The Rise and Fall of OlympusDAO: From Glory to Big Dump of a DeFi Star

OlympusDAO was once a shining star in the DeFi space, with its native token OHM soaring to over $1000 in 2021. However, the price of OHM has now significantly fallen, with a drop of more than a hundred times. What exactly happened behind this dramatic rise and fall?

Introduction to OlympusDAO

OlympusDAO aims to create a stable reserve currency OHM. Unlike algorithmic stablecoins that peg their price to $1, OHM only promises that each token is backed by at least 1 DAI as a reserve, with no upper limit on its price. It attempts to achieve stability by maintaining stable purchasing power rather than a fixed exchange value, reducing reliance on traditional markets and liquidity providers.

Core Mechanism

Bonding

Bonding is one of the important mechanisms of OlympusDAO. Users can lock specific assets into the protocol through Bonding as reserves for OHM, thereby obtaining OHM tokens at a price lower than the market rate. These OHM will be gradually released to users over a certain period of time. Bonding not only increases the reserve assets of the protocol but also balances market supply, helping to stabilize the value of OHM.

Staking and Rebase

OlympusDAO adopts a mechanism that combines Staking and Rebase. Users who stake OHM can receive sOHM and enjoy "rebase rewards". When the market price of OHM is higher than the target value, the rebase mechanism will mint additional OHM and distribute it to stakers. The APY for this reward once exceeded 8000%, primarily sourced from Bonding income.

Reasons for the big dump in OHM price

The price of OHM can soar from the backing of 1 DAI to over 1400 USD for the following main reasons:

1. The Bonding and Staking mechanisms suppress selling pressure, and no one is selling OHM in large quantities.

2. The extremely high APY has attracted a large influx of funds, continuously driving up the demand and price of OHM.

3. "(3,3)" Game theory marketing strategy makes Staking the preferred choice for investors, further driving up the price.

Reasons for the big dump in OHM price

unsustainable high returns

Although the ultra-high APY attracts funds, it also brings serious inflationary pressure. Once market sentiment changes or doubts arise about the sustainability of the protocol, it can trigger capital flight and a big dump in prices.

Revision of Game Theory

The original game matrix has some assumptions. If these assumptions change, for example, if those who are Bonding do not participate in Staking, the equilibrium will no longer be Staking. This will lead to investors reducing or stopping the staking of OHM, increasing market circulation, and creating downward pressure on the price.

Summary and Reflection

The rise and fall of OlympusDAO reveals the key to the short-term success of DeFi protocols with similar mechanisms:

1. Provide high APY to attract capital
2. Control the token supply through specific mechanisms to reduce selling pressure.

For investors, the strategies for participating in such projects may include:

1. Identify potential projects and participate as early as possible.
2. Invest using market fluctuations, but carefully assess the risks.

Overall, the success of such protocols depends on whether they can balance high return promises with long-term sustainability. Participants need to carefully assess potential risks and returns.