Steelmanning “Of Smoke and Mirrors Pt 2”: Mea Culpa on my flawed $OHM analysis

Information in this article is dated, I published it Jan 2023, but it’s written as if I’m writing it in Jan 2022.

Isfandiyar Shaheen
12 min readJan 3, 2023

I felt uncomfortable reading Jordi Alexander’s article when it first came out because majority of my net worth was in $OHM and his article’s tone was accusatory. Jordi correctly pointed out flaws in my $OHM bank-run analysis but I lacked the self awareness to recognize the extent of my bag bias and Dunning Kruger effect.

In hindsight I should have summarized his logic first to ensure I fully understood his point, this is called steelmanning. This article is my attempt to steelman Jordi’s article, even though I’m one year too late. Such an exercise could have saved me a lot of money and possibly also helped Olympus make necessary design changes like Range Bound Stability sooner.

I still believe that Olympus protocol founders and council members are honest actors. The DAO supporting Olympus protocol makes it possible to keep iterating on a currency design with a $200mm+ treasury. I love the vision of a decentralized reserve currency and will keep contributing my time and effort towards projects trying to create a stable, scalable currency that is not backed by a military.

I have structured the article in 5 sections to help you navigate. Section 3 is where the meat is, the rest is to give you context on who I am, how I landed up here and what I’m working on now.


  1. My biases and background + motivation to write
  2. Note to Ohmies
  3. Steelmanning of Of Smoke and Mirrors Part 2
  4. Reflections on my flawed bank-run analysis
  5. What I’m working on now

1 .My biases and background + motivation to write

  • Born and raised in Pakistan, always thought I’d join the military
  • Started my career in investment banking doing M&A deals and restructuring work in New York with Seabury Group
  • Moved back to Pakistan in 2009 because I couldn’t get an H1B visa, started my first company in 2009 in Pakistan as a result
  • Helped build Towershare (acquired by edotco group in 2017), served as a director on a number of boards including two publicly traded companies Engro Corp and Engro Foods
  • Quit my job in 2016 to work on a plan that could make Internet access affordable for all
  • Migrated to the US in 2017 on an EB1A green card, built a deal with Facebook per which they’d make a robot that can wrap optical fiber on electrical power lines and I’d do deals with governments
  • My connectivity effort stalled in 2021, I wrote a reflection post about it here
  • I’ve always been a buy and hold investor and don’t trade. At one point my $OHM investment was up 35x (now up 1.3x) but I didn’t take any profits despite many friends suggesting I do so

In early 2021 I didn’t own any crypto. I learned about blockchain’s potential through Althea Networks. In June 2021 I bought some crypto assets but bought a lot more OHM because the M&A guy in me liked the idea of a balance sheet and downside protection.

I didn’t use much Twitter before 2021 and had a few hundred followers. So I started writing some analyses about $OHM through threads. As $OHM market cap grew so did my follower count. I became a paid DAO contributor at Olympus in August 2021, but left in December 2021 (see payment history here) because the start-up I was creating to support the OlympusDAO ecosystem posed a conflict of interest with the DAO.

My start-up (Wagmi Labs, now renamed Stablecoin Labs) closed a $2.8 mm seed funding round led by True Ventures on January 8 2022. Jordi’s article was published 8 days after I closed my funding round. I came into crypto doxxed because I didn’t know what anons were and had even made presentations in public at conferences. Point being I was deeply vested with my capital + reputation and that blinded me to constructive criticism.

I don’t regret the financial losses or blemishes on my reputation but I deeply regret not reflecting intently on criticism. That’s a mistake I don’t want to make again and that’s the motivation behind this article.

2. A note to fellow Ohmies

Dear Ohmies,

This is a personal reflection. I blame no one for my errors. The bank run analysis wasn’t in the docs to begin with, it’s something I wrote and got it quite wrong.

I know that many of you are angry at Jordi and have attacked him as well. I get why you feel that way. I’ve felt angry too at his article but personal attacks are not OK.

In my opinion, $OHM and most crypto projects are like start ups. They do somethings right, plenty of things wrong and then iterate to fix flaws. Loving the problem is generally a better strategy for early stage projects than loving a solution.

I believe Olympus stands a better chance at succeeding if we can make it a practice to steelman critique as soon as we see it. You may say that Jordi is not a worthy critic and to that I will say: find whoever you consider to be a worthy critic and consider writing steelmanning their critique.

I have run 5 classes so far for Olympus Scholars Program. My goal with these programs is to present facts objectively, including criticism. Before I can steelman criticism well for any other project, I feel it’s important I do it for OHM and acknowledge my own analytical failures first.

Here goes….

