Why RomeDAO isn't a scam but its APY isn't what it seems
Why RomeDAO isn't a scam but its APY isn't what it seems
It currently has an APY of 175000%
Disclosure: Members of our team are staking ROME. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase/bond/stake ROME. This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice. Please exercise extreme caution if you intend to participate in any opportunity.
Table of contents
What is RomeDAO?
How does the treasury work?
Why should one buy ROME at such a premium?
If I stake $1 worth of ROME, will I have $1750 at the end of the year?
How is it not a ponzi scheme?
The APY is not what it seems to be
Why you still should ape-into ROME
What is RomeDAO?
RomeDAO is fork of OlympusDAO on the Moonriver network. RomeDAO has a token called ROME, similar to how Olympus has OHM.
The goal of RomeDAO is to build a reserve free-floating currency, backed by assets in the RomeDAO treasury. Its token, ROME, has a floor of $1 as the treasury only mints new ROME tokens when it can be backed by at least $1 worth of assets.
Hence, ROME is free to float but cannot go below $1 because the DAO will use assets in the treasury to start buying ROME to increase its price back to $1.
How does the treasury work?
The treasury accumulates assets through the process of bonding. Bonding is the process in which the the DAO sells ROME at a discount in exchange for stablecoins (like MIM, FRAX) or LP tokens (like ROME FRAX LP tokens). Bonds have a vesting period of a few days.
The price of ROME currently is $320. Each Rome only needs to be backed by $1. If the discount rate is 10%, the purchaser gives $288 to get ROME which is backed by only $1. The rest $287 is the profit to the treasury.
Why should one buy ROME at such a premium?
In short, to get staking rewards. All the profits of the treasury are passed to the stakers in the form of rebases that happen every 8 hours. Your staked balance is compounded 1095 times a year. This is where the massive APY of 175000% comes from.
If I stake $1 worth of ROME, will I have $1750 at the end of the year?
Well, no. See, the rewards are paid in ROME, which also means the circulating supply of ROME is increasing. An APY of 175000% means the circulating supply of ROME will also increase by that much. So, at the end of the year, you will have 1750 ROME for every ROME you staked but not necessarily would have 1750x your investment.
The play that RomeDAO is making is that due to its high staking rewards, most holders will want to remain staked and hence there would be minimal selling pressure. Any decrease in the price of ROME would be compensated by the additional amount of tokens each staker will have.
OHM’s supply has increased 45x but its price has stayed in the $150-$1500 band. This is what RomeDAO plans to emulate.
How is it not a ponzi scheme
ROME is backed by assets in the RomeDAO treasury. The risk-free value (the total of all stablecoins) of the treasury provides a floor-value for ROME much higher than the intrinsic value of $1.
The risk-free value of the treasury is ~ $12 Million right now. There are ~ 250000 ROME tokens in circulation (RomeDAO Discord Metrics Bot). Giving each ROME a backing of ~ $48.
As the assets in treasury increase, the backing that each ROME has will increase.
The APY is not what it seems to be
The APY is not dollar denominated. It is denominated in ROME. The APY only tells you how many more ROME tokens you are gonna have in a year if the reward rate stays consistent. The metric you should look at to track the growth of your investment is the market cap of ROME. We have made a spreadsheet that you can use to track the ROI of ROME.
Why you still should ape-into ROME
Your share of the market cap of ROME is going to be the same from the the time you start staking. OHM started with near 200000% APY but it has slowly now come down 6000%. The APY for ROME probably is also going to go down in a similar way, giving you a chance to capture a larger part of ROME’s market cap.
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