bloody volatile of late. We’ve seen highs $1,300 per OHM and lows of $180. So nothing is for certain.
My plan for this is to just let it ride. I did consider taking out my initial investment once my stake had doubled, but I’m enjoying the compound effects way too much to take anything off the table. And I’m comfortable with the risk.
There are also plans for the DAO to reduce the APY gradually for the sake of long term project stability. And the DAO has already begun to reduce the APY down to 1,000%. Some people are panicked by this and think the price will tank. Personally, I’m happy to wait and see. I think a reduction in APY may even have a positive impact on price and increase adoption, as the reward rate decreases and there’s less selling pressure.
Before I go, I’ll share a quick tutorial on how to buy and stake your OHM for anyone that’s interested.
How To Buy And Stake OHM
The cheapest way to do this now is with Avax on Trader Joe.
There you can buy gOHM which is the governance token for OHM and is effectively a basket of sOHM.
sOHM is staked OHM which is the rebase token that earns rewards.
One gOHM is the equivalent of the index value times OHM. The index value being the number of OHM you’d have if you had staked your OHM since inception.
It’s always a good idea to check prices on multiple DEXs before you go ahead and buy. If you’re doing so on Ethereum, I like to use Matcha which is a decentralised exchange aggregator. Whilst gas fees are a lot higher with Ethereum, you may have more liquidity and therefore better prices which would offset the benefit of buying through Avax.
That’s all from me folks. I hope you enjoyed this article!
