The success of Ethereum has attracted more web3 builders and users to the network than any other programmable blockchain to date. Unfortunately, this has resulted in severe instances of network congestion. On average, 92% of Ethereum blocks are consistently full and unable to process additional transactions. Historically, when demand exceeds network capacity, users funds get ‘stuck’ on the network temporarily. In some cases, the inefficiency in moving funds across trading venues could directly trigger traders' portfolio liquidation.
Within the last week, Ethereum miners and active community members have stepped forward to attempt to address congestion concerns with a Layer-1 solution. Miners are currently in the process of increasing the network’s gas limit from 10,000,000 to 12,500,000 to allow greater transaction throughput.
Ethereum Average Gas Limit Chart
Any change to the Ethereum protocol is always controversial. While the benefit of a gas limit increase is quite obvious - transaction throughput will increase from 35 tps to 44 tps - the downside is that it is a temporary solution. If Ethereum adoption keeps growing as it is, it’s only a matter of time before the gas limit begins to max out once again. Thus, for long-term network health and sustainability, at least one, if not many, Layer-2 solutions need to be adopted.
How does OMG Network Benefit Exchanges Like Bitfinex?
The OMG Network is an open, decentralized and trustless Layer-2 solution for Ethereum. It uses a Plasma architecture to increase throughput, lower token transaction fees, and ensure verifiable network safety guarantees for Ethereum users. The Network also benefits third-party service providers such as exchanges, token issuers, video games, and social networks built on Ethereum. The extensibility that the OMG Network offers Ethereum brings mainstream adoption one significant step closer.
ETH Transaction vs USDt Transactions
The OMG Network is designed to increase the efficiency and affordability of ERC20 and ETH transactions. This is a significant value proposition because sending and receiving tokens are currently the largest application on Ethereum today, consuming more than 60% of total network block space (see graph). Adoption of the OMG Network would facilitate faster and cheaper transactions, alleviating many of the congestion issues we see today.
Tether (USDt), the largest stablecoin by market cap ($9 billion at the time of writing), and Bitfinex, a top-10 crypto exchange are integrating to the OMG Network. USDt alone is responsible for one-third of all ERC-20 transfers on Ethereum, or 24% of total network activity. Our analysis of 85 exchanges revealed that more than 60% of Tether transactions are interactions between exchanges and their users' integrations with wallet service providers.
The adoption by Bitfinex signals a meaningful trend, which is driven by natural economies of scale. Once the integration with the OMG Network is complete, Bitfinex can expect to provide its millions of traders and users with a significantly better trading experience. Their stablecoin liquidity will be accessible (1) with greater transactional efficiency, (2) at more affordable rates, and (3) with the continuous security of Ethereum. Simultaneously, by adopting OMG Network Tether and BitFinex will be leading the effort to unburden Ethereum for the rest of the ecosystem.
The OMG Network is the most efficient transaction strategy for Ethereum today. Tokens and Ether can be sent and received at thousands of transactions per second. All crypto on the OMG Network is stored in an Ethereum contract. Every 15 seconds, the OMG Network updates the owner address of the tokens in the Ethereum contract based on transactions on the Plasma Childchain. Regardless of the gas costs on mainnet, OMG Network users enjoy fast transaction finality.
Because all token and Ether transactions are batched together in a single transaction, Ethereum gas costs drop dramatically for OMG Network users. For the immediate to short-term future, OMG Network transactions will operate at approximately one-third of the average Ethereum gas cost. These costs will continue to decrease over time as transaction volume increases due to economies of scale.
OMG Network transactions are as secure as Ethereum itself, because user funds are never moved from the Ethereum smart contract. The OMG Network operates as the transaction signer for the contract, meaning every transaction on the OMG Network is relayed to mainnet at each block.
Users sign their OMG Network transactions using the same address and key-pair they use on Ethereum. These transactions are kept secure using an ordering scheme, referred to as UTXOs, which was first used by Bitcoin. UTXOs provide each unspent transaction with a unique output ID. As soon as a user signs a transaction for their unspent funds to be sent, those funds are assigned to a new output ID, which is associated with the receiver’s address.
UTXOs effectively act as receipts for users. Whenever users wish to withdraw their tokens or ETH from the OMG Network, they simply share their UTXO with the Ethereum smart contract, and upon approval of network watchers, funds can be safely withdrawn. The relationship between users, their UTXOs, and network watchers ensure that even if the Network goes offline, funds can always be safely restored on Ethereum.
Watchers are nodes that continuously monitor the OMG Network child chain, validating its behavior and reporting any inconsistencies or malicious behavior to subscribed users. Watchers can be run by anyone, and they are able to earn rewards for their positive contributions. The greater the number of watchers monitoring the child chain, the safer the network.
OMG Network is dedicated to enhancing Ethereum so that it can operate as an effective value transfer layer with maximum security. We support all strategies which serve to achieve this and are particularly proud to have deployed the first operational Plasma network.
The USDt integration with exchanges, such as Bitfinex, represents a critical piece of infrastructure and use case for Ethereum scalability. As value is deposited en masse by Tether - and as Bitfinex becomes an onboarding gateway to the OMG Network - it will demonstrate an impactful change in what we can expect from Ethereum moving forward.
The integration, once complete, will benefit 1.46 million unique USDt users, unburden millions of transactions from Ethereum, and free up valuable network capacity for other critical applications, such as DeFi, DEXes, and marketplaces. Additionally, traders and exchanges will benefit from cheaper and more efficient ways of accessing stablecoin liquidity on the Ethereum network. In total, this will result in significantly reduced network congestion for Ethereum. We’re excited to launch the OMG Network and help improve the usability and affordability of Ethereum for everyone in the ecosystem.
Bowen Shen does Business Development at OMG Network.email@example.com
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