The ONEX Liquidity Playbook
The DEX Market is saturated. How can ONEX not only carve out a portion, but also become a leading DEX?
2. Specialization in Forex & Real World Assets
History Repeats, But We Don’t
The liquidity merry-go-round, where capital chased the hottest yield, only to leave ecosystems as ghost chains? All attempting to recreate Sushiswap’s vampire attack on Uniswap - a classic heist of liquidity. Repeat the same process and observe the same fate.
Leveling Up: Beyond Basic Incentives
Incentives are more effective when done through DAO-to-DAO incentive matching. This isn’t new to us - shoutout to our Osmosis collab where liquidity more than 10x’d in the NOM/OSMO pool with incentives paid in both NOM and OSMO. Not only does liquidity grow, but collective awareness, community exposure, and co-marketing opportunities come along with it. ONEX should look to replicate this DAO-to-DAO incentive matching for not only IBC, but non-IBC ecosystems too. Played right, ONEX can become the AMM+Orderbook DEX Hub for exposure of IBC assets to a non-IBC world, and vice versa. The Arc Bridge Hub is a core piece here, but more on this later.
Diving Deeper: Liquidity’s New Frontiers
What if instead of attracting liquidity to you, you are able to bring liquidity to the user? This is done through liquidity aggregators. The net effect is that assets not yet listed on ONEX can still be traded in ONEX through intelligent routing. Examples of this includes Squid Router, built with Axelar. While I believe the product itself is great, ONEX aims to generate protocol revenue via spread capture (effective fees) on trades. Routing through Squid Router will effectuate a fee paid to Squid Router and not generate revenue for ONEX – potentially outweighing the benefit of an aggregator as it does not serve ONEX’s protocol revenue goals.
Enter the Skip API. I propose an exploration of integrating Onomy’s ecosystem with the Skip team. For context, Skip started out as extremely efficient MEV extractors and have since grown to various public goods for the Cosmos stack. One solution Skip offers is the Skip API. In their own words:
Skip API is a unified REST/RPC service that enables developers to create seamless cross-chain experiences for their end users using a variety of underlying cross-chain messaging protocols, including IBC, CCTP, and Axelar. We’re on a mission to make all interop dead easy
We’ve designed it so that even developers who are completely new to interoperability and have never worked with any of the bridges or DEXes we use can build applications and frontends that offer:
- Single transaction any-to-any cross-chain swaps with built-in cross-chain DEX aggregation under the hood
- Cross-chain contract calls that allow users to take actions on remote chains without having to explicitly bridge in separate transactions
- Multi-hop cross-chain transfers with automatic denom & path recommendations for any asset and chain
- Composite bridging paths that use multiple underlying bridges for different stages of the path
- Real-time cross-chain workflow tracking, along with gas + completion timing estimates
- Fast / prioritized relaying
- Protection from common cross-chain UX failures (e.g. bridging to a chain where the end user doesn’t have gas)
… and much more
The API is completely free to use and permissionless to integrate with. Unlike Squid Router, Skip does not take fees on swaps or transfers now and never will. The cross-chain swapping, transferring, and routing functionality is completely free now and always will be.
Therefore, Skip API provides the benefits of liquidity aggregation enabling users of ONEX to trade any pair from any DEX/Chain integrated with Skip. All the while, everything is abstracted away from the user so they do not have to manually choose a bridge, network, etc. Additionally, ONEX can customize its own fees for facilitating the path via the Skip API. This would require some customization to then work its way into the programmatic buy & burn model of NOM.
This is very similar to the goals of the Arc Bridge Hub. While Arc deserves a nuanced discussion thread of its own, I did bring this up to the Skip team. After a very engaging discussion (h/t to awesome team at Skip), we identified the following:
- Skip can integrate ONEX to their API. Users of any other DEX, Wallet, or dApp that uses the Skip API (Osmosis, Stargaze, Leap, Astroport, etc) can access and utilize ONEX. This opens ONEX to many more users, all of which would generate more protocol revenue via ONEX fulfillment of trades provided that ONEX has the best quote for the desired asset. These assets will most likely initially be NOM, ONEX, and other native Onomy Ecosystem assets like the upcoming stablecoins from the Reserve, along with additional community projects / consumer chains as they come online.
- Skip API can also integrate the Arc Bridge Hub. If Arc provides the best routing for a particular asset, Skip API will take it.
