In a heated <a href="https://decrypt.co/88349/stablecoins-decentralized-transparent-senator-sherrod-brown">Senate hearing on stablecoins </a>this past week, one name <a href="https://www.banking.senate.gov/imo/media/doc/Goldstein%20Testimony%2012-14-21.pdf">came up </a>far more than anyone in crypto would have expected: OlympusDAO and its OHM stablecoin. OHM is a so-called <a href="https://decrypt.co/resources/stablecoins">stablecoin </a> that, unlike other stablecoins, is not pegged to a fiat currency. Its price has declined sharply recently, but that hasn’t stopped a slew of <a href="https://decrypt.co/resources/defi-ultimate-beginners-guide-decentralized-finance">DeFi </a> projects from partnering with OlympusDAO because they want to tap its white-label liquidity solution, OlympusPro.

Fixing this arrangement is thus the promise of so-called DeFi 2.0 projects, like OlympusDAO. One particular feature is Olympus’ <a href="https://docs.olympusdao.finance/pro/olympus-pro-users/what-are-bonds">bonding function </a>. Olympus bonds are similar to traditional bonds. They offer users a way to buy discounted OHM tokens by swapping either a handful of cryptocurrencies or liquidity provision (LP) tokens from another exchange like SushiSwap.

But it's the bonding mechanism, not the staking, that’s got DeFi projects excited. The mechanism is unique enough that Olympus has now rolled out a bonding-as-a-service product called OlympusPro. For a 3.3% fee on all bond payouts in a project’s native token, the Olympus team will implement this bonding mechanism for you.

