Despite massive growth in crypto markets, exchanges remain illiquid, fragmented, costly to trade on, and open to theft by hacking.
Consensys’ latest Blockchain product Omega One claims to solve these problems by providing a decentralized automated execution system that trades across the world’s crypto exchanges, shielding our members from counterparty risk and reducing the costs of trading.
By radically increasing the liquidity of crypto markets, they say they are laying the foundation for their maturation as an asset class, and building the financial system of the future.
From a recent blog post at Consensys:
Why liquidity is important
When a market is liquid, it is cheap to move in and out of positions, so large volumes can be traded without moving the price very much. This is not only good for traders, but good for the market as a whole, as it tends to dampen booms and busts, and encourage market maturity. However, with liquidity costs orders of magnitude higher than in traditional markets ($1m moves the market 10% in BTC/ETH, vs. 0.01% in USD/EUR), the crypto markets will need to mature extremely quickly or risk breaking under the weight of incoming capital.
How Omega One solves the problem
Fortunately, this problem can be solved, and has been solved before in traditional markets, through the intermediation of agency brokers. These entities enable clients to access liquidity more efficiently by breaking down large orders into small pieces, placing them on multiple exchanges over time, and implementing complex game theory to minimize liquidity costs.
Omega One will play this role in crypto markets, with the addition of a trust intermediation layer that protects our clients from exchange risk. The trading engine will be integrated with Ethereum and other Blockchains, allowing funds to be traded trustlessly. When an Omega One member wishes to trade between, say, two Ethereum standard (“ERC20”) tokens on the Ethereum Blockchain, they will lock some of token A in our smart contract and send us an order to trade to token B, within certain constraints of time and price. Omega One will then take on a token B position in the market using our own exchange accounts and funds, then trade directly with the member as an atomic (simultaneous) swap of tokens in the smart contract. This will combine the trading benefit of harvesting liquidity using Omega One’s algorithms with the trust benefit of leaving our member’s funds on the Blockchain, protecting them from the counterparty risk of the exchanges.
The Omega Token
The Omega One trading protocol is mediated through a crypto token, the Omega Token. Members will use tokens to pay fees, get fee discounts, and trade on preferred terms in our private dark pool. Fees will be reinvested into increasing liquidity access, upgrading trading intelligence, and increasing decentralization. Omega One will be a utility for the crypto markets, making trading cheaper, increasing overall liquidity and enabling further market evolution.
The Omega Token will launch later in 2017.