- Skip API for onboarding experience on front end over existing bridges into NOM so outside users can easily enter Onomy with any asset from integrated bridge.
- Skip API enables Onomy to charge a fee for routing trades for ONEX users and apply the buy and burn. It can also only be customized to enable Skip API routing if a user wants to trade a pair ONEX doesn’t already have sufficient liquidity for yet, rather than on all pairs by default. This can be “back-up” behavior so that ONEX does not lose a user to insufficient liquidity of a desired asset.
Additional UX Improvements: Fee Abstraction and PFM
Fee abstraction and Packet Forwarding Middleware (PFM) are on the horizon. FeeAbstraction enables users to pay gas for transactions with any IBC token. This can be NOM, ONEX, or Reserve Stablecoins for example. Whereas PFM enables token transfers to automatically forward through multiple IBC channels, allowing for improved UX. This can be useful to “unwrap” IBC tokens that have been bridged through multiple networks. This can also be used to transfer non-native assets from one chain to another, multi-hopping through the native chain in between, with only a single transaction signing. PFM translates to you being able to sign one transaction to complete a swap that could have been 3 or more via bridging, swapping, and bridging back.
Foundation Set for The Big Picture: Specializing in Forex and Real World Assets (RWAs)
Fast Forward. ONEX is highly optimized and abstracts away many technicalities that provides a buttery smooth UX integrated with every relevant ecosystem. How does it scale? Forex and RWAs. We’re not merely speculating about potential growth—stablecoins are on a trajectory to encapsulate a market cap in the trillions, incorporating major global currencies such as the EUR, JPY, GBP, and more, alongside the USD.
It’s not just about creating a seamless experience, either. It’s about providing real solutions to real needs. Onomy’s approach is grounded in the practical application of stablecoins to revolutionize how we interact with the global financial system. Imagine having the capability to onboard with your local currency and seamlessly transition into a global currency like the USD, accessing a broad spectrum of services in DeFi without ever leaving the digital realm. This scenario is not just a convenience; it’s a radical shift towards empowerment and inclusion, offering instantaneous transactions, global payments, and trades with full control over your assets. It is the Internet Financial System.
Specifically, Onomy aims to:
- Enhance Accessibility and Inclusion.
- Bridge liquidity, reduce fragmentation.
- Streamline cross-border transactions and on-chain Forex trading by providing familiar tools and traditional exchange features.
- Democratize access to Real World Assets (RWAs) to improve liquidity and access for RWAs like commodities.
Proposed Operational Steps
- Onomy Reserve: Launch a suite of stablecoins through the Onomy Reserve with minimum required liquidity constraints and collateral. Each stablecoin issued requires DAO approval via governance.
- Liquidity Pools and Incentives: Create dedicated liquidity pools for major Forex pairs (e.g., EUR/USD, USD/JPY) on ONEX. Consider liquidity mining incentives to bootstrap additional liquidity to ensure competitive spreads and depth from the outset. DMM programs as well.
- Aggregation & Distribution: Facilitate distribution in and out of ONEX through Skip API, Arc Bridge Hub, and/or other means to enhance liquidity and access to the Forex pairs.
- Derivative Products: Add derivatives products, including futures and options, allowing users to hedge positions or speculate on currency movements. This will attract a more diverse user base, including institutional traders and sophisticated retail investors.
- Stablecoin Value-add Partnerships: Enhance Onomy Reserve issued stablecoin liquidity, backstops, and access via on-off ramps, pools with USDT / USDC / DAI and other stables.
- Building on Forex Foundation: Add RWAs, including commodities and other tangible assets. Tokenize access to assets such as gold, enabling instant transfers of ownership and new proof-of-reserves technologies, on a global 24/7 trading platform owned and operated by validators and contributors across the world.
Ambitious? That’s why we are here with 60K+ community members and contributors situated around the globe. This is just the beginning!
Interchain Security and Beyond
With Onomy becoming the second provider chain in all of Cosmos, after the Cosmos Hub, its ambition is not to compete with the Cosmos Hub as a generalist Hub, but to become an on-chain hub specific to FX and RWAs for all crypto.
Your Part in This Journey
This is a call to arms for the Nomads, the visionaries, and the builders. Our collective input, expertise, contributions and passion are what will drive Onomy forward. Reach out, get involved, and let’s build the Internet Financial System.
I look forward to discussing with all of you.
Onwards and upwards,