My own thinking is too stream of consciousness, often prone to divergence, and thinking too far away from the current situation. I hope that writing in the form of text can help me record my thoughts and form a certain logic.
Writing an article is a kind of precipitation, a precipitation of reading information, and a precipitation of knowledge in my mind. My thinking is too divergent and lacks logic. Writing it down and sharing it with others may be one way to get out of the dilemma.
The expectation is to write an article as much as possible every day. Currently, I don't have many restrictions on the word count of the articles, but I hope that each one can incorporate my own thoughts or record my thoughts after communicating with friends. This may be of great help to me when I review myself in the future.
With the improvement of knowledge in various aspects, I increasingly feel that I am also an empiricist. Faced with many new information, I draw conclusions based on past experiences without understanding, which is an extremely subjective judgment method.
The correctness of the judgment method is far more important than the correctness of the judgment result. If a judgment on something is wrong, it can be admitted generously and the mistake can be learned from for a reevaluation. But if the judgment method is based on "empiricism," it affects a person's thinking logic.
I made this mistake when I was looking at the Olympus Protocol project recently. Based on some online remarks, I judged it as a Ponzi scheme project and confidently determined it as such in my communication with friends. However, after taking the time to read the project whitepaper and examine the project's logical design, I found that Olympus Protocol has a forward-looking nature in some aspects.
Yield farming has a huge advantage in the initial growth of DeFi protocols, but it hides a fatal flaw under the high returns, which is the lack of sustainability.
Countless yield farming funds are like hot money. The high rate of return can indeed allow DeFi protocols to achieve hundreds of millions or even billions of TVL in the early stages. However, the cost is that the project is very likely to enter a "death spiral."
Once subsidies are not provided, these influxes of hot money will withdraw and the TVL will plummet. However, continuous high subsidies, whether it is the economic model of the protocol or the selling pressure of governance tokens in the secondary market, are extremely significant and cannot be sustained until the protocol enters a positive and autonomous cycle.
However, in the Olympus Protocol, a more innovative solution has been proposed, leading to the development of DeFi 2.0, which is liquidity bonding.
Although many people classify Olympus as an algorithmic stablecoin, this is very inaccurate and imprecise. In the official definition, it is referred to as an algorithmic reserve currency backed by other decentralized assets. The original text is as follows:
"OHM is not a stable coin. Rather, OHM aspires to become an algorithmic reserve currency backed by other decentralized assets."
The bonds in the Olympus Protocol are tokens sold at a discounted price compared to the secondary market price. The discount can sometimes be as high as 50% or even more, but they need to be linearly released over five days to reduce the selling pressure of low-priced bonds in the secondary market.
The sale of bonds is similar to a Dutch auction, where the price of the bonds will be adjusted based on market demand. If no one buys them, the price of the bonds will decrease until someone purchases them. Once someone buys the bonds, the price will increase. When the market demand for purchase decreases due to the price increase, the bond price will start to decline again. This cycle not only provides arbitrage opportunities for traders but also ensures that supply meets demand.
Returning to liquidity bonding, in the Olympus Protocol, liquidity bonding is the process of selling assets to Olympus in exchange for discounted OHM, such as using OHM-DAI or OHM-FRAX LP to purchase bonds.
Some friends may find it difficult to understand this bonding process. In fact, bonding is just a superficial representation. The core is that the ownership of LP is sold to the Olympus protocol, which means that this part of LP is managed through the DAO.
For the initial liquidity of DeFi protocols, both users and project teams may face a crisis of trust. Users obtain protocol tokens through yield farming, and when the returns do not meet their expectations, they will withdraw liquidity and sell the acquired tokens. Therefore, this DeFi project is likely to be unable to withstand such selling pressure and fail.
Therefore, liquidity bonding in Olympus is more like a new fundraising method that conforms to DAO operations. The liquidity raised not only provides depth to the secondary market but also, because this liquidity is managed through the DAO, it cannot be withdrawn at will. However, for the project team, the cost is only the discounted sale of bonds.
After explaining liquidity bonding, let's briefly talk about the source of Olympus' revenue.
When Olympus DAO takes over this part of the liquidity funds, Olympus will receive the liquidity returns, which are the transaction fees. Olympus currently owns 98.5% of the liquidity of Uniswap V2 OHM-FRAX and 99.5% of the liquidity of OHM-DAI on SushiSwap, which means that Olympus can obtain the majority of the transaction fees from these two trading pairs.
The transaction fees collected by Olympus will be included in Olympus' treasury, and 90% of the treasury's earnings will be distributed to OHM stakers. At the same time, OHM rewards are redeemed every eight hours, which can be understood as compounding three times a day. The cumulative returns explain why Olympus' returns are so high.
That's all for Olympus. Let's go back to the stream of consciousness about empiricism. It is because of empiricism that I almost missed these projects with stunning designs. Therefore, I have decided to regularly record the unique aspects of some projects in writing.
Empiricism is common in daily life. For example, those who refute your novel ideas without thinking, when you ask for their opposing opinions, can only rely on experience and say they don't feel right.
Such empiricism is a disaster for life, especially for those who cannot recognize that they are empiricists. They do not learn or understand when faced with new things, but judge unknown things based on existing knowledge. On a larger scale, it hinders personal growth, such as being unable to accept new concepts or understand new technologies. On a smaller scale, it means being unable to recognize one's own illnesses, thinking that minor discomforts like headaches, fever, or stomachaches are insignificant, without realizing that they may be distress signals from the body. Empiricism easily causes people to overlook these problems.
I don't want to say that people should completely avoid empiricism; that would be too cold-hearted. I can only hope that a few words can make readers reflect on whether they are trapped in the fallacy of empiricism, and that would be enough.
The projects, opinions, explanations, and analyses mentioned in this article may be incorrect and are only intended for recording and sharing. I also welcome discussions and corrections.
Remember, at no time do I provide investment advice, nor do I recommend investing in cryptocurrencies.
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