3. Steelmanning “Of Smoke and Mirrors”

Note to reader: Olympus’ mechanism has substantially changed, this article is being written assuming we are in January 2022.

OlympusDAO has popularized the meme (3,3) through $OHM, an aspiring reserve currency. Matt Levine alludes that $OHM may be a Ponzi in Wall Street in No Fun Anymore .

Fact is much of finance has ponzi-like features but are hidden in a way such that the humans assuming risk don’t panic. Hiding risks enables coordination which in turn creates new industries and technologies, but that doesn’t mean the risks aren’t there.

Steve Randy Waldman explains in “Why is finance so complex”:

Finance has always been complex. More precisely it has always been opaque, and complexity is a means of rationalizing opacity in societies that pretend to transparency. Opacity is absolutely essential to modern finance. It is a feature not a bug until we radically change the way we mobilize economic risk-bearing.

Some more quotes from Steve’s article:

$OHM is on the Ethereum blockchain, this makes its operations and treasury transparent. But transparency of transaction level data does not always mean risks are well understood. To help you understand the risks, I have divided this article into four sections:

a. Basic ponzi structure

b. How $OHM works

c. Bank run analysis

d. Concerns with marketing

a. Basic ponzi structure

  1. Two investors, Ben and Jen put one gold bar each in a bank safe
  2. Ben and Jen ask banker to issue them 2 certificates each that allows certificate holder to redeem one bar of gold per one certificate
  3. Now there are 4 gold bar certificates but only 2 bars in the safe, however Ben and Jen’s Paper wealth has doubled
  4. But realizing actual wealth gain is only possible at the expense of the other investor
  5. So Ben and Jen invite others to put their gold bars in a safe in exchange for certificates that double in paper value, but with a twist:
  6. For not selling, investors will get another certificate every week for every certificate they hold, meaning they could get 32 certificates in just 4 weeks!
  7. The marketing works and soon the safe in this bank has over 1000 gold bars
  8. In week 4, Ben and Jen have 32 certificates each and they decide to cash out
  9. Other investors realize there is a problem because there are more gold certificates than gold in the safe.
  10. Everyone rushes to cash out and ponzi collapses.

To minimize bank-run risk, Ben and Jen can make a few changes to their design:

  • Placing 50% of gold bars in a permanent safe that cannot be cashed out
  • Placing a 50 % of gold bars in a special locker that acts as a market maker i.e. buying and selling certificates and gold bars where price of certificate is determined bids and asks
  • Increasing the time it takes to double certificates for new entrants over time such that initial doubling is in one week, the next doubling in 1 month and so on
  • Promising a yet to be launched product with a big market size, the design of which has not been shared

With the above changes in place, the threat of going to zero is removed and one could argue that the said structure is no longer a ponzi. But that does not mean it carries no price risk.

b. How $OHM works

The basic promise of $OHM is that 1 $OHM will always be backed by 1 Dollar Coin and that the protocol will own its liquidity, meaning it won’t arbitrarily remove liquidity. At present, one $OHM trades at $250, but the dollars backing each $OHM not in the liquidity pools is about $25.

The backing per $OHM has grown from $1 to $25 in a few months and that is one reason to justify its price premium over backing. However, if $OHM price premium collapses to zero, there will be no way for the Olympus treasury to keep growing because then selling more $OHM through bonds will not make sense.

Now let’s take a look at how $OHM works under the hood:

  1. To buy $OHM, you can either buy it from the liquidity pool or directly from the protocol through what they call a bond
  2. Sometimes buying a bond is better because it offers a discount to market price, but when you buy a bond remember that your stablecoin or ETH is locked away in the Olympus treasury for good as there is no redemption option
  3. You can however, sell your $OHM into the liquidity pool any time you want
  4. If you don’t sell your $OHM, you can stake it and earn even more $OHM, this staking rate was over 100,000% annualized at the start, now it’s about 8,000% and declining rapidly
  5. This APY appears high but can be paid out for 300+ days even with no new inflows becuase Olympus protocol keeps emitting $OHM until its stable coin balance = OHM supply. Today Stable Coin balance is 2x bigger than OHM supply.
  6. Emissions are paid only to stakers, this means when selling happens the annualized rate increases slightly
  7. Olympus is run by a human multi-sig operated by anonymous individuals, they have honored all their DAO votes, but they hold the keys to this treasury so it is a trusted environment
  8. Founders and early investors are holding the pOHM token which gives them a non-dilutable 11.8% of market cap until $OHM supply crosses 2 billion (it is 10 million today)

One could argue that $OHM’s structure is similar to the Ducat as described by Friedrich Hayek in Denationalisation of Money:

Hayek even explains why a premium over treasury value would exist:

The units would presumably, because of the option they offered, sell from the outset at a premium above the value of anyone of the currencies in which they were redeemable. And, as these governmental currencies continued to depreciate in real terms, this premium would in-crease.

