# Olympus - Free-floating Algorithmic Stablecoin By [Boundless Realm](https://paragraph.com/@boundless-realm) · 2023-07-22 --- Regardless of whether it is a collateral-based stablecoin like DAI or MIM, or an algorithmic stablecoin like AMPL or BAS, these stablecoins aim to anchor their value to a 1:1 ratio with the US dollar. However, Olympus believes that even the US dollar will depreciate over time, making the pursuit of price stability unrealistic, and instead focuses on maintaining purchasing power stability. Olympus has created a free-floating algorithmic stablecoin called OHM, where each OHM is initially backed by 1 DAI. The price floor of OHM will always be equal to 1 DAI, and the actual price will be 1 DAI plus a market premium. OHM is essentially "supported" by DAI rather than "pegged" to it. NFT Embed 123 Mint 0526.eth 20 Days • 4 Minted II. Product Mechanism * OHM Minting and Redemption When 1 OHM > 1 DAI, the system will mint OHM tokens; when 1 OHM < 1 DAI, the system will burn OHM tokens. The minting and redemption processes are governed by the following formulas: Epoch Mint = (TWAP - IV) \* supply \* ICV \* Discount Epoch Burn = (TWAP - IV) \* supply \* DCV \* Discount If the TWAP price of OHM is higher than its intrinsic value (IV), the treasury will mint OHM tokens for sale, and the IV is currently set at 1 DAI. ICV is the inflation control variable, set by DAO governance to control the pace of inflation. If ICV increases, more OHM tokens will be minted, leading to higher inflation. If ICV decreases, the minting of OHM will decrease, resulting in relatively moderate inflation. Discount is used to stimulate arbitrage behavior and encourage users to buy or sell OHM. DCV (Deflation Control Variable) is the deflation control variable. When the TWAP price of OHM is lower than the IV (intrinsic value of 1 DAI), the treasury will provide DAI to the sales contract to buy OHM. Similar to ICV, DCV is set by DAO governance to control the pace of deflation. If DCV increases, the repurchase and burning of OHM will be more significant, leading to more deflation. If DCV decreases, the repurchase and burning will be less significant, resulting in relatively moderate deflation. Let's assume the current TWAP is 20 DAI, IV is 1 DAI, ICV is 0.0001, the supply is 20 million DAI, and the latest price is 21 DAI with a 3% discount rate. In this case, since OHM is higher than 1 DAI, the protocol will mint OHM, and users can submit transactions to purchase OHM. Suppose a user submits 100,000 DAI to buy OHM. The sales contract will check that the latest epoch has ended and find that its TWAP price is 20 DAI. The sales contract will request the treasury to provide OHM based on the formula "Epoch Mint = (TWAP - IV) \* supply \* ICV \* Discount." In this example, 38,000 OHM will be minted, as calculated: (20 - 1) \* 20,000,000 \* 0.0001. Then, the sales contract will receive the newly minted OHM tokens from the treasury and can execute the order. With a discount rate of 3%, the execution price will be 20.37 = 21 \* (1 - 0.03). According to this execution price, the user's 100,000 DAI can purchase 4909.18 OHM. There are 38,000 OHM tokens in the contract, sufficient to fulfill the user's purchase demand. 10% of the newly minted OHM tokens will go into the treasury, and the remaining 90% will go into the staking contract and be distributed to users staking OHM. * Bonding Mechanism In addition to staking, users can also purchase OHM from the protocol at a discount by bonding with LP tokens or other single-asset assets such as DAI or wETH. This process is known as bonding, with the former being called liquidity bonds and the latter reserve bonds. The main liquidity bond is the OHM/DAI LP pool on Sushiswap. --- *Originally published on [Boundless Realm](https://paragraph.com/@boundless-realm/olympus-free-floating-algorithmic-stablecoin)*