Overlay (OVL)

Basics

• Based in:
• Started in / Announced on: 2019 but the idea started in 2017
• Mainnet release: aiming (18-3-2021) for 12-5-2021 (didn't make that).
• From EthHub (15-3-2021):

"Overlay is a protocol that allows users to trade nearly any streaming data without the need for traditional counterparties. This data can be nearly anything: DeFi tokens, sentiment analytics, Seattle’s crime rate, NFT indexes, political and natural markets, the list goes on."

• From their blog (18-3-2021):

"“Overlay sits at the intersection of DeFi derivatives, prediction markets, and automated on-chain market making — three of the most exciting opportunities in DeFi today. Overlay will unlock much-needed liquidity for synthetic exposure to DeFi assets and will enable the creation of entirely-new markets that couldn’t have existed outside of crypto, making it a powerful primitive for financial innovation.” — Jacob Phillips, Polychain Capital"

• From their Telegram (11-1-2021):

"For v1, we will focus on DeFi price feeds."

History

• Won the Chainlink award at ETHGlobal late 2020.
• From their blog (26-3-2021) where the founder says:

"I had been into crypto for years, but this latest explosion of innovation was unbelievable. I wanted a piece of the action. I wanted the ability to trade, because my new job in finance didn’t let any of its employees do that. An instant later I had the idea for Overlay: a token that tracks prices and mints and burns itself to reflect wins and losses. Less than a minute after that, I had the name and the logo. It all fell together in a perfectly natural, electrical moment of inspiration.

I started a white paper, I started learning Solidity and the basics of the EVM. I realized that any numerical data feed would work, not just prices, so long as that feed couldn’t be manipulated (like Twitter followers) or predicted (like temperatures). The more I thought about this incredibly simple idea, the more consequences unfolded from it. The guy I hired to teach me Solidity told me about DappHub. He said they made pretty code. So I reached out on the chat server and talked to Andy Milenius, who was not yet the CTO of Maker. Crypto winter descended upon all of us at the end of the year. But I kept looking for investors because I didn’t want to do an ICO, and Overlay needed liquidity. We pushed and chipped away, slowly gathering momentum by opening a company, finding lawyers, and talking to more and more people. In the midst of Corona, Mike came to me with an idea. He wanted to enter Overlay in the ETH Global Hackathon. We could be involved if we wanted, but he would do it all if necessary. Well, we were busy and he did it all, and he won the Chainlink prize."

Token

Token Allocation

• From their blog (18-3-2021):

1. "Strategic Investors: 23.07%
2. Team: 20%
3. Dev Fund: 5%
4. Liquidity Mining & Community Incentives: 51.93%"

Utility

• Governance token and collateral in the system (11-3-2021):

"Given all PnL is paid out in OVL and traders will initially need to stake OVL to trade on the system, OVL effectively becomes a liquidity sink for all trading activity on the protocol."

Technology

• Whitepaper can be found here (21-7-2018).
• Code can be viewed here.

Implementations

• Built on: Ethereum

How it works

• From their blog (11-3-2021):

"The Overlay mechanism is simple: traders enter positions by locking up OVL tokens in long or short positions on various data streams offered by the protocol. Data streams are obtained via manipulation-resistant oracles. When a trader exits that same position later, the protocol dynamically mints/burns OVL based on their net profit/loss for the trade to compensate them. This is reflected in the total existing supply of OVL.

As an example, if a trader locks up 10 OVL in a position and the associated data feed increases 20% in value, the protocol would mint 2 OVL to the existing supply and credit the trader with a total of 12 OVL on unwind. Conversely, if the feed had decreased 20% in value, the protocol would burn 2 of the trader’s 10 OVL tokens from the existing supply and return 8 OVL to them on position unwind.

Overlay recreates the dynamics of trading but without the need for individual counterparties. It does this by solving the liquidity issue found in prediction markets and replaces it with a local inflation problem, where passive OVL holders effectively act as the counterparty to all unbalanced trades in the system (i.e. imbalance between longs and shorts on a market).

To manage the inflation problem, the protocol uses caps and fees. The Overlay system has caps and fees on the imbalance between longs and shorts for each market as well as caps on position size.

Protocol revenues come from trading fees charged on each trade. These fees are passed through to Overlay’s community governed treasury, which provides incentives for spot market OVL-ETH LPs in addition to our initial liquidity mining rewards. This spot market liquidity incentive creates a feedback loop to offer a reliable price feed for OVL-ETH on the protocol’s trading platform that traders can then use, if they wish, to hedge out a portion of their OVL price risk in each of their trades.

Oracle Method

• Will be using price oracles (11-3-2021).

Governance

DAO

• From their blog (11-3-2021):

"OVL token holders have the power to shape the future of the protocol. A dedicated Snapshot page will be live after launch to enable the OVL community to quickly signal support for or against governance proposals. On-chain governance similar to that of Compound will be the end goal. OVL enables holders to propose new markets on Overlay and determine per-market risk parameters such as trading fees and maximum leverage levels. "

Roadmap

• Can be found [Insert link here].
• From their blog (18-3-2021):

1. "Finish up initial monetary policy research on long-term system stability and robustness (March 19)
2. Update the Overlay spec and smart contracts accordingly (April 16)
3. Audits + beta V1 tests (May 9)
4. Liquidity Mining & Beta mainnet V1 launch (May 12)
5. Prep for V2: Multi-Collateral (TBD)"

Audits

• Bug bounty program can be found [insert here].

Team, Funding, Partnerships, etc.

Team

• Full team can be found [here].
• Michael; CEO
• Robert Leshner; advisor (26-3-2021)

Funding

• From their blog (18-3-2021):

"Overlay has closed a $2.215M fundraising round with 5 leading VCs and our angel investor. The round had participation from Polychain Capital, 1kx, MetaCartel, The LAO, ParaFi Capital and Ben Middleton."

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