$$$ KPO and CZM $$$: DeFi 2.0 - Protocol Owned Liquidity (OlympusDAO, Wonderland and Euphoria)

Thursday, November 25, 2021

DeFi 2.0 - Protocol Owned Liquidity (OlympusDAO, Wonderland and Euphoria)

Let me introduce you to the latest hype or the grandest "ponzi" scheme in crypto DeFi today. lol. All these were started a few months back by some of the brightest minds from OlympusDAO. The idea was to solve some of the existing problems of DeFi 1.0 - liquidity farming/mining. Currently, the protocol/application will have to provide incentives (farm tokens) for users to provide liquidity to the various LPs (liquidity pools e.g. providing BTC-USDT, CAKE-USDT to earn CAKE) but there are often no incentives for the users to keep/hold the farm tokens, hence there will be constant selling pressure.

The screenshot is taken from Olympus FAQ

OlympusDAO introduced the concept of having the protocol own their liquidity which will ideally remove the selling pressure based on game theory. Assuming if there are 2 people holding the OHM token, the most beneficial move for the both of them is to stake the token. Bonding/minting more tokens will be beneficial as well but not as much as staking while selling is the worst move. As long as both of them do not sell at the same time, all will be good but if that happens, the protocol/"ponzi" will break/fall apart and there will be a "bank run" where the token value might go to 0. In my opinion, this scenario is less likely to happen (I will elaborate further below) for the more established protocol where they have a loyal community/supporters such as OlympusDAO and Wonderland. The success of OlympusDAO has demonstrated that protocol owned liquidity works and is being termed as DeFi 2.0.  As a result, there are many forked versions of it appearing on different chains and I have decided to ape/participate in 2 of them (TIME and WAGMI). OlympusDAO is not an option for me because it is on the Ethereum network.

If you are a more visual person, I will recommend this youtube video by Whiteboard Crypto - What is DeFi 2.0? How Olympus and TIME actually work.

I shall not bore you further with how bonding/minting works and let's take a look at why the hype. If you head over to Wonderland on Avalanche, you will see these metrics and the one that stood out would be the yield of ~82,000% APY. 

Wonderland (TIME): https://app.wonderland.money/#/dashboard

The other interesting metrics would be "Backing" and "Runway". Backing simply means for every 1 TIME token, it is backed by $1,590 worth of other assets (AVAX and MIM - Magic Internet Money. Sounds like a total scam now. lol.). In stock/equity terms, that would be the NAV and buying 1 TIME now means buying it at a premium/PB of ~5.39. This is why I mentioned that the token is unlikely to go to 0 because the protocol does own other assets that provide a backing/floor value which should grow over time from liquidity/minting fees. Runway is the number of days the staked token emissions can be sustained at a given rate (Lower APY = longer runway). 

So why is the yield so high? Auto-compounding through rebasing. Once you stake the TIME token, you get MEMO which is just staked TIME and the MEMO will rebase/compound every 8 hours at 0.6152% (much more realistic? lol). To put things into perspective, the investment will be compounded 1,095 times a year as compared to what the banks/CPF is doing - just 12 times a year. Anyway, I have staked for slightly more than 2 weeks and my profit is about US$500 with a capital of US$2.2k.

There is even a calculator for one to simulate your potential return. Assuming everything stays constant (unrealistic), I will have 10 lambos worth US$2.2 million after a year with a capital of US$2.2k. lol. 

The screenshot is taken from OlympusDAO

If we were to reference and look at how the yield of OlympusDAO changes over time, it went from an all-time high of 180k% to ~7k% today. Hence, it is obvious that the yield of Wonderland will not remain at 82k%.

In a semi worst-case prediction, assuming the yield of Wonderland falls to 7k% and the price of TIME falls to the backing/floor value, I will no longer have any lambo but US$191k is still pretty decent. lol. The actual worst-case scenario will be the project fails and I lose all my capital of US$2.2k. In my opinion, that's definitely worth the risk - limited downside with unlimited upside. On a side note, the founder (Daniele Sestagalli) has plans to give the TIME token more utility through games so let's see how it goes :)

Euphoria (WAGMI): https://app.euphoria.money/#/dashboard

The next one which I aped is Euphoria in Harmony. Check out the crazy high APY ~760,000%. They are created/forked by the ViperSwap team and is relatively more reliable (IMO).

