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TLDR:Basically, users are contributing to OlympusDAO by adding liquidity. In return, users get rewards in $OHM at a much cheaper price for a specific period of time. That way, both the user and the protocol can benefit.OlympusDAO offers LP many different strategies around $OHM which they can leverage for bigger profits than on the spot market.

General Conclusion

$OHM is a decentralised reserve currency that can be used as an alternative to traditional fiat. It uses the Reserve + Algo mechanism. It uses four stability mechanisms: treasury, LP tokens, bonds and staking.

How We Classify Stablecoins

In a few newsletters ago, we discussed that the four main stablecoin mechanisms are Reserves, Dual Token, Algo stablecoins, and Mixed. A stablecoin peg is not limited to just U.S dollars — a stablecoin is stable relative to whatever it is pegged to. The collateral amount helps us to classify if it is full pegged, partial pegged, over pegged, or not pegged at all. We have different reserves and in these we have different types of things like fiat, commodities, combination, index, etc.

About $OHM

$OHM is a decentralised reserve currency so can be used as an alternative to traditional fiat while exhibiting similar characteristics. Right now it is regarded as more of an asset but the goal is to transition it to a currency, which is something that you do not hold to speculate on the price.$OHM uses reserve and algorithmic mechanisms. The stablecoin is not pegged to anything. It is partially collateralised and uses on-chain collateral.

Reserve + Algo

The reserve system uses $DAI and algorithms so the price changes based on the amount of circulating supply of $OHM. It depends on how many tokens are being locked up and how many tokens are being used for exchange and transactions.

Partial Reserve With $DAI

$OHM uses on-chain collaterals which is $DAI and it uses partial reserve. This means that for every $OHM token circulating a part of it is backed by $DAI. Previously it was one DAI but today it is 16 $DAI. This means that for every OHM token that is trading there are 16 $DAI backing that value, which is the price floor for the token. The tokens cannot fall below that amount otherwise arbitrage people will sell $OHM to get $DAI back in the protocol.

How Is $OHM Created

Three steps are involved:

1. You need to get the $OHM which you can either buy from the protocol itself or get it in the open market so through SushiSwap or other DEXs.
2. You can either bond your $OHM or stake it. Bonding means that you put it there and can remove it in a short period of time, whereas with staking you have to keep it there for a longer period of time. In both cases, you are earning $OHM.
3. The last method is to sell which is how you exit the protocol.