In mid-October, Bitcoin.com News reported on how decentralized finance (defi) or algorithmic stablecoins have seen significant demand in 2021. OHM, a stablecoin that is free to flounder and backed by the Olympus DAO Treasury, is very different from traditional reserve currency defi protocols. OHM is not backed by the U.S. Dollar in the traditional fashion. However, its $3.6 billion market value makes it the fifth largest crypto reserve currency according to market capitalization.

Meet Olympus: An Algorithmic currency Protocol

When stablecoins first appeared, there was a central model. This is where tokens with fiat backing are distributed by a blockchain network. The centralized model still exists today, and the top two stablecoins in terms of market valuation, USDT and USDC are both perfect examples of that type of model. Recent developments have seen the rise of decentralized finance (defi), or algorithmic stablecoins, such as Makerdao’s DAI.

Makerdao is an Ethereum-based decentralized autonomous organization (DAO) that issues the stablecoin DAI which is essentially backed by a mixture of overcollateralized loans and Makerdao’s repayment scheme. DAO’s are basically frameworks that are encoded using smart contracts. Network participants can influence the organization’s motives. Makerdao facilitates loans, and issues tokens that are pegged to the U.S. Dollar without the need for intermediaries.

Following the success of Makerdao’s DAI stablecoin, a great number of decentralized stablecoins have been joining the crypto economy. Coingecko’s “Top Stablecoins by Market Capitalization” list shows a great number of these blockchain assets are backed by fiat currencies like the U.S. dollar. However, a project called the Olympus DAO developed a very different reserve currency protocol that issues the OHM token. OHM’s crypto assets are held by Olympus Treasury, and are not tied to USDC or DAI.

The Olympus DAO team introduced the DAO on February 1, 2021, and the intro post explains that the project is different as it’s a free-floating currency backed by the treasury. The Olympus DAO introduction clarifies that each OHM token is backed with 1 DAI in treasury. Tokens cannot be burned or minted by anyone other than the protocol. The protocol does not respond to price. OHM traded below 1 DAI is bought back by the protocol. OHM traded above 1 DAI is sold to the protocol. The protocol then mints and sells OHM.” This project’s intro blog adds:

Because the treasury must hold 1 DAI and only 1 DAI for each OHM, every time it buys or sells it makes a profit. Either it receives more than 1 DAI from the sale or spends less than 1 DAI to purchase the OHM. Because each token is held by the protocol, we can be certain that OHM will trade above its intrinsic value over the long-term. This allows for investments with defined risk.

Olympus DAO participants can interact with the project’s governance model, stake OHM, as well as leverage a strategy called bonding. OHM’s first recorded value on May 23, 2021, was around $162. 79 per OHM. The value has increased by over 540% since then and today a single OHM is exchanging hands for $1,057 per unit. The crypto asset OHM’s market cap is around $3.6 billion and the number of OHM in circulation grew by 120% in the last 30 days. Statistics show there’s $126 million in OHM global trading volume and 3,517,713 OHM in circulation at the time of writing.

Olympus DAO Faces Pyramid Accusations, Smart Contract Vulnerabilities, Price Crashes, and Issues With Regulators

While many proponents say that people shouldn’t dismiss OHM and the Olympus DAO, and some refer to it as the first “decentralized central bank,” others have called the project a pyramid or Ponzi scheme. Others have also complained about OHM’s volatility. OHM is a stablecoin that is backed by Treasury assets. However, price stability does not seem to be the ultimate goal. An Okex Academy blog post about the Olympus DAO subject discusses a variety of risks the project could face like smart contract vulnerabilities, price crashes, and regulatory issues with governments.

These days there’s $137 billion in value across the list of stablecoins that exist currently and much of the trades and settlements within the crypto economy are settled in digitized dollars. Zeus, the pseudonymous Olympus DAO founder thinks the trend is contrary to the main goals of the crypto revolution — to compete with and eventually replace fiat currency.

” “There is a strange irony in the fact that the most used cryptocurrency is actually just a digital dollar,” Zeus stated this July. Functional stablecoins can achieve stable USD values, but that doesn’t mean they have stable purchasing power. They change in real value just like dollars in a bank account .”

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What do you think about the Olympus DAO project and the stablecoin OHM?