Thank you to rain&coffee for this incredible piece. Your work is outstanding sir!
Adoption is the end goal. What’s the point in the magical efficiency of the blockchain if nobody uses it? For most people, crypto is either too complex, too hard to keep track of, or too difficult to onboard. There are many protocols that have worked to bring in more developers and users, which is fantastic, but there remains a need for global finance to fully onramp.
Enter Onomy, an all-in-one ecosystem with the goal of migrating the world’s national currencies on-chain through hybrid crypto-collateralized stablecoins, an end goal served by the creation of the ultimate DeFi machine for enthusiasts worldwide: the Onomy Exchange, having 100% on-chain transactions with bridges to every blockchain accessible from one place and the Onomy Wallet, with total custody and the UI and tools to make all your crypto-financial decisions.
The DeFi market must be converged with the best of TradFi for the market to truly blossom, delivering a better user experience for institutions so they can join in on the action and grow the market, safely. The Onomy ecosystem has a FinTech frontend and a DeFi backend, fusing the best of both worlds into a unified, interoperable, and accessible suite of products that may be used to enter, exit, and trade through any asset ecosystem.
What is Onomy?
The premise of Onomy is to serve as the de-facto decentralised reserve bank, with its stablecoins moving seamlessly from chain to chain, and being used for FX trading, payments, settlement, lending, and more. That will take time to achieve; however, the team has demonstrated success before launching through testnet of their Layer 1, a bridge to Ethereum and EVM chains, and formally verifying the Onomy Exchange model. Onomy places importance on a methodical rollout of the ecosystem - this is how they’ll do it:
The Onomy Network: Consensus and Bridges
The Onomy Protocol is like any other Cosmos-based application-specific blockchain - this means that it uses Tendermint as its consensus engine, which provides fast finality, low fees and great security. Since Onomy is built with the Cosmos SDK, it means that it will also be able to connect to the Inter Blockchain Communication (IBC) protocol, which will enable further interoperability.
Onomy has also built bi-directional bridges to a range of partner chains, including Ethereum, Avalanche, Near, Polygon, and Harmony. Through Cosmos and these partnerships, Onomy is able to connect to a whole blockchain world and use this functionality to deliver the Onomy DEX (ONEX).
First Product: Onomy DEX (ONEX)
The ONEX merges CEX and DEX functions to be the crypto purist’s ultimate exchange.
The Onomy Exchange (ONEX) works as a cross-chain DEX, wherein it merges the architecture of Automated Market Maker liquidity pools with an order book UI that’s commonly found on CEXs. This means that functions such as stop losses, limits, and conditional orders are all supported while allowing users to provide liquidity to the exchange and earn yield while keeping self custody of assets.
Each limit or stop order is filled by the AMM while moving the price as the orders are filled: the AMM fills trades that are made within the spread of the order books. By doing this, it's able to charge the ends of the spread to gain profit for liquidity providers, thus, the ONEX can set exchange rates dynamically based on the demand of the market.
This combination of functions allows the exchange to address limitations currently seen within both types, and as a result, ONEX becomes a multi-chain DEX capable of trading cryptocurrencies and stablecoin-powered Forex pairs cross-chain and fluidly without limitations.
Second Product: The Onomy Access Wallet
As we know it, DeFi misses the mark in terms of user experience. Too many wallets, too many networks, and too little integration. Browsers get overwhelmed, and keeping track of assets is a chore. As a mobile app, the Onomy Access Wallet can directly log you into your favourite protocols, like the Onomy Exchange.
Due to Onomy’s cross-chain and multi-chain functionally, all your assets can be managed from the Onomy Wallet, with 100% on-chain non-custodial access. Onomy plans to enable an interface with a single non-custodial sign in managed by QR code to login and authorise - this should make the interchain movement of assets seamless since you are not reliant on changing wallets outside of your current blockchain.
The Onomy wallet supports staking, governance, and NFTs while removing the need for convoluted browser wallet extensions. It is a one-stop shop with a simple, gorgeous UI.
Once these products launch, DeFi on Onomy blooms, and users get to grips with the Onomy Exchange, the protocol will then deploy its ultimate product - the bridge between CeFi and DeFi, powered by its stablecoins.
Why Stablecoins and Forex Are the End Goal
Stablecoins that are genuinely decentralised, DeFi composable, and secure while still accessing a global network, are what users need. This is not just limited to the US dollar, but also open to various global currencies — such as GBP, EUR, YEN and many others. The ability to mint different stablecoins of different denominations (called Denoms), is essential for Forex, as well as for companies to work cross border fluidly and for international payments to work.
Stablecoins provide stability to assets flowing into the market, and this has arrived typically in two forms: coins backed partially (or fully) by either institutions or coins controlled by algorithmic systems. The centrally funded coins typically are backed by US dollar reserves, and the algorithmic ones tend to be balanced by using minting and burning mechanisms to keep the peg on a single chain. Stablecoins are poised to become standardised within mainstream digital finance, but the form they take is crucial.
