A paradigm shift in the way protocols utilize emissions to accrue value.
A brief history of token emission mechanisms
It all started with mining. The first coins were individual Proof of Work chains, which use block rewards to incentivize miners to maintain the chain and secure the network. Block rewards live on a perpetual emissions schedule; security is always needed for the network, and so the network always pays for security (though Bitcoin is designed to, one day, retire its block rewards in favor of a fee-based model).
Then came the ICO. Enabled by smart contract tokenization on Ethereum, new projects began offering their tokens in the form of a public sale. Generally, a large portion of the total supply of the token was offered early on, with some set aside for a foundation to support development and growth initiatives. ICOs were effective in distributing supply to holders, but inherently separated the price of the token from the success and product-market fit of the network (since the ICO would occur before a product was launched).
The ICO reigned supreme until Compound changed the game with the introduction of liquidity mining. By dripping supply out to network participants providing value to the protocol (in the case of Compound, lending assets), they were able to quickly bootstrap large swaths of liquidity, while lenders were able to earn high-interest passive income. The following months (now known as DeFi Summer) saw a multitude of projects, new and old, adopt this mechanism to bootstrap participation in their networks.
Liquidity mining, unsurprisingly, faces the same drawback as PoW mining: it is a perpetual expense with no lasting benefit. Liquidity mining can be equated to renting — it may be cheaper than buying at first, but stop paying rent and you no longer have it. As DeFi matures, it is becoming increasingly clear that incentives are not a viable long-term strategy for networks. The goal should always be to bootstrap and accrue long-term defensible value, rather than perpetually pay high interest on mercenary capital.
Bonds change everything
Olympus flipped this model on its head. While we started with liquidity incentives at launch, we used them (as they should be used) as a short-lived bootstrapping mechanism. LP incentives allowed us to build up a large liquidity pool quickly, but it was never a long term strategy. Bonds are.
Bonds are a mechanism by which the protocol itself can trade its native token in exchange for assets. Instead of renting liquidity from third parties, it purchases them outright. Once the bond is created, the protocol owns those assets and, like liquidity mining, has distributed new supply.
Olympus has found enormous success through bonds. Within the first six months, the protocol has amassed over $150 million in assets. This is higher than many protocol’s TVL, and it will never have to pay another dime for them. Not only that, most of these assets are productive; instead of costing the protocol money, they make the protocol money.
We believe it’s time to share this innovation with the rest of DeFi.
At its core, Olympus Pro is a service for protocols looking to utilize bonds in their emissions programs with low overhead and maximum impact. We provide our partners with infrastructure, expertise, and exposure. Projects only need to bring a token and an objective.
Through bonds, protocols can accumulate the crucial infrastructural liquidity that they generally service via liquidity mining. Instead of renting that liquidity (often at astronomical interest rates), they simply purchase it, turning a value-draining perpetual expense into revenue-producing assets that facilitate the functionality of the rest of the platform.
Let’s break down the various pieces of this new product:
Olympus Pro is protocol owned liquidity-as-a-service, providing a custom treasury and bonds optimized to individual needs. Our contracts are audited, battle-tested and ready to go, allowing developers to spend less time facilitating tokenomics and more time doing what they do best: building great products.
Olympus Pro X is a bond marketplace, providing an integrated front-end solution for users to quickly and easily create and manage their bond positions on a familiar, unified user interface.
Bonds exhibit greater complexity than traditional liquidity mining incentives and, given the critical nature of token emissions, it is important that projects get it right, and that they get it right on the first try.
That’s where we come in. Olympus has spent months studying and perfecting its own bonds. Our valuable insight, gleaned from multiple explicit data-driven trials and countless implicit observations, will help projects get passive, self-regulating bond programs up and running.
Partners will be featured on Olympus Pro X, a unified marketplace for bonds from a multitude of protocols. The marketplace will become the default destination for DeFi investors looking for discounted exposure to various tokens through this unique mechanism. A presence on this interface will be invaluable in reaching new investors, much like the value of listing on an exchange.
Additionally, Olympus will provide its partners with co-marketing services, leveraging our community and brand to highlight new and exciting projects. As we have learned in recent months, you can’t fork the community; but you can join it.
You might be thinking, “this sounds great for protocols, but what’s the benefit to Olympus?” Olympus Pro will primarily accrue value to Olympus in two ways:
The Olympus Treasury will take a fee on all volume. For the sake of our pilot cohort, this fee is a flat rate 3.3% applied to bond payouts. For example, if an Abracadabra bonder receives 1 SPELL for a bond, the Treasury receives 0.033 SPELL. These are more than fees to “charge” other protocols to build with us — rather, the transfer into our treasury represents our skin in the game. The success of our partners is the success of Olympus.
An end goal of Olympus Pro services is to promote OHM as a treasury asset and liquidity pair token for other protocols. We will leverage our partnerships to accelerate that process by: 1) offering rebates to protocols accumulating OHM or OHM-X SLP and; 2) offering co-bonding opportunities to protocols using OHM as payment, especially with OHM pairs (subject to Olympus governance approval).
Olympus Pro is another step toward cementing OHM as crypto’s reserve currency. Our initial cohort will be joined by more members in the coming months and we look forward to discussing with any interested parties here. We are excited to watch DeFi evolve with Olympus side-by-side.
This time we own it.