Let me just elaborate slightly on the minting/bonding process. One can provide those assets on the left (WAGMI-DAI LP, BUSD, etc.) in exchange for minting new WAGMI tokens at a discount. This is how the protocol owns the liquidity (WAGMI-DAI) as compared to you owning the LP. For simplicity, it makes sense to mint when the discount is higher than the 5 day ROI from staking. That is because when one mints the token, it has a vesting period of 5 days. Anyway, I started Euphoria about 2 weeks back with a capital of ~US$400 and it is worth ~US$1.1k now.

OlympusDAO (OHM): https://app.olympusdao.finance/#/dashboard

Anyway, OlympusDAO has much better metrics and dashboards compared to Wonderland and Euphoria. Almost 90% of OHM is being staked and there is even a breakdown of the treasury assets.

As you can see, I allocated very small capital for such risky play. Given that the APY is so high, there isn't a need to risk too much money as a small capital should do wonders too (if it works). Technically, one can leverage further using MEMO and MIM but I am not planning to do it for the same reason - not going to take on more risk.

Hopefully, this will be an eye-opener for those not into DeFi and that it has piqued your interest. There are so many articles and youtube videos for one to learn about DeFi. Before you dismiss crypto as a scam/ponzi, take some time and spend some effort to understand it and you will be rewarded. Stay safe and huat ah!

Anyway, I have blogged about different ways to leverage crypto to build wealth for people with different risk appetites:
The safer approach using stablecoins
Risky approach but more hassle-free
Highest risk and you are on your own
- DeFi apps on Binance Smart Chain (BSC) such as PancakeSwap and PancakeBunny
- DeFi 2.0 - Protocol Owned Liquidity (OlympusDAO, Wonderland and Euphoria)

If you are interested in the platform I am using, do sign up using our referral links for some bonus :)
BlockFi: Deposits US$100 or more into your BlockFi Interest Account (BIA), you will earn US$10 in BTC and we will earn US$10 in BTC too.
Celsius Network: Earn US$40 in BTC with your first transfer of US$400 or more and we will earn US$40 in BTC too.
CakeDeFi - Deposits US$50 or more into your CakeDeFi account, you will earn US$30 in DFI and we will earn US$10 in DFI too.
Gemini: We will both receive US$10 of bitcoin after you buy or sell US$100.

On a side note, Futu's moomoo app sign-up promotion is slightly different every month (AAPL shares, cash coupon, etc. Do read the T&C here for more information). If you have yet to open an account, you can do so using our referral link :)

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  1. Hey KPO, able to do a review on Spectrum Protocol?

    1. Hi Steve,

      In my opinion, that belongs to the farm and dump token. Not really interested in governance at all. lol.

  2. Hi would like to ask how do you find out about good projects to invest in and where/how do you usually do your research on them? Any YouTube channel that u will recommend for someone who is new to this? Thank you in advance. So far I only buy crypto and hold it in Blockfi. Have not try anything that u mention in your articles but it looks very amazing. Thank you for your articles too.

    1. Hi,

      Mostly from twitter now. That's where I am spending most of my social media time on. From there, I would find articles to read or the official gitbook/medium documentation. I don't really watch youtube but some of the videos I came across while doing more research would be coin bureau, Terra Bites and danku_r (for terra related app).

      I would be biased but I would recommend that you start your defi journey on Terra. Learn by getting your hands dirty. Just start with the easiest one, set up a wallet, transfer some UST in and deposit into Anchor for 20% interest. Slowly try out more things from there :)

      Glad that you enjoyed them!

    2. Thank you for your reply and look forward to your articles!

  3. can i ask how much capital did u use to buy luna to achieve the portfolio u have right now?

    1. Hi GK,

      About 200k SGD. It is not just about the capital though, I would say the entry price matters more.

  4. Currently, terra Luna price has dropped, would u think it is an appropriate entry price now?

    1. Hi GK,

      You got to decide that on your own. I bought when it was 90+ and continued to do so at 80+, 70+ and now 60+.




      Check apeboard. Liquidation is happening now and my bids in Kujira is getting filled.

  5. I see, wat do u mean by bids in Kunitz is getting filled ya? I am trying to learn more about crypto trading

    1. Hi GK,

      Just to be clear, I am not doing crypto trading. Kujira is a dapp in Terra that let one participate in liquidation of others. I am guessing it still wouldn't make sense to you. Will suggest you research and read up more first.