<img src="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/olympus-dao-gID_5.jpeg" alt="" width="665" height="417"><div><button dir="ltr"> Decrypting DeFi</button></div>Mount Olympus, home of the Greek gods. Image: Shutterstock<figure><img src="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/10/decrypting-defi-2.png" srcset="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/10/decrypting-defi-2.png 2488w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/10/decrypting-defi-2-300x122.png 300w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/10/decrypting-defi-2-768x313.png 768w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/10/decrypting-defi-2-1536x626.png 1536w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/10/decrypting-defi-2-2048x835.png 2048w" alt="decrypting defi newsletter header" width="399" height="162"><figcaption dir="auto">Decrypting DeFi is Decrypt's DeFi email newsletter. (art: Grant Kempster)</figcaption></figure>In a heated <a href="https://decrypt.co/88349/stablecoins-decentralized-transparent-senator-sherrod-brown" dir="ltr">Senate hearing on stablecoins</a> this past week, one name <a href="https://www.banking.senate.gov/imo/media/doc/Goldstein%20Testimony%2012-14-21.pdf" dir="ltr">came up</a> far more than anyone in crypto would have expected: OlympusDAO and its OHM stablecoin. OHM is a so-called <a href="https://decrypt.co/resources/stablecoins" dir="ltr">stablecoin</a> that, unlike other stablecoins, is not pegged to a fiat currency. Its price has declined sharply recently, but that hasn’t stopped a slew of <a href="https://decrypt.co/resources/defi-ultimate-beginners-guide-decentralized-finance" dir="ltr">DeFi</a> projects from partnering with OlympusDAO because they want to tap its white-label liquidity solution, OlympusPro.&nbsp;So, what is it they’re all clamoring for? It’s simple: protocol-owned liquidity.&nbsp;<figure><img src="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.19.53-PM.png" srcset="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.19.53-PM.png 1370w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.19.53-PM-300x297.png 300w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.19.53-PM-768x760.png 768w" alt="A screenshot of the price of OHM" width="399" height="395"><figcaption dir="ltr">Source: <a href="https://www.coingecko.com/en/coins/olympus" data-wpel-link="internal" dir="ltr">CoinGecko</a></figcaption></figure>In a nutshell, DeFi projects have been suffering from mercenary yield farmers. These are often large bag holders who swoop in on essentially any project with a token-incentive scheme going.Leading <a href="https://decrypt.co/74686/defi-blue-chip-tokens" dir="ltr">DeFi blue-chip project</a> adding token rewards for the next few weeks? They’re there. Small, unknown decentralized exchange on Boba doing something similar? Count the mercenaries in.&nbsp;The size of the project doesn’t matter. Just the size of the APY.&nbsp;And while this can create a hefty spike in a project’s total value locked (TVL), it rarely lasts.&nbsp;As soon as the rewards scheme ends, these farmers withdraw their liquidity, sell their tokens, and move on in search of the next opportunity.&nbsp;<div class="embed-placeholder" data-type="twitter" data-id="1470862630302535681"></div>Nansen, a blockchain analytics platform, also <a href="https://www.nansen.ai/research/all-hail-masterchef-analysing-yield-farming-activity" rel="nofollow external noopener" dir="ltr">revealed</a> that “a whopping 42% of yield farmers that enter a farm on the day it launches exit within 24 hours. Around 16% leave within 48 hours, and by the third day, 70% of these users would have withdrawn from the contract.”On and on this goes, leaving a project’s true believers holding a worthless bag.&nbsp;Fixing this arrangement is thus the promise of so-called DeFi 2.0 projects, like OlympusDAO. One particular feature is Olympus’ <a href="https://docs.olympusdao.finance/pro/olympus-pro-users/what-are-bonds" rel="nofollow external noopener" dir="ltr">bonding function</a>.Olympus bonds are similar to traditional bonds. They offer users a way to buy discounted OHM tokens by swapping either a handful of cryptocurrencies or liquidity provision (LP) tokens from another exchange like SushiSwap.<figure><img src="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.22.00-PM.png" srcset="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.22.00-PM.png 938w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.22.00-PM-300x216.png 300w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.22.00-PM-768x553.png 768w" alt="A screenshot of the current bonds available on Olympus" width="399" height="399"><figcaption dir="ltr">These are all the current bonds available on Olympus. Source: <a href="https://app.olympusdao.finance/#/bonds" data-wpel-link="external" rel="nofollow external noopener" dir="ltr">OlympusDAO</a>.</figcaption></figure>The OHM is distributed regularly to the bond-holder until it reaches maturity at 15 epochs, where one epoch equals roughly 8 hours.If, for example, OHM costs $500 on the open market, users can purchase that same token for $450 (plus wait time) through the bonding mechanism. That wait time also keeps folks locked into a protocol much longer than the figures Nansen cites regarding typical yield farmers.Because this OHM is cheaper as a bond, users are thus incentivized to sell their liquidity in exchange for the project’s native token. This also grows the protocol’s liquidity and lets users get their hands on the token without some of the risks of traditional liquidity provision like <a href="https://medium.com/coinmonks/understanding-impermanent-loss-9ac6795e5baa" dir="ltr">impermanent loss</a>, which is what happens when tokens in a pool change prices (either up or down), sometimes reducing people's exposure to the more lucrative token.&nbsp;And, just as a reminder, this doesn’t even begin to scratch the surface of OHM’s exorbitant staking returns.&nbsp;With OHM in hand, you can also stake (i.e., lock up those tokens with the protocol) and get 1:1 staked OHM (sOHM) in return. Once staked, users can earn more than 4,297.3% APY on those holdings, which is paid out in OHM every epoch. Earlier this year, that figure was a whopping 16,000%.&nbsp;But it's the bonding mechanism, not the staking, that’s got DeFi projects excited.The mechanism is unique enough that Olympus has now rolled out a bonding-as-a-service product called OlympusPro. For a 3.3% fee on all bond payouts in a project’s native token, the Olympus team will implement this bonding mechanism for you.&nbsp;<figure><img src="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.35.56-PM.png" srcset="https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.35.56-PM.png 1376w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.35.56-PM-300x80.png 300w, https://cdn.decrypt.co/resize/1400/wp-content/uploads/2021/12/Screen-Shot-2021-12-17-at-4.35.56-PM-768x204.png 768w" alt="Screenshot of partners on Olympus marketplace" width="399" height="399"><figcaption dir="ltr">Source: <a href="https://www.olympusdao.finance/pro" data-wpel-link="external" rel="nofollow external noopener" dir="ltr">Olympus Pro</a></figcaption></figure>So far, they’ve attracted a ton of interest across several different blockchains.&nbsp;It’s certainly an interesting experiment, and as the service gains more traction, it may very well become a key tool for the rest of DeFi. But expect OHM to continue to have some controversy around it when politicians talk stablecoin regulation.<img alt="IPFS" src="https://cdn.decrypt.co/wp-content/themes/decrypt-media/assets/images/brand/ipfs-icon-simple.svg" width="19" height="22">

