OmiseGo is an Ethereum-based proof-of-stake (PoS) platform that strives to decentralize payment networks and create an open, public financial system. Its goal is to provide the solution to the fundamental coordination problem among payment processors, financial institutions, and gateways.
OmiseGo uses an ERC-20 token OMG that powers the PoS consensus. The platform is still under heavy development as it is pursuing some dynamic projects. Notably, OmiseGo is building a unique decentralized exchange (DEX) called ODEX in the core of its protocol along with leading development on the first Plasma implementation for Ethereum.
There are many moving parts with OmiseGo as it is a highly ambitious project, so let’s look at the design, technology, and recent developments behind it.
Background on OmiseGo
OmiseGo is an independent extension of the company Omise, an established payment processor in Southeast Asia. Omise was founded in 2013 and launched the OmiseGo ICO in July 2017, which subsequently raised $25 million. OmiseGo has taken to the phrase “Unbank the Banked” as a reference to creating an open, decentralized, and interoperable financial network where intermediaries like banks are no longer dominant.
Since the ICO, the platform has focused on building the core components of its network including the White Label Wallet SDK, ODEX, and Plasma. Both the ODEX and Plasma are technically sophisticated and at the forefront of innovation in the industry.
Omise’s relationships in the financial payments industry have granted OmiseGo some significant exposure to the mainstream that many other cryptocurrencies don’t have. Further, Omise already powers payments for several leading international companies including McDonald’s. OmiseGo has also partnered with the likes of SBI Investment and Golden Gate Ventures already.
OmiseGo’s vision is to provide the framework for a new decentralized payment system. According to them:
“Through the OMG network, anyone will be able to conduct real-time, peer-to-peer financial transactions, including but not limited to payments, remittances, payroll deposit, B2B commerce, supply-chain nance, loyalty program activity, asset management, and other on-demand services in a completely decentralized and inexpensive way, and including highly performant and fully decentralized trading.”
So how would this platform work under the hood?
Technology Behind the Platform
Traditionally, engineering around the walled gardens of the international financial system has been complicated and inefficient. OmiseGo identifies how centralized networks such as SWIFT, FedWire, CHIPS, and ACH serve different functions and operate through various mechanisms, creating a system that requires significant transaction costs, due diligence, and contractual enforcement by all participating parties.
OmiseGo’s platform is designed to redefine the current system by providing a highly scalable DEX (ODEX) that will serve as the infrastructure for multiple markets to plug into and interact with each other while retaining censorship-resistance, transparency, security, and liquidity. With the platform bonded to the Ethereum blockchain, secure transaction validation is maintained, and the integration of Plasma will power the blockchain to a theoretically infinite capacity.
OmiseGo is a reasonably complex platform with many moving parts, so to understand how the underlying technology works it’s best to break down the technical aspects into four primary components:
- ODEX Decentralized Exchange Protocol
- Proof of Stake Consensus
- Plasma Network
- White-Label Wallet Software SDK
ODEX is baked into the core protocol that is designed to be the infrastructure for a variety of markets. ODEX will be rolled out in 2 primary phases:
- Centralized Order Matching and On-chain Settlement
- Order Matching On the Plasma Chain
The initial rollout of ODEX will see it as the base layer for a collection of venues (i.e., markets) that execute orders outside of the OmiseGo network’s PoS consensus. So, order matching is performed off-chain, but any order that is settled will be processed as a transaction on-chain.
Early venues on the ODEX will be operated by centralized entities, with Omise also functioning as an operator rather than a distributed validator state. Eventually, the network will transition to a system of validators who are responsible for consensus, and the potential for collusion among operators is reduced.
OmiseGo is working on implementing batch ordering for order settlement to increase efficiency from aggregating off-chain transactions into a provable on-chain transaction. Also, they are working on bonded exchanges, where exchanges/markets plugged into the ODEX are punished for bad behavior through slashing of a bond deposit.
Image Credit – OmiseGo Github
The on-chain order book component of ODEX is under active research but will require complex state transitions in Plasma, which at the moment, is very difficult. The on-chain market would potentially consist of a call market and auction-based mechanism in its initial rollout. You can find more details on ODEX here.
