What is OlympusDAO? - OHM Explained with Animations

what if there was a cryptocurrency that was meant to be a stable coin but you could earn up to 8 000 apy on it what if this stable coin was actually backed by something unlike the us dollar and the decisions about the project were made by the community in a quick and cheap way also unlike the us dollar one last question i have for you is that have you seen that strange three comma three meme on twitter or youtube that hardly anyone explains welcome to whiteboard crypto the number one youtube channel for crypto education and here we explain topics of the cryptocurrency world using analogies stories and examples so that you can easily understand them in this video we are going to explain how olympus dow works the simple math behind it and what 3 comma 3 actually means now before we start this video i do want to say olympus tao is very complicated and it personally took me quite a while to completely understand it so let's dig in first off money is simply something that a bunch of people agree have value and that we use for transferring that value for example a long time ago specific seashells used to be used as money they were traded between groups of people for other things like tools and food now the shills technically represented tools and food because they could be traded for them eventually people stopped using seashells and started using more rare things like metals now not too long ago our us dollar was actually backed by gold meaning that every dollar had its own equivalent of gold somewhere in storage and if you wanted to you could trade in your dollars for gold however for many reasons that we will not discuss in this video we went from being backed by gold to silver meaning that every dollar was then backed by silver and then eventually we went to the dollar not being backed by much now this is important because it means that your dollars only hold value by other people thinking that they're worth something which was technically the case when it was backed by gold however it was difficult to make more gold while printing money is so easy that it's done by criminals the big issue here is that we have to trust our government with the power of printing more money and basically affecting what our currency is worth taking a look into the future we may start to use digital assets to trade with but the question this video is going to take a look at is will a reserve currency protocol actually work for digital assets too so olympus dow created a token called the ohm token and right now all ohm tokens are backed by die now before we explain this we first need to explain the difference between being backed by something and being pegged to something if you buy a stable coin like usdt that coin is pegged to the us dollar now you might ask how well if you give tether a dollar they will give you one usd t and if you give them a usd t they will give you a dollar so it's like an open exchange that allows for trading your united states dollars to and from the blockchain the terminology for this is being pegged to a dollar and this is not how ohm works i actually recently had a great talk with the calculator guy who helped me completely understand how olympus actually works it might even be better if i let him explain it ohm is actually backed by a basket of crypto assets in the treasury including dye frax and raptor ethereum giving home a floor or bottom value where the backing assets will keep the price until supply increases the market value of olympus dow's treasury assets is over 700 million dollars and each home is currently backed by 178 worth of assets to explain the crazy high interest rate that olympus is currently offering we first need to understand the treasury so the treasury allows you to buy bonds and this is basically a mechanism where you can buy ohm tokens from the treasury but at a discount they might be wondering how you get that discount well first you must pay in another coin or token like ethereum for this example let's say ohm is ten thousand dollars and you want to buy one ohm token the treasury allows you to buy ohm at nine thousand and six hundred dollars effectively cutting you a four percent discount on it but the catch is that you must pay with ethereum and you must also wait five days to receive all of that ohm if the price stays the same you made a profit in a more advanced example you can sell liquidity pool tokens to the treasury for discounted owned and this is where olympus really shines this allows the treasury to own more and more of the total owned liquidity enable the protocol to earn the fees that traders pay when buying or selling home in short this means olympus is actually earning money all right let's go back to buying ohm at a discount the trick here is that one ohm is only supposed to be worth one die now dye is a stable coin technically worth around one dollar so when the treasury sells you an ohm token for nine thousand six hundred dollars technically nine thousand five hundred and ninety nine dollars of that is all profit to the treasury so bonding is a mechanism that actually earns the olympus treasury money and it also gives bonders the opportunity to earn a profit and the only risk they're taking is that the own price might fall in short bonding allows olympus to create more ohm tokens as long as a price of ohm is over a dollar the treasury also allows staking which is a mechanism where you can deposit your own tokens to earn even more ohm tokens staking takes ohm off of the market decreasing the total supply but the main benefit to you is that it allows holders to gain all those extra printed ohm tokens using our example earlier since olympus technically has an extra nine thousand and five hundred ninety nine dollars worth of