As a consequence to all this, a flywheel effect occurred: Sell bonds to grow treasury -> Higher yield -> More demand -> Bonds earn a higher premium -> Sell bonds to grow treasury, and so on.*
Bonding Dilemma: The Downfall of Olympus Protocol
The problem was that Olympus’ staking was so profitable that the demand for bonds was low. Why bond when you can just stake? Ironically, staking necessitates bonding, thus bonding discounts increase until people are willing to bond. Although a locked period prevents instant arbitrage, it still leads to price suppression, albeit stealthily. More importantly, the value extracted through the price suppression was taken from holders and given to bonders. Zeus explains how this mechanism stunted Olympus' growth and created an unstable protocol and ultimately brought about their downfall.
Olympus was stuck giving this discount to bonders to keep the yield going because of the fact that the only demand for OHM, in the beginning, came from the APY. Most users did not realize that bonds were extracting value from them, essentially acting as a hidden tax.
Note: Most of the forks did not even understand the intricacies behind their protocols.