Proof of Stake (PoS) Consensus in OmiseGo is also still under development. PoS in OmiseGo utilizes a validator network who stake the native OMG token and are rewarded in transaction fees for good behavior and punished for bad behavior like other PoS systems. However, the penalty in OmiseGo is soft slashing where the returns are slashed rather than the entire stake as in hard slashing.
Due to the premise of OmiseGo and its ODEX, returns from validator staking may actually be received in any currency. Returns are distributed in equal proportions to a stake, removing economies of scale that is present in proof of work (PoW) systems. Notably, validators will need to run a full Ethereum node for root chain security purposes since staked tokens are stored on the root chain.
OmiseGo’s consensus mechanism is closely tied to its implementation of Plasma, which will power the PoS of the blockchain and allow it to scale effectively.
Plasma is a layer two scalability solution focused on Ethereum and currently in the Plasma Cash phase of development. OmiseGo has already completed a Plasma MVP, being the first to do so, and is leading the way on Plasma development. The PoS consensus is folded into Plasma which functions as a child/root chain framework between Ethereum (root chain) and OmiseGo (child chain) where the child chain can scale to theoretically infinite capacity while relying on the root chain for security and settlement.
Image Credit – OmiseGo Official Guide
Plasma is a complex topic in itself, so you can read more about it in the original paper by Joseph Poon and Vitalik Buterin here.
OmiseGo’s Plasma implementation is called Tesuji with the basic goals laid out in their most recent update as:
- Proof of Authority run on OmiseGo Servers
- Exit to Ethereum for final safety
- CLI to monitor the child chain
- Multiple Currencies
- Atomic Swap Support
Several of these features are running on their testnet and the development has turned into 2 phases; Minimum Viable Plasma (MVP) and More Viable Plasma (MoreVP). The early alpha stage of Tesuji is now open on their Github repo.
OmiseGo released an update on Reddit last month for their Plasma work, PoS, and DEX. However, many users seemed upset at the lack of transparency or substance in the update. This follows the long process of building out the OmiseGo platform as it is implementing technologies (Plasma/PoS) together that are highly sophisticated and unproven in practice on sizeable public blockchain networks yet.
The most recent update from OmiseGo contains more information on their Plasma work, including smart contracts, watchers, and ongoing research.
eWallet Suite/Wallet Software SDK
The eWallet suite allows businesses and individuals to run their own digital wallet services through a local ledger. Instances of the eWallet will form a federated layer at the top of the OmiseGo network, enabling users to transact in any assets, including fiat and crypto.
The SDK will be connected to the ODEX on the blockchain and standardize features for wallet providers. As a result, this layer will become a base for applications to be built on top. Using the SDK, eWallet Payment Providers (EPPs) can plug into the ODEX and exchange numerous types of assets in a decentralized manner on the OmiseGo blockchain.
EPPs can either be custodial or non-custodial, and the ease of connecting and using wallets will provide better liquidity to the ODEX. OmiseGo identifies that their design overcomes the coordination problem between multiple EPPs in conventional systems.
You can find more details on the current features of their eWallet suite with their recent update.
Applications and Recent Developments
According to OmiseGo’s most recent update on their progress, Plasma seems to be making headway as many features of the initial Tesuji implementation are live on their testnet. However, there are still several significant developments that have active research underway, such as the ODEX on-chain order book and ironing out the PoS mechanisms.
Eventually, once OmiseGo’s fully scalable PoS blockchain and DEX goes live, it will have a myriad of benefits and advantages over legacy payment networks and exchanges. OmiseGo is also optimized for interoperability, an upcoming evolution in the blockchain space that is sure to change the landscape dynamically.
Some straightforward applications of OmiseGo are fast domestic and international payments, a ledger for tracking assets across a large organization, and payments and remittances in any asset. Some more sophisticated applications may eventually include digital issuance of central bank currencies, next-gen mobile banking solutions, a highly liquid interoperable market of assets, and loyalty point systems for consortiums of brands.
The OmiseGo network will transition to an entirely public blockchain network once it is deployed.
OmiseGo was the first Ethereum project to surpass $1 billion in value. It is tackling some ambitious developments and features but has also left many original supporters frustrated with the slow pace of progress. Omise’s experience in payment processing networks affords OmiseGo some unique advantages that other cryptocurrencies simply don’t have. Whether or not OmiseGo plays out as the decentralized financial payment system and DEX of the future economy will heavily depend on its launch and how it fits into the consistently evolving ecosystem.