Omni offers zero fees, a unique closed-loop system for distributing market-making profits, and a broad spectrum of liquid markets. At the heart of Omni’s design lies the Omni Liquidity Provider (OLP), a multifaceted system enabling these key features. This article provides a detailed explanation of OLP's architecture and the functionality it enables.
Zero Fees
Omni's zero-fee model is predicated on OLP's role as the exclusive market maker of Omni. OLP generates revenue by charging a small spread on all trades, which is then split between depositors to the OLP vault and the Variational protocol. The ability for OLP to capture revenue from the spread eliminates the need for traditional trading fees. A comprehensive analysis of the zero-fee mechanism and its benefits can be found in our previous article: “Omni’s Zero-Fee Design Explained.”
Closed-Loop System
OLP operates as a closed-loop ecosystem, meaning all profits generated from market-making activities are shared between OLP vault depositors and the Variational protocol. In the near future, OLP will be open for anyone to deposit USDC into the vault. Deposited USDC will earn yield based on OLP’s market making performance. OLP’s yield is real and sustainable, driven by volume on the platform.
On traditional trading platforms, significant value is extracted by 3rd party market makers whose profits are not distributed to the traders actually using the platform. OLP’s design allows users of Omni to choose whether they prefer to act as a maker or taker on the platform, fostering a transparent and mutually beneficial relationship between traders and liquidity providers.
Making Markets Liquid
OLP's capital, held within its smart contract vault on Arbitrum, is deployed across isolated settlement pools for each individual counterparty (user). This strategy of isolating margin to individual settlement pools allows Omni to support a vast array of longer-tail listings without concerns about socialized losses or financial contagion. For more information on the isolated settlement pool design, read our article: “Protecting Users from Bad Debt.”
Further, using in-house market making strategies for OLP drastically simplifies the listing process of longer-tail and more complex/novel markets. By developing proprietary quoting strategies for OLP to use, we can rapidly introduce new markets without first requiring integration from external market makers, allowing for more exotic listings and immediate liquidity for any listed asset.
Breaking Down OLP
OLP is not a single entity but rather a coordinated system comprised of several key components:
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The Vault: This smart contract serves as the repository for the capital (currently USDC) that powers the OLP's market-making operations. It is the central hub of the closed-loop system where vault deposits are sent to, and where all market-making profits are accumulated and subsequently distributed as community yield.
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The Market-Making Engine: This sophisticated system is responsible for generating competitive price quotes, acting as the counterparty to every trade executed on Omni. OLP’s proprietary algorithms analyze real-time data from on-chain and centralized exchanges, flow, volatility metrics, and other relevant market indicators to determine fair prices. The engine's primary objective is to maintain incredibly competitive spreads on majors and as-tight-as-possible spreads for less frequently traded instruments.
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The Risk Management System: Since maintaining strong and consistent yield for OLP is a core objective, effective risk management is key. OLP uses algorithmic strategies to dynamically manage and hedge its positions, mitigating directional risk exposure and optimizing long-term yield for depositors.
OLP Compared to JLP and HLP
Decentralized trading platforms have been evolving rapidly, with the introduction of vaults on platforms like Jupiter and Hyperliquid becoming incredibly popular sources of sustainable DeFi yield. OLP represents the next evolution in vault design and sophistication.
While sharing some similarities with the Jupiter Liquidity Provider (JLP) in its role as the counterparty to trades, OLP does not rely on an Automated Market Maker (AMM) for price discovery and instead uses in-house algorithms for quoting. By contrast, the Hyperliquid Liquidity Provider (HLP) does run a more complex strategy (slightly less so than OLP), however it participates in order books alongside other market makers and does not act as the sole counterparty for trades on Hyperliquid.
OLP’s unique combination of complex in-house market making strategies combined with exclusivity as the only counterparty on Omni is required for many of Omni's unique features like zero fee trading and the closed-loop system. Omni was designed from the ground-up as an RFQ platform to be able to support a tightly integrated liquidity provider like OLP. Omni and OLP are interdependent, and were designed to complement each other.
Conclusion
OLP is the key that unlocks nearly all of Omni's highly differentiated features. It underpins the platform's zero-fee structure, facilitates the distribution of strong community yield, and enables the provision of liquidity across a huge range of markets. By acting as the sole market maker, OLP streamlines the trading process and aligns the platform's success with the interests of its users. As Omni continues to evolve, OLP will remain a critical driver of its long-term success.
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