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| pic credit: BlockchainHub |
Olympus DAO provides a 4000 percent annual percentage yield, which is a staggering figure by any standard. However,in world of DAOs 4000 percent is practically nothing. I've spent the last week investigating these projects and finding returns ranging from 500,000 to 4 million percent. It's as if I'm looking at a collection of Internet pop-up adverts from 1998.
The truth is many of the DAOs out there are infact scams. These groups have emerged as the newest approach to entice eager investors into rug pulls. But I don't want to ignore the space entirely because the technology at work here has the potential to reshape not only banking, but also the way we organise communities in general.
So let's take a look at some of the most prominent DAOs and analyse the risk concerns you should be aware of. Also, just because I mentioned a DAO project in this article doesn't mean I'm advising you to invest in it. They're just real-life examples.
What is DAO?
Now it's time to define what a DAO is. This is a Decentralized Autonomous Organization, or DAO for short. This is the blockchain version of a horizontally structured society - a blockchain commune, if you will - or, as Forbes puts it, an Internet community with a shared bank account.
The concept is to create a community in which no single person can affect what the organisation does without the majority's approval. Most DAOs have their own governance tokens, which operate as a kind of currency-based voter's ID.
And this may seem familiar because many cryptocurrencies, including Bitcoin, are effectively run by the community who contribute to the blockchain without the need for a centralised authority. A DAO, on the other hand, goes a step further.
Developers can suggest protocol changes here, and members of the community can vote on whether to accept or reject them. Many entrepreneurs are interested in using blockchain technology to leverage the power of smart contracts.
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Even Mark Cuban wants in on this, claiming that DAOs are the future of all corporations. In a typical business, the distinction between decision makers and contributors; management and staff is usually fairly evident. The idea is that you can get rid of a lot of the inefficiencies and problems that come with a hierarchical organisation.
Issues with DAO
However, I believe there will be concerns here as well. As someone who has operated a business my entire life and employed hundreds of people over the previous eight years, I can tell you that the majority isn't always the best decision-maker.
I'd dare to estimate that 90% of decisions make sense to almost everyone, but every now and again, an experienced individual's gut judgement is the best for business. This is seen in the goods of huge organisations. They're often uninspiring and uninteresting, similar to how practically every SUV looks the same.
There are just too many decision makers and focus groups in these massive corporations, and anything particularly lovely or different gets voted out, leaving you with the least offensive product possible, which is a trait that DAOs will eventually have to overcome.
Also Read: How to Find the best NFTs For Investment With Huge Potential in Future?
Kinds of DAOs
DAOs are now divided into two categories. First, there's the investment business model, in which one of the most important decisions is selecting assets to buy. PleasrDAO, for example, paid $4 million for the only copy of a Wu-Tang Clan record.
The other group collaborates on blockchain projects, using smart contracts to vote on protocol changes and upgrades. Many of these projects make use of stablecoins and generate revenue by issuing bonds or allowing users to stake their assets.
Using stablecoins lets the market to focus on the protocol's performance rather than worrying about if the token they're using will simply dive.
Top projects of DAO
OlympusDAO was an intriguing initiative that led me down a rabbit hole of Reddit threads. They've been one of the few successful ventures to give the DAO market some credibility. DAOs were mainly seen of as Ponzi schemes before Olympus. They're now arguably superior Ponzi schemes.
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| pic credit: coindesk |
Olympus made a few changes to their protocol that completely transformed the game. The OHM token is the most significant modification. This is Olympus DAO's native token, which does not have a dollar peg.
The depreciation of US dollar peg stablecoins played a role in this decision. To encourage adoption of their protocol, OlympusDAO adopts a structure of bonds, liquidity pools, and staking. Every 8 hours, Olympus holders are granted a part of newly generated OHM tokens, which fuels the promise of their 4000 percent + APY.
Each OHM is backed by at least one Dai stablecoin at all times, according to their FAQ page. It's also worth noting that being backed by the dollar and being pegged to the dollar are not the same thing.
What is Rebase?
Now, something called rebases is a part of the magic here. This is a market-wide injection or contraction of token supply initiated by the DAO. This aids in the preservation of a price point or the management of inflation in this ecosystem.
Even though rebases frequently add additional token supply to holders' wallets, they are not the same as staking incentives, which are more reliable. And the point is, right now, this isn't completely trustworthy.
Only roughly 20 people are active in Olympus' strategic price manipulations, which I've dubbed "The Knights of the DAO table." They plan to decentralise this procedure in the future. This, however, is what I was referring to earlier. Some decisions will be difficult to reach a consensus on.
The majority will almost certainly always desire a financial infusion, and it's odd that something that was supposed to be decentralised and algorithmic became effective through human intervention, but this may be important, at least in the beginning, to achieve stable growth.