It's the bonding mechanism, not the staking, that has DeFi projects interested in OlympusDAO and its OHM "stablecoin."

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Mount Olympus, home of the Greek gods. Image: Shutterstock

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

In a nutshell, DeFi projects have been suffering from mercenary yield farmers. These are often large bag holders who swoop in on essentially any project with a token-incentive scheme going.

Leading <a href="https://decrypt.co/74686/defi-blue-chip-tokens">DeFi blue-chip project </a>adding token rewards for the next few weeks? They’re there. Small, unknown decentralized exchange on Boba doing something similar? Count the mercenaries in.

The size of the project doesn’t matter. Just the size of the APY.

And while this can create a hefty spike in a project’s total value locked (TVL), it rarely lasts.  As soon as the rewards scheme ends, these farmers withdraw their liquidity, sell their tokens, and move on in search of the next opportunity.

Nansen, a blockchain analytics platform, also <a href="https://www.nansen.ai/research/all-hail-masterchef-analysing-yield-farming-activity">revealed </a>that “a whopping 42% of yield farmers that enter a farm on the day it launches exit within 24 hours. Around 16% leave within 48 hours, and by the third day, 70% of these users would have withdrawn from the contract.”

On and on this goes, leaving a project’s true believers holding a worthless bag.

Fixing this arrangement is thus the promise of so-called DeFi 2.0 projects, like OlympusDAO. One particular feature is Olympus’ <a href="https://docs.olympusdao.finance/pro/olympus-pro-users/what-are-bonds">bonding function </a>.

Olympus bonds are similar to traditional bonds. They offer users a way to buy discounted OHM tokens by swapping either a handful of cryptocurrencies or liquidity provision (LP) tokens from another exchange like SushiSwap.

The OHM is distributed regularly to the bon d-holder until it reaches maturity at 15 epochs, where one epoch equals roughly 8 hours.

If, for example, OHM costs $500 on the open market, users can purchase that same token for $450 (plus wait time) through the bonding mechanism. That wait time also keeps folks locked into a protocol much longer than the figures Nansen cites regarding typical yield farmers.

Because this OHM is cheaper as a bond, users are thus incentivized to sell their liquidity in exchange for the project’s native token. This also grows the protocol’s liquidity and lets users get their hands on the token without some of the risks of traditional liquidity provision like <a href="https://medium.com/coinmonks/understanding-impermanent-loss-9ac6795e5baa">impermanent loss </a>, which is what happens when tokens in a pool change prices (either up or down), sometimes reducing people's exposure to the more lucrative token.

And, just as a reminder, this doesn’t even begin to scratch the surface of OHM’s exorbitant staking returns.

With OHM in hand, you can also stake (i.e., lock up those tokens with the protocol) and get 1:1 staked OHM (sOHM) in return. Once staked, users can earn more than 4,297.3% APY on those holdings, which is paid out in OHM every epoch. Earlier this year, that figure was a whopping 16,000%.

But it's the bonding mechanism, not the staking, that’s got DeFi projects excited.

The mechanism is unique enough that Olympus has now rolled out a bonding-as-a-service product called OlympusPro. For a 3.3% fee on all bond payouts in a project’s native token, the Olympus team will implement this bonding mechanism for you.

So far, they’ve attracted a ton of interest across several different blockchains.

It’s certainly an interesting experiment, and as the service gains more traction, it may very well become a key tool for the rest of DeFi. But expect OHM to continue to have some controversy around it when politicians talk stablecoin regulation.

Why DeFi Projects Are Flocking to OlympusDAO Bonding - Decrypt

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