This has become increasingly true, as central bank digital currencies (CBDCs) become more and more of a talking point amongst national governments. From the world of DeFi, governance tokens are starting to function as a pegging and minting mechanisms and protocols like Luna, Shade and Onomy are poised to do extremely well, especially as stablecoins usage grows.
This is how Onomy will work under the hood to be the stablecoin solution institutions need.
How Onomy Works Under the Hood
The stablecoins will be minted through the Onomy Reserve (known as ORES), and used throughout the Onomy ecosystem and various DeFi applications outside of it. Such applications include, but are not limited to: trading, lending and payments.
Usually, when you mint a stablecoin you’re limited to the chain you minted it on. If you want to bridge it to another chain, you have to rely on various bridges which, more often than not, have extremely high fees and potentially an extra layer of security issues. Onomy unlocks chain interoperability for their assets through the click of a button via its natively-integrated bridge hub.
Onomy Reserve and Denoms
Denoms are tokenized counterparts of fiat currencies powered by Onomy; these are minted by using NOM as collateral, akin to what you might know from protocols like MakerDAO, LUNA and Shade. The underlying mechanism can vary from pure collateral (MakerDAO) to burning mechanisms (LUNA).
In any protocol with collateralized algorithmic stablecoins, there needs to be a way of stabilising the price to ensure that the value is as close as possible to the currency it represents. Amongst others to be published closer to the ORES launch, these stabilising controls enable various NOM backed stablecoins to manage deviation and collateral risks:
Through NOM, the native token, Onomy is a single-collateral multi-stablecoin protocol: each Denom will have its own unique reserve ratio to deal with fluctuating market conditions across the various currencies.
Since the Minimum Collateral Ratio (MCR) and Reserve Collateral Ratio (RCR) are managing collateral risks, the RCR is applied equally no matter the stablecoin. All three controls are governed by node operators requiring no outside oracles for the system to function - this makes it more secure.
Onomy has stated there will be reserve assets to establish a strong peg with backstops in case of extreme volatility, but details are yet to be fully unveiled.
Chain Agnosticism and the Bridge to All Worlds
We've heard and seen that Onomy is able to function cross-chain, but how does this work? The Onomy Bridge Network will enable cross-chain spatial arbitrage. Spatial Arbitrage is when a +EV hunter uses "geographical" factors to buy an asset from one chain and sell it at a different chain at a higher price.
This means there will always be an incentive for users trading cross-chain, as there might be more value elsewhere — causing higher fluid liquidity.
Spatial Arbitrage in Crypto
Onomy aims to be fully chain-agnostic, which means that no matter the user's blockchain, there is the possibility to mint Demons on Onomy and deploy them to various chains.
The ability to move across Cosmos chains already exists with the power of IBC. As more bridges are built to other ecosystems outside of Cosmos, as Onomy is providing, there will be even more interoperability; Ethereum, Aurora on NEAR, and AVAX are among some of the first bridges in the near future. That’s where partnerships and bi-directional bridges become so important.
Partnerships
Valuable partnerships are one of the most vital parts of a new ecosystem: it provides interoperability between protocols, which can accrue value for both in the partnership. So let's take a look at what type of protocols they've partnered with so far.
Onomy’s most current partnerships have been with various blockchains to provide an expansive multi-chain ecosystem, wherein users can easily bridge between protocols:
- with Avalanche, Onomy will build bridges and deploy a native version of its DEX.
- with Near x Aurora, Onomy is to bring its hybrid DEX to their ecosystem — which will also deliver inter-chain bridges between the two. This is done through Aurora's EVM (Near's EVM chain).
- with Polygon much in the same way as their partnership with Near, as they also aim to expand their DEX to include Polygon as well, while bootstrapping Denom usage.
- with Harmony One, Onomy will deploy their DEX on the ONE chain as well, akin to the others.
Gravity Bridge
Onomy has adapted the Gravity Bridge to facilitate simpler asset flows between EVM-compatible chains and Cosmos SDK-based chains.
Native Token: NOM
The native governance token of the Onomy Protocol is known as NOM, and it has several functionalities apart from allowing the community to guide the protocol’s future. It is the only collateral capable of minting Onomy’s Denom stablecoins.
Similar to all chain applications built with Tendermint and the Cosmos SDK, it will have staking functions and stake rewards as it provides security for the chain. Furthermore, - this means that as Denoms popularity rises, there will be a huge demand for the NOM token. By locking the token into the Onomy reserve, users will be able to mint various stablecoins, causing a deflationary effect, as the tokens are pulled out of circulation.
Moreover, additional deflationary pressure will come from exchange volume growth. NOM will have converging functionalities within the ONEX as bots, observing the AMM pool rewards, will purchase and remove supply as the volume of the exchange grows. This is the case both on Onomy’s native DEX, but also on the separate instances deployed to its bridged chain partners.
