OHM is a Reserve Currency

There has been some confusion on what OHM is. OHM is a reserve currency, and this is why.

I am not here to give financial advice. I simply did some research and wanted to point out some of the differences between stablecoins, and backed currencies.

There is a lot of misinformation about OHM being a stablecoin rather than a backed currency. I did my best to compile what Olympus is trying to do, and to communicate that as clearly as possible.

You can read further in the citations that are provided below.

As always DYOR

No, but read further please to hear the explanation.

A stablecoin is a coin that is pegged to something, whether it be fiat money like the US dollar, or other assets such as gold.

stablecoins can be relatively convenient, because it is a 1:1 ratio from your token to dollar value. When stablecoins are pegged to fiat, they are subject to the same inflation risk inherent to fiat money. They are not truly sovereign either — the same monetary policy that governs fiat also impacts these stablecoins in some ways. They can also be influenced by the fluctuations of whatever stable asset they are pegged to. To put it simply, the stablecoin feels whatever the asset they are pegged to experiences.

Examples of stablecoins:

As you can see below, stablecoins have a very narrow bandwidth of price. For the USD coin, the range is generally within fractions of a penny. USDC and the US dollar are a 1:1 ratio as far as value goes. However, it is important to consider what the graph doesn’t show. We can’t actually see the fluctuation of the value from inflation on the USD.

A backed currency is slightly different from a stablecoin. Instead of having a 1:1 ratio of a currency like a stablecoin does, the backed currency is backed by other things of value, such as gold, or silver. Some even consider services as a value, which would add to the strength of the value. A stronger currency is generally more sought after than a weak currency. This is because one of the strong currencies can get you more value than the weak currency.

A good example of this would be the dollar pre-1971. Before 1971 the USD was backed by the reserve of gold. This backing by gold gave the dollar an equivalent value to the amount of gold held. There have also been silver standards throughout history.

There are pros and cons of both types of currency. On one hand, research shows that in the gold standard example. Long-term fluctuations of a backed currency are more stable among price/inflation. However, shorter-term price instability had been an issue with both price/inflation.

OHM is a backed currency, not a stablecoin

OlympusDAO aims for OHM to be a free-floating reserve currency.

OHM = 1 DAI + treasury backed value (TBV)

This means that OHM is a backed currency that will always be 1 DAI + (TBV), allowing OHM to hold its purchasing power relative to the market.

The free-floating aspect of OHM is to allow for adjustments in the market but still retain the value according to the market.

The lack of being pegged to a value allows for not being directly tied to the depreciation of the dollar. Allowing OHM to stand on its own in the market.

As you can probably tell in the Olympus v2 to USD chart above. OHM price is very volatile at the moment. The range is in the 100s of dollars, compared to the stablecoin which was less than pennies in variations. This contradicts the argument of it being a stablecoin.

Olympus mentions why OHM is so volatile in the FAQs on the OlympusDAO website. But I can reiterate it.

The OlympusDAO is in its infancy as far as time is concerned. There are a lot of different factors that go into and affect the pricing. Since OHM is expanding in the supply with staking, bonding, and yield mechanics, it will amount to some volatility as well.

To sum it up, OlympusDAO is in its growth phase, so there will be a lot of volatility.

Additional Note:

Before getting into a project, you should always do your own research. Expect volatility in newer projects because there are a ton of different factors that may or may not affect your decision.

Always make informed decisions before you decide to dive in.

Citations:

and visit Sherpa Library to learn everything about OlympusDAO.

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