Olympus tanks 30% led by liquidations on fuse, souring market sentiment

Olympus (OHM) DeFi tokens are down as much as 32% in the past 24 hours as cryptocurrency traders shy away from Defi pilot projects amid overall negative sentiment in the crypto market.

OHM fell from Monday’s high of $264 to $161 during the early Asian hours on Tuesday, and reached its previous lows in May 2021. The move was part of a larger downtrend since the October 2021 highs of $1360, when the protocol reached the value market capitalization of $4 billion. . As of Tuesday, OHM prices are down 87% from all-time highs.

Olympus, like other DeFi projects, relies on smart contracts rather than intermediaries to provide financial services to users. Its goal is to create a stablecoin backed by cryptocurrencies instead of fiat currencies such as the US dollar, which users can in turn share in exchange for annual returns currently offered at 7,800%.

Users are incentivized to deposit or sell their OHM collateral in exchange for the OHM discount sold via bonds issued by Olympus. This is said to create “protocol-owned liquidity,” where user-issued liquidity provider tokens are linked to Olympus-issued bonds, creating a continuous cycle of supply and demand.

Filter valves contribute to the fall of OHM

Analysts said that a popular group to cash in on the returns on the OHM tokens experienced liquidations overnight, which contributed to the drop in prices.

“People who used the leveraged OHM layer (9,9) by borrowing from Fuse have been liquidated,” explained Ashwath Balakrishnan, Vice President of Research at Delphi Digital, in a Telegram message to CoinDesk.

Fuse is an interest rate product from Rari Capital, a DeFi protocol that provides profitable services to users. Fuse allows users to create their own custom group consisting of several tokens that reap the benefit, allowing other users to share their tokens in such groups and earn revenue.

Fuse’s 18th risky pool is focused on Olympus, locking over $101 million via OHM and other valid cryptocurrencies. Pooling OHM takes users a step further: unlike staking OHM on Olympus, staking OHM on Fuse allows users to borrow cryptocurrency against their OHM holdings while still earning interest on the tethered OHM. This allows users to access liquidity without having to sell OHM bonuses and miss out on potential winnings.

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However, these borrowing features come with their drawbacks. Holdings are automatically liquidated when the price of the underlying tokens falls below a certain level, as the Fuse protocol needs to maintain a cash position for collateral.

Selling in the open market leads to lower prices, which in turn leads to more selling by token holders who may want to take profit on their positions. This triggers a cascading event that contributes to significant price drops, which OHM has experienced in the past 24 hours.

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