Simplifying the Omega One Whitepaper
Here we’ll quickly breakdown what Omega One is and the system’s consensus protocol, potential vulnerabilities, and projected future state — all straight from the white paper in a way we call can understand!
Note: You can access my annotated version of the white paper here. These notes have been compiled from the most crucial descriptive aspects of Omega One’s technical stack/environment.
What is Omega One?
Omega One is a decentralized exchange platform that strives to solve the problems of crypto market illiquidity, fragmentation, trade cost inefficiency, and security. Omega One solves these problems by providing traders, investors and institutions with a decentralized automated trade execution system that intelligently implements their trades across the world’s crypto exchanges, shielding them from counter-party risk and reducing their costs of trading.
Problems of Crypto Trading Markets
- A lack of liquidity, causing realized costs of trading to be often many times higher than published commissions and fees. Liquidity is the ability of a market to absorb transactions without a change in price. The total value of even the BTC and ETH asset classes are still much lower than traditional markets and are considerably fragmented.
across many exchanges. Here’s an example:
For instance, buying $1m worth of EUR vs USD tends to move the price by ~0.01%, while buying $1m of ETH vs BTC will move the price by 1%-10% depending on conditions, or 100-1000 times the most liquid traditional markets. This can cost traders up to 25 times as much as the published exchange fees, but since the extra costs are hidden in the price of the purchased asset they are often not fully accounted for. (Omega One White Paper)
- A lack of security, in which the most liquid transparent venues come with risk of loss due to hacking. All production exchanges are centralized, and open to hacking.
- A lack of transparency into the actual costs of trading. Until there are trading services that provide transaction cost benchmarking and analytics to these institutions, they will be obstructed from trading in this asset class, hindering the maturation of crypto markets.
Omega One Architecture/Features
The Omega One Architecture is compartmentalized into the following 6 components
- User Interface/API of the platform
- Omega One Wallet — Holds members funds in a decentralized, trustless and non-custodial portfolio and locks member funds within the wallet when making trades on the platform
- Omega Private Exchange — Internally matches parent orders. Such matching is a part of an automated trade execution service that matches our member’s orders, offloads unmatched liquidity onto public exchanges via a trading engine, and settles directly onto multiple blockchains.
- Trading Engine — Assesses overall liquidity across exchanges given the net order its received from the private exchange. Based on zed assessment, it will break chunks of the “Net Order” into “Child Orders” that represent a timeslice of executable liquidity demand for each pair at a given moment. That “Child Order” is then further broken down into “Street Orders” that are the actual orders executed on each exchange (these can be placed as limit orders, market orders, or other order types depending on how the trading logic can best optimize market liquidity).
- Balance Sheet Manager — Omega One requires a significant balance sheet in order to harvest liquidity from the marketplace and trustlessly serve it up to our members in the Omega Private Exchange. At a minimum, Omega One needs to keep at least enough funds on all exchanges, across all assets, in order to perform the trades required to satisfy all open Net Orders.
Additionally, here are some standout aspects of the platform:
- High level of interoperability between blockchains (and their respective overlying tokens)
- Protocol is mediated by the Omega Token (OMT), a cryptographic token that provides membership access and can be used to pay trading fees.
- Higher OMT balances correlate to preferential liquidity treatment and discounted trading fees.
- Omega One will provide enhanced security by intermediating between blockchain wallets and on- or off-chain exchanges with our own balance sheet, shielding our members from risk.
- Omega One will provide enhanced transparency by providing benchmarking and analytics of transaction costs to our members, to allow them to audit the market impact of their trading.
- Liquidity transaction flow of Omega One (pg. 9):
The Omega One Token Economy
- OMT is an Ethereum (ERC20) tradable asset.
- Tokens will be sold to members initially in a token auction, and then after launch on an ongoing basis.
The Omega One ecosystem is an open microeconomy in which Omega Tokens are held as proof of membership and exchanged for the service provided by the Omega One platform (Omega One White Paper).:
- Some trading fees will be paid using Omega tokens, causing a constant upward pressure on the Ω1 token holding, and a downward pressure on market supply.
- Ω1 counterbalances these two pressures by selling tokens, creating a downward pressure on its token holdings and an upward pressure on market supply.
- Over time, token ownership will be decentralized through sales of Ω1’s token reserves, (see next section for details)
- The velocity of Omega One’s token sales will depend in part on the pace with which Ω1 sells its remaining token reserves: Sales Velocity = Fee Velocity — Δ(Reserves) + Inflation
- Ω1 will aim to keep fees low and maximize the value of service provided to token holders, rather than extracting value from the system.
- The currency breakdown of Ω1’s income will not necessarily match its costs, so it performs asset-liability matching trades with global crypto and FX markets.
Omega One operates using a crypto-economic protocol, mediated by the Omega Token (OMT), a cryptographic token that provides membership access and can be used to pay trading fees. Higher balances of OMT allow members access to preferential liquidity treatment and discounted trading fees. OMT is an Ethereum (ERC20) tradable asset. Tokens will be sold to members initially in a token auction, and then after launch on an ongoing basis (Omega One White Paper).
In order to enable an orderly decentralization of OMT ownership over time without either causing price fluctuations or providing programmed sales that may provide a threat surface to attackers, Omega One will sell tokens according to policies and procedures that will be established (Omega One White Paper).
Omega One Consensus Protocol
- Velocity Engine — The Velocity Engine takes the NetOrder (6) in each Pair.Direction and manages how fast it is traded (size/time).
- Execution Engine — While the Velocity Engine is responsible for deciding how much size s of a given NetOrder should be traded in a given time t, the Execution Engine is responsible for trading that slice of the NetOrder most efficiently within that time.
- Velocity Engine is developed poorly and project’s trades cannot scale
- Execution Engine is developed poorly and project’s trades cannot scale
- The functionality of the exchange is dependent on the centralized exchanges it is placing orders on. So if credible exchanges get hacked that Omega One uses — it has less liquidity to pull from
- Omega One’s broker accounts on centralized exchanges (so that it can settle trades more quickly without transferring your money all the way to the many exchanges your trade is settling on) will be subject to attacks and have limited security (limited to the exchange team’s security practices)
This is a huge technical obstacle to overcome when it comes to Omega’s risk management and protocol centralization — fronting costs on centralized exchanges to ensure the security of trader funds is risky at this stage (see pg.12 in white paper)
- Most of funding going into counterbalance funds for trading (pg. 33)