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The evolution of stablecoins - an interview with an OlympusDAO community member
When most people think about stablecoins, they think of the dollar backed tokens such as USDP and USDC where each token is backed by a US Dollar. These types of currencies find their stability by linking to a government backed currency and are ultimately subject to those goverment’s monetary policies. Olympus’ goal is to “create a decentralized, censorship resistant reserve currency for the emerging Web3 ecosystem” called OHM. The stabilization is algorithmically using crypto reserve assets. The early experiments with algorithmic stablecoins has had its ups and downs, and Olympus has its fair share of criticisms - but we’re still in the early stages.
The project is fiercely decentralized where changes are made through DAO governance. When I reached out to learn more, I was connected to OlympusDAO community member Asfi Shaheen for the interview.
The following has been edited for clarity and length.
What is Olympus and how does it work?
Olympus’s vision is to create a decentralized reserve currency backed by a community-owned treasury. In order to create a liquidity pool token, most protocols would just keep giving incentives for people to provide liquidity. Olympus said: Can we create a mechanism that allows us to own that liquidity and an incentive for people to sell their liquidity pool tokens to us? That was done through “Olympus bonds,” which allow a liquidity pool token holder to sell their tokens to Olympus at a discount.
Olympus’s theory is that we can create a basket of crypto assets that can create a backing for our currency, and if we can own our liquidity, then over time we can grow this treasury and create a currency that has a completely independent monetary policy, and that is community-owned and -governed.
Tell me more about the community-owned aspect. It seems like a key feature of the philosophy behind Olympus.
It’s important to acknowledge that community governance is a social contract. Olympus doesn’t have on-chain governance — it’s not a completely automated, immutable contract. It’s reliant on what we’d call a multisig, which are seven individuals who sign on transactions. But to date, every decision that has been made since launch is done through a community vote. If a new proposal is initiated, that vote and procedure is honored by the multisig, which does the administrative job of saying, “Here’s what the community voted on, and here’s the change we have implemented.”
I want to emphasize the social contract part because in crypto, the attitude is often: “Trust the code, don’t trust the human.” Here you’re trusting humans to do the right thing.
What led to that deviation from crypto’s “trust the code, don’t trust people” philosophy?
I’ve played around with both. My current view is that when you have a human multisig, there is greater security. I’ve studied two protocols: one is Olympus and another is Beanstalk, which recently went through a governance hack. Bean made the conscious choice to have on-chain governance from day one. There’s no right answer here. Many of the protocols that have been built on Ethereum start with a multisig and work toward on-chain governance. As an early stage investor, I find that multisig is a bit more secure early on.
Who’s behind Olympus? I understand that now there’s a community, but who were the driving forces initially?
I only got involved in June. I’m a community member, not a core contributor. There were four early creators, but Olympus has been fairly radically decentralized from the get-go. Their entire supply was sold through a community sale and given to people who were active on their Discord. We now have over 150 contributors and over 60,000 wallet holders.
Are those four early contributors named? Do you know who they are?
No, they’re anonymous. While I don’t know their real names, it would also be wrong to say that I don’t know who they are, because I’ve seen their online personas, their behavior, how they respond to criticism, and how they respond to crises.
More importantly, I’ve studied their incentive structure, which is another token that’s more like a call option given to early stage contributors and the team. Very broadly, the way it works is that payout is maximized as supply grows. They found a very neat and customized way to align their incentives with the incentives of the rest of the token holders.
What are the primary challenges with uncollateralized stablecoins?
Uncollateralized stablecoins are a very hard problem in crypto. It’s difficult to create a representation of the US dollar on-chain without collateral. What it boils down to is creating incentives that are perfectly balanced to keep a data point on a database at exactly $1 over a period of time.
Olympus’s approach is quite different: They’re trying to build a treasury first and find stability over time. I think Olympus’s biggest challenge is that it’s an organic and very decentralized organization with contributors from around the world. You have different cultures trying to work with each other, so we have to navigate those cooperative human challenges.
Other than that, there are a few big milestones planned for this year. There’s a desire to move to on-chain governance, which will be a very big move, and to create internal bonds. I’ll be keeping an eye on how we navigate and implement those changes.
A lot of DAOs I’ve talked to are facing a lot of the issues that you might find in traditional decentralized governance - how are you managing those challenges?
The unique element of Olympus is that a lot of us feel a sense of ownership to do things on our own initiative. When I helped start Wagmi Labs, we didn’t take any funding from the treasury — we just started the C-corp, and an awesome venture capitalist agreed to back us. But I’m not the only one. One of our community managers is starting a company to train smart contract developers, which is a key need. Another one started a NFT marketplace that will be using OHM.
Olympus has been super rewarding, but getting to meet the OHMies, seeing their talents, and seeing these organic projects spring up has been really special. People on the outside don’t see that — they only see price action.
Who are the users who you think will be using a stablecoin not backed by a country, either now or in the future?
I can speak for myself. For me, the number one use case is store of value. Is this something that can be a reliable store of value for me? Can this treasury keep on increasing, and can my claim on treasury keep on growing? The second thing is: Once we have a store of value, will we start seeing more use cases around velocity? Can we start building more use cases around this currency?
There’s a concept called the impossibility trilemma in economics, which says that you can’t have a fixed exchange rate, sovereign monetary policy, and free flow of capital. You have to pick two. This was popularized in the ’80s and ’90s when countries in Asia and the Middle East were applying pegged exchange rates and found that there were some limitations to that. Olympus’s view is that we can give up on the pegged exchange rate and try to create a currency that’s native to the blockchain, that over time becomes a true currency.
That’s a moonshot and a half. But what made it easy for me to get in was that I could see a store of value being created, and that made me comfortable saying: I can hold it as a store of value, and over time it could become something much more meaningful than that.
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Hi, I’m Andrew Chang - I created the Web3 Roundup to share what I’m learning in this space. I’ve spent my career at the forefront of the technology industry in areas such as crypto/blockchain (Former COO @ Paxos, co-founding partner of Liberty City Ventures), video and adtech. I learn by meeting with founders, investors and other thought leaders and approach Web3 with the same enthusiasm – and skepticism – I had about crypto/blockchain technologies 10 years ago.