Amplify the Already Ridiculous Yields Offered by Reserve Currency Protocols OHM and TIME

  • Olympus (OHM) and Wonderland (TIME) are reserve currency protocols offering yields that exceed 1,000% APY.
  • Game theory continues to support these tokens because the best course of action is to continue depositing and staking.
  • OHM and TIME thrive on the rational behaviour of participants and their continual contributions, so, if this ceases, there can be a volatile and bearish plunge.
  • The combination of attractive yields, the continued exponential expansion of these projects and the application of leverage via the Abracadabra and Rari Capital lending/borrowing platforms make them potentially favourable.

Investment Idea

Staking and yield farming on more traditional DeFi platforms provide attractive yields, however, liquidity instantly dries up once the incentive programs utilised to draw users to a particular ecosystem are depleted. OHM and TIME remove this uncertainty by providing transparency into a host of metrics, such as the market value of the assets used to back the tokens and the number of days that the stated APY can be sustained. The market dynamics of OHM are driven by a unique application of game theory that is known as (3,3). Given that TIME is a fork of OHM, the same scenarios apply and continue to drive increased adoption and sustained liquidity.

Although the aforementioned returns are already outrageous, there is a way to increase them further without the addition of any new money. The Abracadabra and Rari Capital lending/borrowing platforms allow collateral deposits from the tokens received in return from staking on the native Olympus and Wonderland platforms, i.e. sOHM and MEMO.

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Potential

The proverbial “aha moment” came upon the realisation that the sOHM and MEMO tokens can be productively used and need not be wasted just sitting in your wallet. There are two pools on Rari Capital that accept the deposit of sOHM tokens as collateral, pool #6 and pool #18. The deciding factor between which pool to deposit your sOHM tokens into comes down to the loan-to-value (LTV) available. Even if you are a conservative investor and choose to only utilize 10% LTV, a pool with the higher LTV will give you further latitude from potential liquidation, should the price of OHM drop. Currently, pool #18 (Olympus Pool Party) allows 40% LTV and pool #6 (Tetranode's Locker) allows 76% LTV. Without analyzing other factors, such as utilisation rate and a comparison of interest rates for borrowing stablecoins, this makes pool #6 the clear winner. The high-level procedure for juicing up returns is as follows: deposit sOHM as collateral, borrow a stablecoin with the lowest interest rate, swap these received stablecoins to OHM and compound your original stake on the native platform. Note, in the context of TIME, the same high-level procedure applies, however, it occurs within the Abracadabra platform with a minor twist. Prior to the initial deposit of MEMO as collateral, it will need to be converted to wMEMO first. Also, in addition to the lower 30% LTV imposed on the wMEMO, there are limits on the available amount of MIM stablecoin that can be borrowed throughout the marketplace and one will consistently need to check the platform for when the utilisation rate of MIM has decreased.

Risk

Olympus’s OHM token is intended to be a reserve currency that directly competes with the dollar. It is unique because it is not pegged to anything, but rather backed by a variety of assets within its treasury such as: LUSD, FRAX, and DAI. The market value of the assets in the treasury serve as the floor price for each OHM token. In a similar fashion, the TIME token is backed by AVAX and the MIM stablecoin. With that said, the market determines the price of each asset and should the market determine that the premium on OHM and/or TIME relative to its treasury assets is no longer warranted, the price can decrease.

It is of the utmost importance to ensure that the assets within the treasury are adequately protected from both internal and external risk. The OHM treasury contract is guarded by multi-signature. Each transaction requires a minimum of four approvers out of the seven total approvers. This eliminates the possibility of a singular individual liquidating the treasury for an ulterior motive. Moreover, as with any “hot wallet,” there is a risk of having a hack occur that would wipe the treasury clean of its holdings and result in a rapid selloff of OHM and/or TIME to its intrinsic value of whatever is left in the treasury, if anything.

In the case of OHM’s decentralised governance, you are exposed to the risk of a change in policy that would be a detriment to your holdings. However, this concern is mitigated because there is not a separate governance token so the holders of the OHM currency are also those who make the decisions. This encourages policy decisions to be made in the best interest of OHM for continued stability and increase in value.

Lastly, the utilisation of the lending/borrowing platforms introduces a supplementary layer of smart contract risk because another party is the custodian of your funds. These platforms also insert liquidation risk into the equation, but this is easily countered by employing only a mild amount of leverage and keeping a watchful eye on the daily fluctuations of the tokens so the liquidation threshold is not breached during a volatile spike downwards.

Conclusion
The presumption is that the hysteria causing the surge in price of OHM and TIME has not diminished and this price appreciation will continue. While an unleveraged, staked position on OHM and/or TIME provides healthy yields, there is no need to fear applying leverage to enhance these gains even further. One has to be cognisant of the amount of leverage used and the freely available metrics to gauge the health of these environments, i.e. runway, treasury balance, and amount of users staked.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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