A five-minute overview of streaming data transaction protocols that can solve liquidity problems Overlay

A five-minute overview of streaming data transaction protocols that can solve liquidity problems Overlay

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Overlay is a trading protocol designed to allow users to use their token OVL to predict the trend direction of all streaming data without traditional counterparties. The protocol supports long and short two-way operations, and can increase the utilization of funds by increasing leverage.

Written by: Karen

As we all know, DeFi’s flexibility and highly customizable features have allowed almost zero threshold for listing assets and investment targets in the prediction market. However, from the perspective of users, those targets that are full of imagination but have no liquidity support are actually of no value. of. It is precisely because of this that although the prediction market quickly became popular during the US general election last year, it quickly fell silent in the past few months.

Today, Lianwen will introduce a transaction protocol Overlay that is dedicated to solving this liquidity problem and can trade all streaming data.

What is Overlay?

Overlay was founded by developer Michael Feldman. Previously, the project was awarded at ETHGlobal’s Chainlink hackathon. It is a transaction protocol designed to allow users to use its token OVL to predict the trend direction of all streaming data without traditional counterparties. , The agreement supports long and short two-way operations, and can increase capital utilization by increasing leverage. After expiration, the smart contract will mint or destroy the corresponding proportion of OVL tokens according to the change ratio of the original data, as the user’s gain or loss.

A five-minute overview of streaming data transaction protocols that can solve liquidity problems Overlay

Last week, Overlay also announced that it had received a seed round of $2.215 million. Participants included Polychain Capital, 1kx, ParaFi Capital, The LAO, MetaCartel Ventures, and Ben Middleton.

A five-minute overview of streaming data transaction protocols that can solve liquidity problems OverlayOverlay investors

Overlay is similar to a futures contract based on spot trading. However, Overlay’s investment targets cover a wider range, including all streaming data in the financial, political, natural and social fields. Among them, the V1 version will focus on the DeFi market.

How Overlay Works

Overlay uses Chainlink as an oracle machine to create a prediction market. After traders lock OVL tokens on various data streams provided by the agreement, they can make long or short positions in advance on the future direction of this data stream based on personal judgment. When the trader closes the position, the agreement will judge the user’s profit and loss based on the oracle data, and use this to destroy or mint OVL tokens in real time, which will also be reflected in the total circulating supply of OVL.

For OVL tokens, each different data stream is a market. In this way, users can buy or sell (long or short) by staking OVL tokens to open positions in a single market.

For example, if a user is short on the Consumer Confidence Index (CCI), assuming that the current index is 120, so buy a bearish position, after pledged 1000 OVL, if the index is 60 when the position is closed, the profit can be obtained The rate is (120-60)/120=50%, the Overlay smart contract will cast 500 OVLs, and the user will get a total of 1500 OVLs after closing the position with the profit;
If the index is 150 when the position is closed, the loss (120-150)/120=-25%, the smart contract burns 250 OVL, the user’s principal will be reduced by 250 OVL, and 750 OVL will be obtained.

Overlay project progress

The Alpha beta version of Overlay was launched on the Ethereum testnet in November last year. It will be audited and Beta V1 tested on May 9 this year, and the liquidity mining and test mainnet V1 version will be released on May 12. V2 version of multi-collateral.

A five-minute overview of streaming data transaction protocols that can solve liquidity problems OverlayOverlay roadmap

OVL’s token economic model and value manifestation

Regarding the distribution plan of the token OVL, 51.93% will be allocated to liquidity mining and used as community incentives, 23.07% of the tokens will be allocated to strategic investors, 20% will be allocated to the team, and the other 5% will be used as a team development fund. Currently, Overlay has not disclosed the total supply of tokens.

A five-minute overview of streaming data transaction protocols that can solve liquidity problems OverlayOverlay token distribution model

Except for the distribution of all profits and losses by OVL, the value of OVL tokens is mainly reflected in the aspects of casting or destruction and governance.

As mentioned in the second part, Overlay mints or destroys tokens based on the user’s profit and loss after the transaction to solve the liquidity problem in the forecast market and replace it with the inflation problem. In order to manage inflation, Overlay sets an upper limit on position size and a fee mechanism.

Regarding the issue of fees, according to a Demo video released in October last year, Overlay will charge transaction fees in the form of OVL for each transaction, of which 50% will be destroyed to adjust the OVL supply, and the other 50% will be allocated to Community treasury to incentivize liquidity providers in the secondary market.

In the introductory document released in March this year, Overlay stated that the transaction fees collected will be allocated to the community vault, which in addition to providing liquid mining rewards, also provides incentives for the spot market OVL-ETH LP. This kind of spot market liquidity incentive measures will form a positive feedback loop to provide a reliable price flow for OVL-ETH on the protocol trading platform, and traders can hedge part of the OVL price risk in each transaction as needed.

Overlay stated that a dedicated Snapshot governance page will be launched for token holders to vote and govern. Regarding streaming data sources that support transactions, Overlay community members will be able to vote on any unmanipable and unpredictable on-chain data proposal and vote to make it a tradable market on Overlay, including DeFi tokens, sentiment indicators, and Seattle’s crime rate , NFT index and political and natural markets. The Overlay V1 version will focus on the DeFi data stream.

It is conceivable that as Overlay supports more streaming data and more user participation, OVL will bring together non-market assets and non-current assets, which is expected to become a highly liquid token, thereby generating a positive positive network effect.

summary

As stated by Polychain Capital researcher Jacob Phillips, Overlay’s products are positioned at the intersection of DeFi derivatives, prediction markets, and market makers on the automated chain. It can not only release the liquidity of synthetic DeFi assets, but also create something that cannot be created in traditional markets. The new market opens up channels for DeFi users to enter more markets.

As investors’ interest in data monetization continues to increase, the financial tools provided by Overlay may bring more attractive investment exposure to investors and speculators. However, at the same time, the uncertainty of profit and loss caused by OVL price fluctuations to trading users is also worthy of consideration by the project party.

Reference link:
https://medium.com/overlay-protocol/introducing-overlay-a4a3c0cfeab0
https://medium.com/overlay-protocol/announcing-overlay-investors-49f40610f9cf
https://firebasestorage.googleapis.com/v0/b/overlay-landing.appspot.com/o/OverlayWPv3.pdf?alt=media

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