How to use LUSD on OlympusDAO
Derrick Nguyen
October 13, 2021
In this post, I’ll provide a step-by-step guide on how to utilize LUSD on OlympusDAO.
Quick Disclaimer: This tutorial is not a recommendation and interacting with DeFi protocols can be risky. Please do your own research and use your best judgement.
Four weeks ago, OlympusDAO decided to add LUSD to its treasury as a hedge against centralized stablecoin risk. So far, ~$30M LUSD has been used to purchase OHM bonds in this short amount of time!
In addition to the previous collaboration, we also launched a co-incentivized LUSD/OHM pool on Sushiswap one week ago that has already attracted ~$43M in total liquidity, $41M of which is bonded through OlympusDAO! You might have read my previous tutorial on how to earn the LQTY, OHM, and MIST rewards, but good news — those LP tokens can also be used to purchase OHM bonds 🧙
Before we get started with the tutorial, I want to explain what OlympusDAO, bonding, and staking is all about 👇
What is OlympusDAO?
OlympusDAO is a decentralized reserve currency protocol that centers around their native token, OHM, which is backed by a variety of crypto-assets in the protocol’s treasury. OlympusDAO accrues value and fulfils OHM’s purpose through two primary mechanisms: bonding and staking.
What are bonds, how do they work, and why might I do it?
Bonding is the act of selling “naked” assets such as LUSD (reserve bonds) or liquidity tokens such as LUSD-OHM SLP (liquidity bonds) for OHM at a discount. When users purchase OHM bonds, the protocol quotes them with terms such as:
- Bond Price: This is the price that the user is buying OHM at
- ROI: This is the difference between the bond price and market price (i.e. the discount)
- Vesting Term: This determines how long it takes for the bond to become fully redeemable for the purchased OHM. Currently, all vesting terms are set at 5 days.
In short: From the protocol’s perspective, bonds are OlympusDAO’s way of building up liquidity in their treasury and generating profit for the DAO and OHM stakers. From a user’s perspective, bonding is another route to obtain OHM and a short-term strategy in which the profitability depends on the difference between the bond price and market price. Here’s a quote from the documentation to further explain:
"The ideal scenario for a bonder is for market price to go up; in this case, the bonder benefits from their discount on OHM and the increase in price. Bonders are still happy if the market price remains flat; their profit is the discount from the bond. Like stakers, bonders profit from inactivity at or around their buy in via an increasing balance. Bonders only lose if the market price goes down beyond the discount on the bond."
What is staking OHM, how does it work, and why might I do it?
Staking OHM is as simple as it sounds: Users can stake OHM on OlympusDAO’s UI to receive sOHM (1:1) and earn rebase rewards in return. The rewards (more OHM) come from proceeds via bonds and vary depending on the amount of OHM staked and the reward rate set by the DAO.
In addition, the rewards will auto-compound and accumulate in sOHM. This means users will benefit from the protocol’s successes and passively earn more rewards over time by not having to withdraw and restake their OHM gains.
Now that we’ve covered the basics of OlympusDAO and the value it provides, let’s continue with the tutorial!
Obtaining LUSD and/or LUSD-OHM SLP, or buying OHM
To obtain LUSD, users can borrow LUSD against ETH as collateral (guide on this here) or they can buy LUSD off of decentralized exchanges such as Curve.
Note: Borrowing LUSD against ETH using Liquity is likely to be the most attractive option if you wish to maintain ETH exposure.
To obtain LUSD-OHM SLP tokens, users can refer back to this previous tutorial and skip to the section “Obtaining LUSD and OHM” and “Providing Liquidity to the LUSD-OHM Pool”.
If you’re undecided on which route you should go, it’s worth mentioning that I’m including the LUSD-OHM SLP tokens in this tutorial for users who have already participated in the LP farm (which is still ongoing). It’s likely that utilizing LUSD alone will be the optimal choice for most when considering gas fees, simplicity, etc.
If you would rather skip bonding and directly buy OHM off the open market (e.g. Uniswap and Sushiswap), scroll down to “Staking OHM” for the next step.
Purchase Bonds with LUSD and LUSD-OHM SLP
After obtaining LUSD or LUSD-OHM SLP tokens, users will need to head to the OlympusDAO UI here. Feel free to browse around, but once you’re ready click on “Bond” in the left-hand tab to land on the dashboard displayed below:
The stats displayed have already been explained, so I won’t dive into them again. Next, you’ll need to click on “Bond” for LUSD or OHM-LUSD LP, whichever you possess.
Once you’re here, you’ll notice more stats that I’ve already covered. The two that I didn’t cover (Debt Ratio and Max You Can Buy) are out of scope for this tutorial.
In this example, I’m opting to purchase 1 OHM at a price of $1,111.76 LUSD and at a discount of 5.45%. Keep in mind that you can input any amount of LUSD desired, and that these parameters such as the discount (ROI), bond price, and market price are variable and most likely will be different when you’re bonding. Again, please DYOR when utilizing bonds in order to achieve maximum profitability and to minimize risk.
Now that you’ve decided on your desired amount to be bonded, all that’s left to do is click “Approve” and confirm the following transactions!
After officially locking in the purchase, you can click on “Redeem” to view your accrued OHM over the five day vesting term and also to either “Claim” or “Claim and Autostake” the OHM. These functions are also self-explanatory, so let’s continue.
Note: If you’re auto-staking, I recommended reading the next step where I cover how to calculate your gains afterwards 👇
Staking OHM
Last step! If your vesting term is over or you bought OHM on the open market, you may want to navigate to the “Stake” tab on their UI.
Here, there’s a bit more information worth explaining:
- APY: This represents the APY that will be earned over a year and takes into account the effect of compounding since sOHM rebases exponentially. This varies and can change over time, but OlympusDAO provides a “Runway Available” dashboard on their UI that gives an estimate of the number of days that the current APY can be maintained.
- Total Value Deposited: This represents the total $ amount of OHM staked.
- Reward Yield: This represents how much your sOHM balance will increase when the next epoch begins, or the rebase rate. For example: If you stake 100 OHM and the upcoming rebase is 0.5427%, your sOHM balance would increase from 100 to 100.5427.
- ROI (5-Day Rate): This estimates how much your sOHM balance will increase after 5 days if the reward yield stays the same during this period.
After staking your OHM, the next question would be: How can I calculate my balance increase going forward?
This is where the “Current Index” stat becomes important. First, you’ll need to remember what the starting index was when you started staking (starting index). Once rewards have accumulated over time, look at the current index (end index). Now, the following formula shows the ratio that your OHM balance has increased: endIndex (e.g. 13.2) / startingIndex (e.g. 8.8) = (e.g. 1.5).
What's next?
We made it, you have become an Ohmie using LUSD! (🌊, 🌊). To learn more about OlympusDAO, check out their resources:
Liquity Resources:
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