On September 17, 2021 Olympus Pro was officially announced — introducing a new, sustainable alternative to traditional liquidity mining strategies. At time of writing two cohorts have launched and over $11,000,000 of liquidity has been bonded. As Olympus Pro continues to expand, bringing in new projects, new communities, and new OHMies, we hope this post will serve as a helpful starter guide to navigating this new paradigm.
What is Olympus Pro?
Since the history of liquidity mining in DeFi was detailed in the original Olympus Pro announcement, we’ll skip straight to the important stuff: What is Olympus Pro?
In short, Olympus Pro generalizes the OHM bonding mechanism (covered later) and allows any project to sell bonds in order to acquire liquidity for their DAO or protocol. This is a major shift in the way liquidity mining generally works because instead of renting liquidity with rewards, projects can buy and own liquidity using bonds.
The flow of funds can be simplified as follows:
In the old paradigm, projects pay tokens out of their treasury over a set timeframe to rent liquidity and the attention of liquidity providers (LPs). Oftentimes when these rewards end LPs simply move on to the next farm, making the liquidity mining event a sunk cost with little to show for. Ser ScoopyTruples from Alchemix (an Olympus Pro partner) said it best: “Liquidity Mining is Like a Drug; You Have to Wean Yourself Off it Over Time.”
By using Olympus Pro, projects can make the flow of funds circular and create a symbiotic relationship with profit seekers and their community alike. As projects use the bonding mechanism to improve their liquidity, that liquidity makes it back to the project’s treasury and becomes a permanent, income producing asset. In other words, liquidity mining through Olympus Pro is no longer a sunk cost and the project now has full control over the liquidity they paid for.
By flipping the old model on its head, projects not only benefit, but so does each project’s community. Community members can rest easy knowing that the liquidity for the token they support won’t disappear overnight when incentives dry up. They’ll also be much happier knowing that the project is receiving an income producing asset in return for token rewards rather than renting mercenaries. These two major improvements create a much healthier ecosystem around each token and allow young projects to thrive.
How do bonds work?
In the context of Olympus Pro, bonding is the process of selling tokens or LP shares to a protocol or DAO in return for that project’s native token. The benefit for the bonder is that they have the opportunity to acquire a project’s token at a discount to market price — generating a yield for the duration of the bond.
While the theory behind bonds could be helpful (found here), the best way to learn is through an example, so let’s walk through the user flow. Upon navigating to the Olympus Pro marketplace, you’ll be presented with a list of bonds:
Each bond tells you the type of LP shares (or other asset) you’ll need to pay with, the payout asset you’ll be receiving, and the return on investment (ROI) on that bond at that point in time. If a specific ROI seems appealing to you, click “Bond” to get the finer details.
After clicking “Bond”, you’ll be quoted a price and given a vesting period. The price is how the ROI is determined and the vesting period is the amount of time you’ll have to wait to realize the full ROI of that bond. Vesting periods can vary from project to project.
Sounds too good to be true, what’s the catch?
It’s important to note that the Olympus Pro bond marketplace can and will be competitive, especially if you’re targeting specific bonds. When bonds are launched, the discount is set at a certain amount (e.g. 5%) and as soon as people bond, that discount starts to tick down (e.g. 5 to 4%), making it less profitable. If no one is bonding, then the discount ticks back up, making it more profitable.
In the example above, the FOX-ETH UNI bond is maxed out and returns a negative ROI. This means that demand for the bonds was high enough to flip the ROI negative (i.e. the price of the bond is higher than market price). Of course, when the ROI is negative noone should be buying, which allows the bonds to tick back to a positive ROI. Rinse and repeat. Quick tip: The quicker you are and the more you monitor the marketplace, the better your odds of snagging a good price.
The other important dynamic to remember is that the ROI is not given to bonders all at once and the bonds are vested linearly. As mentioned in the previous section, you’ll have to wait the full vesting period to realize the full ROI. This protects projects from unexpected sell pressure and means bonders can’t sell their tokens all at once. In traditional liquidity mining strategies this is not the case. Remember Each project sets their own vesting period, so you’ll want to double check this before buying.
As a user, interacting with the Olympus Pro bond marketplace isn’t as straightforward as other liquidity mining or yield earning primitives, so it’s important to establish mental models for interacting with bonds.
One way to do this is to evaluate bonds relative to other yield opportunities for a token (e.g. pool2 or staking). If a bond’s ROI outperforms those opportunities in the timeframe you’re considering, then they may be a worthwhile strategy for you. Or if you feel more comfortable using bonds than the other options, then bonds may be the route to go. However, you’ll want to consider your ability to actively monitor the marketplace to produce consistent yield. Bonds shouldn’t be considered a passive strategy.
Another mental model could be using bonds for token accumulation. Since bonds offer a discount to market price, they could allow you to accumulate token(s) of your choice at a discount. This strategy can be a bit more passive than the ladder, requires less overhead, and may be a good way to get started with Olympus Pro bonds.
That said, whichever strategy you choose isn’t important. What is important is that you have a gameplan before getting started so that you can reason about your success with bonds. If you ever have questions or ideas, don’t hesitate to share them with other OHMies in the Discord.
What’s in it for OlympusDAO?
We’ve discussed why this new shift in liquidity mining rewards is beneficial to Olympus Pro partners and users, but what’s in it for OlympusDAO? First and foremost: OlympusDAO takes a fee (currently 3.3% from each project’s token but likely to change given initial launch success) associated with every bond sale — creating a new form of revenue for the treasury that scales up with each added partner. This dynamic also benefits OHM’s reserve asset status by making it a form of proxy exposure to up and coming DeFi projects. More partners means more revenue and more revenue means a larger treasury.
Second, it allows the DAO to collaborate with various types of DeFi projects built not only on Ethereum, but other chains too. Creating many productive relationships allows Olympus to create “infinite” inroads to its ecosystem as well as outroads for integrations. As Olympus continues to scale and continues to pursue its mission, these inroads and outroads will become increasingly important.
Last but not least, bonds have been a major success for us and it would be a shame not to share them with the broader DeFi ecosystem. If one of us wins, we should all do our best to help others win. Liquidity mining doesn’t need to be a painstaking endeavor for protocols anymore and Protocol Owned Liquidity is the future.
Olympus is a decentralized financial reserve that provides sustainable compounding interest through its community-owned and protected treasury.