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How to Stake Olympus DAO (OHM)
How to stake OHM and receive high yield from one of DeFi's most ambitious experiments.
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Olympus DAO is a community-owned decentralised reserve currency that historically provides an extremely high yield rate, with APY of up to 8,000% not uncommon. Olympus DAO operates a treasury which is made up of other cryptocurrency such as ETH and DAI, which are used to support the value of the OHM token. The aim is to have OHM become the underlying currency for all DeFi products going forward, similar to a global reserve currency, like US dollars.
Returns are shared with all users who stake OHM, and are generated in 2 ways. The first is from the protocol selling new OHM tokens. The second is from profits generated by the treasury, which uses a novel mechanism called "bondings". Yield remains high because stakers maintain their percentage of the market capitalisation as it grows, ensuring that the minting of new tokens does not negatively affect stakers.
What is staking?
Staking is a way to put a cryptocurrency to work and earn rewards while doing so.
Node staking is where a validator puts up collateral and then acts as a node in the mechanism to verify all transactions. This is proof-of-stake (PoS), a consensus method that allows validators who stake coins to verify blocks. If they submit a false transaction to the network, they won't receive block rewards, or may even lose a portion of their staked tokens.
A validator's chance to receive a block is proportional to the number of tokens the validator has staked against the whole network of staked coins. For example, if you have 25% of the total coins staked, then you will have more chance to "win" the block reward than someone who only has 10% of the total coins staked.
Exchange staking is where you give the exchange your coins and they use them to become node validators. It removes a large amount of the validation risk, but also means that you give custody of your coins to the exchange. This is a great way to earn yield while also minimising the amount of effort and know-how to actually operate a node.
Olympus DAO staking
Staking in Olympus is a profit distribution mechanism. It is designed to be the dominant strategy for participants; to stake, hold and compound.
The primary aim of Olympus is to provide rewards to those who buy-in to OHM (the token of Olympus) and boost the value of the treasury. In doing so, the protocol provides profits equally to all participants. Through sOHM (staked OHM), everyone receives the same percentage profit each rebase, which also allows compounding yield while only needing to hold. This method is known by users as "(3,3)" and utilises game theory to try and ensure that as the protocol continues to grow, stakers continue to earn high yield.
How to stake OHM
The most common way to purchase OHM is through a decentralised exchange (DEX), although some centralised exchanges such as Gate.io also offer it. Below are instructions that will show you how to purchase OHM through a DEX and then stake it using the Olympus DAO website.
- To purchase OHM using a DEX, you will first need something to trade for it, such as ETH.
- Send ETH to a web 3 wallet, such as Metamask.
- If not set up, you can easily set up the Metamask extension here.
- Remember to keep your mnemonic phrase safe and don't ever share it!
- Ensure you have added both OHM and sOHM to your wallet so you can view your holdings in the future.
- If not set up, you can easily set up the Metamask extension here.
- Swap ETH to OHM on either Uniswap or Sushiswap.
- Tip: Don't swap all your ETH to OHM, leave some aside for fees.
- To stake your freshly bought OHM go to the Olympus DAO website, select "Stake" on the left-hand side, then connect your wallet.
- Once connected, click on the "Approve" button to enable your OHM to be deposited. This will incur a gas fee and may take a few minutes depending on network congestion.
- Once approval is complete, select how much OHM you would like to stake, then click "Stake". This will also cost gas fees.
Once staked, you will see that you are now the owner of sOHM, which is a 1:1 of OHM. sOHM is a transfer-restricted rebase token, meaning that it cannot be traded or used for anything except holding and receiving rebase rewards. It is a bit like a coupon that entitles you to rewards, but can also be used to redeem your OHM at any time.
What is rebasing?
Every 8 hours the Olympus protocol distributes tokens by sending them to the staking contract, without asking for sOHM back. This then increases the ratio of OHM staked to sOHM outstanding and results in a rebase to correct the difference.
A great example is as follows:
Let's say that there is 100,000 OHM staked and 100,000 sOHM outstanding. Let's also assume that the protocol produced a $10,000 profit throughout the day, driven from its underlying assets, which it uses to mint 10,000 OHM. It then sends the 10,000 OHM to the staking contract; which leaves us with 110,000 OHM staked and 100,000 sOHM outstanding. sOHM supply needs to increase by 10,000 or 10%, to return to a 1:1 balance. So, sOHM is rebased by 10%.
Recap: Olympus DAO distributes all the profits from the 8 hours across the board to all users. It does this by bringing the supply of OHM:sOHM to 1:1, this means that the supply of sOHM is increased to match the value of OHM.
Rebases occur retroactively, meaning that it happens 8 hours after profit has been generated. This delay means that users can see what APY they will receive at the end of the next 8-hour window. With this delay, users can see what rewards they are set to receive.
How much can I earn with Olympus staking?
This is entirely dependent on how much you put into the protocol, with rates constantly changing over time. However, at the time of writing (November 2021) the current 5-day ROI is 6.0658% which is not uncommon.
Is staking Olympus safe?
Olympus DAO has been operating for roughly 8 months (as of November 2021) with no notable hacks or security breaches. In this time it has accumulated US$4.45 billion of assets, and inspired many forks (copies) which suggests a high degree of confidence from investors. It is led by a public and highly active team that are frequently working with the community to improve the protocol.
However, like all DeFi protocols, it may be subject to as yet unknown risks, such as smart contract bugs or exploits. While there are no clear warning signs related to Olympus, as with anything in crypto, only invest what you can afford to lose.
Pros and cons of staking Olympus
The pros of Olympus DAO include an incredibly high and consistent yield. The triple auto-compounding per day results in growing returns without having to compound manually. Finally, with a strong community and a fundamental aim to be the decentralised currency of all DeFi projects, the project looks quite strong.
Cons are obviously that this is a new investing product, meaning that there isn't much historical data to base future returns on. The APY will inevitably fall as more people stake, meaning that returns will stay high but diminish until the final coin is released. Finally, because it is an Ethereum application, there are high fees associated with investing so volume is more critical than consistent investments.
- High and consistent yield for stakers.
- Treasury funds are compounded 3 times per day, which speeds up growth of the asset pool.
- Strong community and engagement.
- Returns are variable, but consistently high.
- A new and experimental way of investing, with little history to rely on.
- High fees because of the Ethereum Network.
- APY will inevitably fall as more people stake, because there is less difference between profits of OHM and sOHM staked.
With any new investment tool the risks are naturally higher, and this is especially true for something as experimental and ambitious as OHM. It's important to weigh the risks and rewards and determine your tolerance for newer investment technologies, however, early Olympous DAO users are rewarded for taking on additional risk.
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