Tether is Integrated into the OMG Network

June 4, 2020 10:29 AM
Tether CTO, described the launch as a positive for Ethereum
USDt transfers dominate the Ethereum network
The benefit of holding OMG tokens isn't clear
Crypto and Bitcoin Market Cap Story of Day






Crypto markets are quiet this morning and for the most part unchanged. Spot volumes over the last 24 hours are only 46% of the 30-day average.


On Monday Tether (USDt),  launched on the OMG Network, a sidechain-like scaling solution for Ethereum. We provide context on the OMG Network and discuss what the launch means for the network’s native OMG token.

The OMG Network describes itself as “a trustless, noncustodial, Layer-2 scaling solution for transferring value on Ethereum.” The network leans on some elements of Plasma, a solution to Ethereum scaling that utilizes secondary chains. The OMG Network batches transactions on its so-called "child chains" and then communicates them to the Ethereum blockchain. As such, Ethereum acts as the final consensus of the state of the OMG Network. This allows USDt transfers to become cheaper as they don't require individual processing on the slower and more costly Ethereum. The network’s native asset is the OMG token. In the future, holders of OMG will be able to stake the asset, allowing them to become "watchers,"entities that validate transactions on the ‘child chain’ before they are committed to Ethereum. At the moment, watchers will be made of large entities that are using the network, such as Bitfinex.

Paolo Ardoino, Bitfinex and Tether CTO, described the launch as a positive for Ethereum, as the network has been saturated with USDt transfers. The CTO claimed that ‘We got many complaints from the Ethereum community about Tether clogging mainchain.’ Ardoino believes the network will syphon "USDt value transfers" away from Ethereum due to its lower costs and higher speeds. 

USDt transfers have basically come to dominate the Ethereum network. The network’s creator, Vitalik Buterin, described Ethereum as "almost full" in 2019. If the OMG network were to siphon significant USDt transfers, an ecosystem of OMG staking could emerge. That said, there are reasons to question whether this should support higher OMG token values in the long term. Firstly, permissionless staking of OMG and earning rewards for acting as a ‘watcher’ is reserved only for a ‘later stage.’ If one were to assume such a later stage would arrive, consider that, on Monday, Vitalik congratulated what he described as ‘the initial deployment of Ethereum's layer 2 scaling strategy,’ of which OMG is only one. This means that the OMG token and network will have other similar solutions to compete with in the future. Tether has, furthermore, shown a willingness to launch across networks and one can expect deployments on other layer 2 solutions. Finally, if ETH 2.0 were to succeed in expanding Ethereum throughput capacities, OMG wouldn't only compete with other sidechains but the main Ethereum chain as well.

Beyond this latest news, the asset and network have largely remained outside any spotlight. Trading at about USD 1.70, the OMG token is far off its January 2018 highs of USD 26.00. Despite the fact that traders will welcome a faster and cheaper USDt, the benefit of holding OMG tokens isn't clear.


About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at https://www.frnt.io/morningnote