ethereum in its treasury it can now mint nine thousand five hundred ninety nine own tokens and it gives these tokens to the stakers the idea is that when you stake you're not selling additionally when you buy bonds you're not selling either way your actions are not selling so even though the total supply increases with each rebase the value of ohm is not dramatically impacted by that increasing supply now here's a quick recap when om is backed by more than it needs it simply prints more tokens and gives those tokens to the stakers however when om is backed by less than it needs olympus will actually start to buy back ohm and we'll talk about this later another important thing worth thinking about is something called lp rewards remember how we said that the treasury actually buys their own liquidity through the bonding mechanisms because of this olympus owns a very large majority of ohm's liquidity 99.88 actually because of this they capture nearly 100 of all the trading fees involving ohm they actually earn millions of dollars from people simply buying and selling the own token this acts as a major source of revenue for olympus now and this is what helps build the ohm treasury to actually back their own tokens moving on let's talk about the 3 comma 3 meme now the 3 comma 3 meme that you probably see floating around here and there is representative of something bigger it actually represents an idea out of game theory which is a philosophical thought process of how to win games using economics and human behavior first let's explain something called the prisoner's dilemma let's say there's two criminals and they both have two options to either cooperate with law enforcement or not to cooperate if a criminal cooperates that criminal gets a better sentence but their partner gets a worse sentence if they both cooperate and confess they both get a pretty bad sentence but if they both deny the accusations they actually both get off easier now assuming you don't know which idea your partner is going to choose which one do you choose let's take a look at the prisoner's dilemma square this shows the outcome for both criminals depending on what they choose you can see in these two squares that if one confesses and the other doesn't it ends well for whoever confesses but really bad for whoever doesn't you can also see here that if they both confess that it ends up equally bad for both of them lastly if they both deny they both receive the best possible treatment for them both and because of this game theory says that if both criminals are rational people they should select this option now olympus dow extends this square into their own realm of a 3x3 matrix using the same theory the best possible case is if you and everyone else stakes the ohm token while the worst possible case is if everyone sells again this means that the best possible case is if everyone stakes long term assuming everyone participating is rational and aware of this thought process i will say unfortunately this relies on humans so you'll have to check back in a year or maybe 10 years to see the outcome however instead of guessing what might happen let's quickly go through two worst case scenarios the first is what happens if the price falls to what it's backed by one die remember how i said each ohm is supposed to be equal to one dollar well that's technically the very minimum that it should ever be in fact there's something called the floor price which represents the price at which ohms should not fall below due to the amount of money in the treasury now i haven't talked about this yet but let's say there's a thousand ohm tokens out there and the treasury owns four thousand dollars this means each home is backed by four dollars worth of assets and if the price of home ever goes below four dollars then olympus itself as a protocol will start buying back ohm tokens reducing the total supply out there now some of you may be wondering how this project might be similar to iron finance and the titan token ohm is actually completely different from the iron finance bank run which resulted in the collapse of the project iron and titan were susceptible to bank runs all the way down to zero olympus is susceptible to the same thing but this time there is actually a floor to the price and the protocol will actually buy back your tokens and in theory you won't lose all of your money if a bank run happens you would only lose the difference between the current price and the amount of backing each own now as time goes on and more people buy ohm the protocol will continue to collect fees since it technically owns over 99 of its own liquidity meaning that the treasury should continue to grow at a quick rate so yes the olympus dial protocol does have risks but it should be noted that they differ from the iron finance risks ending this video we can't be sure if olympus will survive well in the next five years or if there'll be a bug in the code that allows exploitations or even for some reason it just won't fall like iron finance although the project has definitely brought some new ideas to light it's an impressive experiment in behavioral economics and in the world of crypto as we end this video we want to give the calculator guy a huge shout out for helping with this script if you haven't already go check out his channel and give some love to an honest down to earth crypto content creator on youtube he's got some great videos on his channel anyways thank you guys for watching this video we hope that you enjoyed it we really hope that maybe you've learned something and most of all we hope to see you in our next video you

Channel: Whiteboard Crypto

Views: 209,271

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Id: o699i_l_qy8

Length: 10min 55sec (655 seconds)

Published: Thu Nov 18 2021