OmiseGO Whitepaper - Decentralized Exchange and Payments Platform

OmiseGO Whitepaper - Decentralized Exchange and Payments Platform

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Jun Hasegawa, Donnie Harinsut
Unbank the Banked with Ethereum
OmiseGO is a public Ethereum-based financial technology for use in mainstream digital wallets, that enables real-time, peer-to-peer value exchange and payment services agnostically across jurisdictions and organizational silos, and across both fiat money and decentralized currencies. Designed to enable financial inclusion and disrupt existing institutions, access will be made available to everyone via the OmiseGO network and digital wallet framework.

What is OmiseGO?
OmiseGO is the answer to a fundamental coordination problem amongst payment processors, gateways and financial institutions. By enabling decentralized exchange on a public blockchain at high volume and low cost, OmiseGO provides a next-generation value transfer service operating across currencies and asset types. Through the OmiseGO network connected to the Ethereum mainnet, anyone will be able to conduct financial transactions such as payments, remittances, payroll deposit, B2B commerce, supply-chain finance, loyalty programs, asset management and trading, and other on-demand services, in a completely decentralized and inexpensive way. Further, millions of mainstream users in the largest growing economies in the world will be enabled to make the transition from using fiat money to using decentralized currencies such as ETH, BTC, and others. The OmiseGO network is intrinsically agnostic between fiat and decentralized money: as far as adoption and usage go, the system is constructed so that the best currencies will win.

OmiseGO Blockchain
The OmiseGO Blockchain comprises a decentralized exchange, liquidity provider mechanism, clearinghouse messaging network, and asset-backed blockchain gateway. It is a scalable and totally public (permissionless) blockchain whose Proof-of-Stake consensus is bonded by the activities of the chain itself. The network is designed as a highly performant system leveraging interlinked blockchain construction: while clearing and settlement occurs over the OmiseGO blockchain, the costs of protecting transaction value is externalized to other chains in ways that directly promote the value of those chains.

OmiseGO White-label Wallet SDK
The OmiseGO White-label Wallet SDK will allow a diversity of payment solutions to be easily deployed on the robust OmiseGO network. Digital wallet providers have the flexibility to enhance, add, and customize payment solutions for various industries and vertical markets. All transactions across digital wallet providers will be conducted on the OmiseGO network, and decentralized currencies can be traded freely alongside fiat money by all network users.

OmiseGO is building a decentralized exchange, liquidity provider mechanism, clearinghouse messaging network, and asset-backed blockchain gateway. OmiseGO is not owned by any single one party. Instead, it is an open distributed network of validators which enforce behavior of all participants. It uses the mechanism of a protocol token to create a proof-of-stake blockchain to enable enforcement of market activity amongst participants. This high-performant distributed network enforces exchange across asset classes, from fiat-backed issuers to fully decentralized blockchain tokens (ERC-20 style and native cryptocurrencies). Unlike nearly all other decentralized exchange platforms, this allows for decentralized exchange of other blockchains and between multiple blockchains directly without a trusted gateway token. Markets may be able to significantly reduce spreads and encourage market assurance via decentralizing custody and increased transparency of market activity. This is achieved using smart contracts, protocol tokens enforcing correct market behavior of orderbook matching, a new construction of Ethereum bonded external enforcement of clearinghouse activity, and commitments to historical exchange data for use with Ethereum smart contracts.

Introduction and Problem Statement
The primary role of blockchains are to solve coordination problems among multilateral agreements between a network of participants. By ensuring transparency, assurance, and enforcement, we can enable multilateral agreements where they were not previously possible. When all parties are assured that the operations are not only transparent, but also the mechanisms are guaranteed to not change without significant effort, parties are more willing to coordinate. Participants have significantly higher guarantees that a single party has difficulty forcing other parties in the future into usurious rent extraction via a change in business processes or information asymmetry. In other words, any single participant is more willing to use systems where the business processes and mechanisms itself are not owned by any other single participant.

There is a fundamental coordination problem amongst payment processors, gateways, and financial institutions. For instance, a customer of a bank wishes to pay a merchant on another network. Traditionally, there have been significant efforts in engineering around payment systems which are compatible across payment networks and financial institutions. These are usually constructed by creating a clearinghouse which manages the interchange, usually via a messaging network with either a central counterparty clearinghouse or nostro/vostro accounts. Examples include FedWire, CHIPS, SWIFT, consumer card payment networks, NSCC/DTCC, OCC, and ACH. These networks service different roles and functions, including local/national payments, international payments, credit, equities/asset exchange, and derivatives. These centralized networks allow for the controlling entity to arbitrarily change the mechanisms, which result in significant amount of transaction costs via information costs, due diligence, and contractual enforcement between all parties.

We believe that there is currently a large emerging market of disruption in digital payments with new payment platforms (e.g. Venmo, Alipay, etc.). These networks have significant aversion to interchange across networks, as it usually requires significant overhead costs in trust with the interchange facility. Parties are unwilling to use central counterparties, as neither party wishes to defer to the other, and use of nostro/vostro accounts require bespoke contracts between participants. While the larger networks have significant incentive around protection of their network effects, we believe that there is a longtail of entities wishing to provide eWallet services which require greater coordination amongst multilateral participants. These mid-size participants will be able to cross value across networks in order to reach sufficient network effects in usability. The infrastructure and reference frontend for these providers will allow for the network effects to be encoded into this network, allowing for emerging eWallet participants to instantly create high network utility.

Blockchains allows society to externalize the world’s business processes from single centralized corporations into open, decentralized computing networks. OmiseGO (OMG) is a network which decentralizes market liquidity, orderbook matching and execution, clearinghouse custodianship, and high-scalability payments to help resolve payments across these emerging eWallet payment networks.

By shifting these business processes traditionally placed into a single corporation, it is possible to provide eWallet providers an entire interchange process in a decentralized high-performant open network.

With the emerging popularity of eWallet platforms, siloed networks are becoming a problem. This creates a unique opportunity for fiat tokens to interchange across a decentralized network, along with cross compatibility with cryptocurrencies.
In order to build this decentralized interchange network, it requires not only a blockchain well-suited for payments and interchange of issued tokens, but also a decentralized exchange which supports these activities, as well as incentives around creating well-functioning liquidity pools.

Eventually, these issued tokens may asymptotically get closer and closer to full decentralization (including user-owned keys) which maximizes agency of the individual. This can be achieved by creating not only transparency in the business process of payment interchange, but also removing the ownership of the business process itself from a single trusted entity. OmiseGO allows for stakeholders, from individuals to issuers, to have significantly greater assurance in the financial mechanisms of society.