I don't think "overselling" is the right word in this, it implies degradation of performance because of too many VMs. My understanding, is that all VMs allow sharing resources, even KVM. But to my understanding, you can share memory on KVM, but not diskspace (at least not easily), which is why every single KVM offers out there have very small disk allocation. This works great for DO, because they are offering SSD, and SSD VPS (regardless the type of VM) are small in size, so it fits perfectly.

I think the whole idea with VPS, is that you can share resources, so there is nothing wrong with that, its the overselling part that should be of concern and I have no reason to believe that DO is overselling. Their performance is pretty good.

The point I was trying to make referring to the OP, that VPS like DO can be profitable even at such a low price, because of the way VPS work. Even with very small revenue, if you have enough customer you can make good money. That's why the math works. Most other KVM offerings are so expensive because they don't have that tipping point scale to make them profitable with the same price. But other hosts like Linode gets away with charging more, because of reputation. They already have a good thing going, unless they starts losing customers drastically, they don't have to change their pricing model.