NOM holders will also be able to vote for proposals for changes to the protocol, and influence OnomyDAO and any decisions regarding its funds among other protocol policies.
Tokenomics
Maximum Supply: 100M NOM + Inflation
There are 100M NOM to be issued natively, as well as the inflation from the bonding curve’s public distribution mechanism and staking.
The distribution of the NOM token will happen in a way that's quite unique: a Bonding Curve Offering (BCO). This is a token model that will automate the relationship between price and supply, meaning the price is never static: instead of having a predetermined price point through something like an ICO, the tokens will be minted continuously overtime via an AMM contract.
When there arises a need for tokens, they will be minted as purchased. BCOs also have the added security of using smart contracts to provide tokens instead of a central authority (such as CoinList). It also incentivises early bids on the NOM token, as the price of the token will increase with supply, unlike other token models which tend to be dillutionary at the same price.
Distribution will happen through a bonding curve contract deployed to the Ethereum network. Buyers of the token will then be issued a version of NOM (bNOM) that can be exchanged 1:1 with NOM on the Onomy Network provided through an interface that will bridge your wNOMs for NOMs on its native chain. Upon bridging the tokens for staking, governance, or collateral, the bNOM is burned so it locks the BCO’s price floors higher as those coins can never be sold back to the Bonding Curve.
Now that we've talked about the bonding curve, let's take a look at how it works in practice. Pay attention to the number of NOM issued on the bottom, and the price of the token in ETH on the left side.
Supply is issued when purchased, almost like a minting mechanism, causing the supply to go up; the more NOM gets minted, the higher the price of minting becomes. This has four main benefits:
- Price is deterministic
- Price is continuous
- Instant liquidity to sell back if needed (since the bonding curve contract acts as an AMM)
- Collateralization (in this case ETH acts as a reserve backing for NOM)
Let's dig a bit deeper into the functionalities of NOM itself…
Apart from being used to mint stablecoins (Denoms), the NOM token will also make you eligible to earn fees accrued from the ONEX when staked. Onomy Network staking rewards follow an initial hyper-inflationary period, and additionally, Denoms may be staked at validators to accrue a variable yield that dynamically adjusts for stabilisation purposes.
Onomy will incentivize NOM staking through an inflationary emission schedule; the initial hyperbolic hyper-inflationary period is designed to drive network participants to stake and secure the network. NOM holders will also earn rewards through transaction fees from both the ONEX and the bridge liquidity pools.
The inflation rate of Onomy will happen through a curve rate as seen below:
Inflation Rate Curve
Team
Onomy was co-founded in December 2020 by Lalo Bazzi and Charles Dusek. Bazzi is a former associate at Fidelity Investments and ex-Microsoft cloud solution strategist. Dusek was previously an ex ConocoPhillips engineer with more than a decade of experience working in engineering, energy finance, and private equity before transitioning to blockchain full time in 2017 along with Bazzi.
Together, they developed mining hardware, utilising ASIC chips, and established a global infrastructure partner network. So, they've both been immersed in the blockchain industry growing their experience and knowledge through the many cycles over the past 5 years.
OnomyDAO / Participate
The Onomy Protocol will use its NOM tokens to govern as a DAO, and those token holders may propose governance changes encompassing the development and future of the ecosystem.
The Onomy DAO governance includes governance of the treasury, and the funds are outside of the control of any central entity. Funds within the DAO may only be accessed through proposals passed by the Onomy DAO itself.
Validators are also able to join the Onomy validator guild which, upon mainnet, allows token holders to secure the network by staking NOM and setting up servers to validate transactions. Of course, users who don’t join the guild can still delegate their NOM to validators and earn rewards.
Roadmap
Conclusion
Onomy stands at a crossroads of DeFi and Trad-Fi: if they're able to cement themselves as a multi-chain exchange for all assets that is fluid through all chains, decentralised and fast - while having CEX-like (but decentralised) luxuries, then it opens up DeFi to everyone, most importantly, the non-crypto natives, particularly with the Access Wallet enhancing cross-chain and multi-chain asset management and user experience.
The initial strength of the protocol lies in its ability to merge CEXs functionalities with a DEX which together with its wallet, brings the traditional but highly-functional trading and asset usage experience on-chain.
Once it mints its Denom stablecoins and begins amping institutions as a result, there's certainly more value to be found as its stablecoins can technically be used for anything, including payments, lending, yield, and settlement, alongside crypto and non-crypto pair trading. By plugging the $6.6T per day Forex market into DeFi, and deploying its teased consensus engine for high-frequency trading at scale, then there is a possibility they will catch a large market share that is currently untapped.
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Onomy Resources:
Website: https://onomy.io/
Twitter: https://twitter.com/OnomyProtocol
Discord: https://discord.gg/onomy
Telegram: https://t.me/onomyprotocol