But $OHM has one glaring problem: there is no stability mechanism. And even though the Olympus discord has discussions about the stability mechanism, no one quite knows what this would look like. This is problematic, as Hayek explains:

So long as the bank had succeeded in keeping the value of its currency at the desired level, it is difficult to see that it should for this purpose have to contract its circulation so rapidly as to be embarrassed.

Unfortunately the pOHM incentive structure is only tied to supply growth and not to some measure of stability. More importantly, pOHM incentivizes the team to cash in early or whenever they feel premium over treasury is maximized.

This is because the premium over treasury will likely keep collapsing. Just because a portion of the treasury is set aside as Risk Free Value does not mean that the premium above treasury is not prone to bank-run risk.

c. Bank-run analysis

The Olympus Bank-run analysis by Asfi shows a hypothetical scenario where a handful of $OHM holders are left who remain staked, and because of this they inherit all future emissions. And since stablecoin balance is 25x greater than OHM supply, there are 25x more emissions to follow.

This analysis is flawed because it overly focuses on the treasury on which there is no redemption option. The real risk lies in the premium over treasury collapsing because there is no stability mechanism and beyond $OHM emissions and ability to borrow stablecoin using $OHM collateral, there is no utility.

Olympus has a $1.6 billion market cap as of January 15 2022 but it’s so called Risk Free Value (or Stablecoin Balance) is $220 million. If the market cap falls from $1.6 billion to $220 million, that is an 86% drawdown. In November, Olympus market cap was over $4 billion. A drawdown from $4 billion to $220 million implies a 95% decline. That is the real bank-run risk.

d. Observations about $OHM marketing

On its website Olympus advertises a several thousand percentage point APY or Annualized Percentage Yield. It also uses words like “sustainable” and investment protection. This is problematic because investors face 90+% price risk.

I believe decentralized reserve currencies are important. RAI by Reflexer finance is a good example of using a PID controller to achieve stability. Olympus has bootsrapped a very large treasury, it would be in its best interest to create a stability mechanism at the earliest and perhaps change the way it markets itself.

4. Reflections on my flawed bank-run + pOHM analysis

My biggest error was assuming that Olympus treasury will keep growing and that the premium was some reflection on growth expectations. In hindsight I realize my basic understanding was extremely flawed. Jordi calls this out in his article.

Screenshot from Jordi’s article

I bought $OHM on June 11 2021 and in a few weeks I was sitting on a 3–4x gain. This felt good and that made it harder to think critically. I wrote a piece here about why pOHM is a master class in incentive design. I became the “rebel” that Jordi describes in his article. Someone who isn’t paid, but just becomes a believer.

Now I did do a lot of due diligence DD before investing, it’s just that I did the wrong kind of DD and wasn’t asking the right questions. I thought bond revenues were sustainable, that Olympus Pro could scale (relative to Bond Revenue) and that revenues from liquidity pools were also sustainable. Clearly I got a lot of it wrong.

5. What I’m working on now

In May 2022 I offered Wagmi Labs investors their money back. Three of my angel investors cashed out, the two VCs stayed. Today I’m a solo founder, have renamed this start-up Stablecoin Labs to better reflect what I’m up to. We still have $2 million in the bank and my goal is to create interactive educational content at the intersection of:

  • Monetary theory
  • Financial history
  • Cryptocurrency design

I have been running a class for Olympus called Olympus Scholars Program, see content here. I plan to do the same with Beanstalk Farms and other experiments I have studied.

I am spending considerable time going through Perry Mehrling’s Money and Banking course which I highly recommend. And reading books to fix gaps in my understanding.

I have no doubt I will make mistakes again, but going forward I’m not going to ever ignore a critic, ESPECIALLY if their words make me uncomfortable.

Having gone through this whole exercise here’s my opinion now on $OHM:

  • I don’t think $OHM is a ponzi because it’s not fraudulent and was always transparent about its plans. It’s more like an incomplete Ducat as Hayek described
  • The real issue lies with people like me who appear credible, make a bet on a crypto asset, write some analysis, watch their bags grow but haven’t spent time understanding fundamentals of money and banking
  • I think Zeus launched OHM too quickly, in hindsight he could have waited till RBS was ready, but hey he’s a young guy, I remember doing far more stupid shit in my teens and 20s
  • How the Ohmies iterate on RBS will define the future of this project but it will be a very tough climb to re-gain credibility
  • I am grateful I bumped into $OHM, it’s taught me a lot about money and banking, I just regret not recognizing the severity of bag bias