Reserve DAOs — the newest ponzi.
The Olympus DAO was founded in March of 2021 with the goal of creating a new standard for crypto value, all tokens would be backed, not pegged to the dollar. This allows the token to rise in value, but never fall below 1 USD. Almost a year has past and dozens, if not hundreds of clones have been created. Many of these so called clones offering insane 6 digit APYs. These protocols have severe flaws, and should be designated as fraudulent ponzi schemes.
Here is a short, simplified explanation on how reserve DAO staking works (specifically Olympus DAO) by OctoCrypto:
“OHM intends to be a store of value, not a mere stablecoin. It is the key point to remember. Relative to the principal investment, a store of value should increase or maintain its value. For accruing value to OHM to achieve store of value status, staking is used by Olympus as a primary resource. This strategy is known as (3, 3).
Staking OHM token works in a very simple way. You either bond your liquidity in exchange for OHM or buy OHM on the market. Then Olympus app is used to stake your OHM in return for rewards, which are more OHM, which the treasury derives from bonding sales. Being incredibly high is the reason OHM tokens are known for. As of now, they are just settled above 8,000% APY.”
The APYs for some of the Olympus DAO clones can reach numbers close to 10 million %, how is that possible? The answer is simple; severe and extreme inflation, when you buy an OHM token for 4000 USD, 3999 (!) new OHM tokens are created. This then is sent to stakers and therefore devalues the coin. Olympus and all clones require more and more people to buy in to sustain the APYs and to keep holding and staking profitable.
Let’s now define a ponzi scheme (investor.gov):
A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.
With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.
This definition of a ponzi scheme matches exactly to what OHM, and OHM forks are doing. Reserve DAOs are fraudulent protocols built to make the founders rich.