Several projects have split off OlympusDAO, utilising its staking mechanism as well as the OHM coin. As a result, some experts believe that OHM will become a DeFi standard in the future. Only time will tell, of course.
A note of caution here: Several other projects, such as Spartacus Finance, have forked off the Olympus protocol, but it doesn't imply they're the same project or have the same teams, and your returns could be very different if you invest in a fork.
Also Read: The Crypto Loophole That Saves You a Lot of Money: Crypto Wash Sale Rule
Main competitor to Olympus
At the time of writing this article, the biggest competitor to Olympus is Wonderland. TIME is the token they use. Staking is a core feature of both Olympus and Wonderland, and supply rebases are used to raise or lower the token's price. There are, however, a few crucial distinctions.
To begin, Wonderland's TIME token uses the Avalanche blockchain, whereas Olympus uses Ethereum. The advantages of using Avalanche include decreased fees and the ability to handle more transactions at once.
Given the large number of transactions that can occur on DAO protocols in a single day, this is extremely valuable. Wonderland is currently approaching 80,000 percent APY, whilst Olympus DAO was offering 4,400 percent APY.
When talking about percentages, there are a few things to keep in mind
The first is whether the token's price will remain stable over the year. If the TIME token's price falls before you reach the 80,000 percent gain, your overall gains will be less than 80,000 percent, and maybe much less if it falls all the way to its backing price.
So, let's pretend you spent $7,000 on two TIME tokens. You'd be rolling in it if they stayed at $3,500 a token over the rest of the year and you were given staking incentives of an additional 1600 TIME tokens (an 80,000 percent return). Before your next Christmas, you'd have a half million dollars.
It's also worth noting that as these projects grow larger, the APYs will decrease. On the other side, in the worst-case scenario, if the DAO completely collapses to its backed value of $1, you'll end up with a net loss of $5,400 on your $7,000 investment after staking rewards.
Now, anything as spectacular happens only in a scam, but in any investment, it's vital to evaluate both the best and worst case scenarios.
Now that I'm looking at the price patterns and the number of tokens being generated every 8 hours, I can sense Jerome Powell's ghost warning me to be wary of inflation. And, with these DAOs, a crucial question to ask oneself is: are they Ponzi schemes? The answer is yes, but only if you define a Ponzi scheme differently. It's even possible, according to the founder.
If you consider it as an investment in which you profit from the participation of others, then yes, it is a Ponzi scheme. However, if you consider it as a new means to transfer tokens to holders, similar to an Airdrop or an ICO, it is unlikely to be a Ponzi scheme.
The line is pretty hazy here. But, in any case, this is high-risk, high-reward territory. And, before making any quick judgments, I strongly advise you to conduct additional research.
How can you lose money with DAOs
I could go on and on with interesting DAO projects, but with information about these projects limited to forums and Reddit posts, it's difficult to tell whether a project is worthwhile or if the shills are simply yelling louder than the truth.
DAOs aren't the same as tokens, therefore you'll have to think outside the box. Usually, you can tell if a coin or token is worth holding for the long haul. Based on the founder's credibility, a white paper, or other public information This information isn't usually available in DAOs.
You're mostly trusting an anonymous team's word for anything they say they'll do, and you're reading million percent APY statistics, tech breakdowns, light documents, or just a lack of information.
In reality, Olympus and Wonderland both get low ratings on isthiscoinascam.com due to the lack of data, despite the fact that they are the two largest DAOs at the moment.
Red flags to look out for
1. The team has yet to provide a growth strategy, or the approach appears to be overly basic.
2. Mysterious founders or influencers may claim that if you only acquire their token, you would be rewarded handsomely. And, as we've seen before many influencers will say almost anything for the proper pay.
3. Is there a lack of transparency about how protocol decisions are made?
4. There is no auditing of the code.
5. There is no asset behind the cryptocurrency.
6. The team has never worked on any other cryptocurrency initiatives. This is largely up to you, but the risk you're taking is significant if the anonymous coders have no track record.
7. There's a drop in social engagement, which is one of my watchwords for crypto in general, but it's especially crucial for DAOs, which rely on new investors to increase their treasury, allowing for those insanely large staking rewards for which DAOs are now famous.
Also Read: Is it Possible to Trade and Retire with Crypto Tax Free? Crypto Retirement Accounts
Conclusion
Many DAOs have already been turned into complete rug pulls at this stage. If you're seeking to be a full-fledged Degen investor, extreme caution is required. I believe that over time, this sector will gain much more legitimacy and openness, but for now, it's the Wild West. Can staking rewards keep up with investor demand? Yes is the only answer, until it isn't.
Disclaimer: I am not a certified financial advisor. This is not a financial advice. This is essentially a website that will bring educational content to your door. With this in mind, we strongly advise you to perform substantial broad-spectrum research on the issue before making any decisions.