The Onomy Protocol: Blockchain as a Decentralised Multichain Exchange
Decentralized Finance (DeFi) has opened the door to many innovative financial services that eliminate the need for middle-entities that slow down financial transactions and increase gas fees. Many see DeFi as a strong contender that could rectify the shortcomings of central finance (CeFi) and bring about a significant shift in the global economy.
Real progress is not possible by setting these two worlds at odds but rather by building a bridge between them that allows both to benefit from each other. The Onomy Protocol acts as this bridge.
Let’s delve deeper and understand the Onomy Protocol, how it works, and what problems it solves.
What is the Onomy Protocol?
The Onomy Protocol offers a multichain, decentralized exchange that provides an interface between traditional financial services and the growing world of decentralized finance (DeFi). Onomy is a layer-1 blockchain developed on the Cosmos network, designed to revolutionize the foreign exchange market. It is used for minting, trading, and lending stablecoin representations of denominations or national currencies.
The technologies that power the Onomy Network include:
The Cosmos Ecosystem is based on the Tendermint protocol. Tendermint, the first working proof-of-stake (PoS) consensus protocol, uses the IBC framework that enables cross-chain functionality between Cosmos and other blockchains.
Onomy’s architecture ensures that users and businesses can maximize their assets’ liquidity without worrying about individual chains.
How does the Onomy protocol work?
The Onomy protocol is an infrastructure that allows the creation of digital representations of traditional or fiat currencies in a bid to transform the financial industry with blockchain technology. The network bridges the gap between central finance (CeFi) and decentralized finance (DeFi).
Cosmos is the foundation on which Onomy has been built. It is considered one of the best blockchains known and is 100 times more efficient as compared to Ethereum as far as its throughput capability and other certain features are concerned. The Onomy protocol also has a new consensus algorithm, Equity, which enhances Cosmos’ existing throughput capabilities and provides a more decentralized infrastructure.
The Onomy protocol leverages the Cosmos ecosystem’s power to provide a robust multichain infrastructure.
How does Onomy solve problems and inefficiencies in the Forex market?
Global financial institutions are seeking to capitalize on blockchain’s advantages such as secure, trustless and fast transactions because they know that a huge financial migration to decentralization is underway. However, they face significant obstacles as they move currency operations on-chain.
The Rise of Stablecoins
Although blockchain technology is promising, traditional institutions are still held back by volatility issues. This has resulted in the rise of stablecoins which are digital crypto tokens pegged to major currencies. They allow access to decentralized finance and crypto-financial infrastructure while evading restrictions. Stablecoins have seen a tremendous rise in market capitalization since their introduction.
While stablecoins are currently dominated by US Dollars, Onomy Protocol believes that there will be an immediate future in which other major national currencies will rise to prominence in the cryptocurrency space, especially with regard to stablecoins. This will facilitate foreign exchange markets to migrate on-chain. And Onomy protocol will act as the bridge to this migration.
Fiat Onboarding via Stablecoin
Onomy allows institutions to onboard fiat exchange operations on-chain through stablecoins. Onomy provides users with a safe platform that allows them to have liquidity even with decentralized finance. This eliminates volatility concerns and gives access to new products and yield opportunities.
Foreign Exchange (Forex)
Onomy makes Forex easier by connecting it to the booming blockchain economy, which opens up opportunities for enterprises and banks to increase the utility of their assets. Due to their size and asset pools, institutions have struggled in the past to implement new technologies at scale. However, Onomy Protocol’s products can help to sustain this migration.
Furthermore, legacy blockchains are isolated, which increases friction. There are inefficiencies and problems when trying to exchange assets across chains. Onomy uses a cross-chain architecture to allow assets to be transferred freely between prominent blockchain economies.
Onomy protocol encourages adoption by offering a range of products in its ecosystem. The product suite includes the ONEX (Onomy Exchange), a hybrid DEX that combines Automated Market Maker (AMM) with order book functionality, and creates a standalone stablecoin & native assets exchange that can be used to emulate the Forex market on-chain.
Stablecoin Resilience is Notable
The stablecoin economy is a powerful force to reckon with. This is because stablecoins have remained resilient even in the stormy market downturns. The confidence they have earned has allowed their popularity and market to grow. Onomy protocol plans to capitalize on the success of these fiat-pegged digital assets and open this economy to holders of around 100+ currencies. Using Onomy, they can mint, trade, or lend stablecoins.
Institutions will be able to participate in and onboard liquidity to a cross-chain stablecoin economy in an efficient way. Financial institutions can also use their currency reserves to benefit from the DeFi marketplace, as well as other opportunities that arise as blockchain technology develops.
Potential and Future Onomy Applications
Onomy announced a partnership with Avalanche to achieve this goal. Avalanche is a prominent, interoperable blockchain economy that was backed by Andreesen Horowitz’s A16z crypto fund. It facilitates the deployment of decentralized apps as well as enterprise-grade blockchains.
Onomy allows both institutional and retail users to mint, deploy, exchange and use their currency reserves via digital stablecoins. These can interact with the entire DeFi landscape, solving long-standing problems that have hindered the Forex market’s potential. Onomy hopes to be the bridge that unlocks the potential of currency markets and the currency itself.
Special thanks to Tremis Skeete, Executive Editor at Product Coalition for the valuable input which contributed to the editing of this article.
