Omicron
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FAQ

Why do we need Omicron in the first place?

Dollar-pegged stablecoins have become an essential part of crypto due to their lack of volatility as compared to tokens such as Bitcoin and Ether. Users are comfortable with transacting using stablecoins knowing that they hold the same amount of purchasing power today vs. tomorrow. But this is a fallacy. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of dollar also means a depreciation of these stablecoins. Omicron aims to solve this by creating a free-floating reserve currency, OMIC, that is backed by a basket of assets. By focusing on supply growth rather than price appreciation, Omicron hopes that OMIC can function as a currency that is able to hold its purchasing power regardless of market volatility.

Is OMIC a stablecoin?

No, OMIC is not a stablecoin. Rather, OMIC aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, OMIC provides free floating value its users can always fall back on, simply because of the fractional treasury reserves OMIC draws its intrinsic value from.

OMIC is backed, not pegged.

Each OMIC is backed by 1 USDC, not pegged to it. Because the treasury backs every OMIC with at least 1 USDC, the protocol would buy back and burn OMIC when it trades below 1 USDC. This has the effect of pushing OMIC price back up to 1 USDC. OMIC could always trade above 1 USDC because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1. You might say that the OMIC floor price or intrinsic value is 1 USDC. We believe that the actual price will always be 1 USDC + premium, but in the end that is up to the market to decide.

How does it work?

At a high level, Omicron consists of its protocol managed treasury, protocol owned liquidity (POL), bond mechanism, and staking rewards that are designed to control supply expansion. Bond sales generate profit for the protocol, and the treasury uses the profit to mint OMIC and distribute them to stakers. With liquidity bonds, the protocol is able to accumulate its own liquidity.

What is the deal with (3,3) and (1,1)?

(3,3) is the idea that, if everyone cooperated in Omicron, it would generate the greatest gain for everyone (from a game theory standpoint). Currently, there are three actions a user can take:
  • Staking (+2)
  • Bonding (+1)
  • Selling (-2)
Staking and bonding are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while bonding does not (we consider buying OMIC from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficial, the actor who moves price also gets half of the benefit (+1). If both actions are contradictory, the bad actor who moves price gets half of the benefit (+1), while the good actor who moves price gets half of the downside (-1). If both actions are detrimental, which implies both actors are selling, they both get half of the downside (-1). Thus, given two actors, all scenarios of what they could do and the effect on the protocol are shown here:
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  • If we both stake (3, 3), it is the best thing for both of us and the protocol (3 + 3 = 6).
  • If one of us stakes and the other one bonds, it is also great because staking takes OMIC off the market and put it into the protocol, while bonding provides liquidity and MIM for the treasury (3 + 1 = 4).
  • When one of us sells, it diminishes effort of the other one who stakes or bonds (1 - 1 = 0).
  • When we both sell, it creates the worst outcome for both of us and the protocol (-3 - 3 = -6).

Why is PCV important?

As the protocol controls the funds in its treasury, OMIC can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 OMIC with 1 USDC. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy OMIC below 1 USDC with the treasury assets until no one is left to sell. You can't trust the FED but you can trust the code.
As the protocol accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.

Why is POL important?

Omicron owns most of its liquidity thanks to its bond mechanism. This has several benefits:
  • Omicron does not have to pay out high farming rewards to incentivize liquidity providers a.k.a renting liquidity.
  • Omicron guarantees the market that the liquidity is always there to facilitate sell or buy transaction.
  • By being the largest LP (liquidity provider), it earns most of the LP fees which represents another source of income to the treasury.
  • All POL can be used to back OMIC. The LP tokens are marked down to their risk-free value for this purpose.

Why is the market price of OMIC so volatile?

It is extremely important to understand how early in development the Omicron protocol is. A large amount of discussion has centered around the current price and expected a stable value moving forward. The reality is that these characteristics are not yet determined. The network is currently tuned for expansion of OMIC supply, which when paired with the staking, bonding, and yield mechanics of Omicron, result in a fair amount of volatility. OMIC could trade at a very high price because the market is ready to pay a hefty premium to capture a percentage of the current market capitalization. However, the price of OMIC could also drop to a large degree if the market sentiment turns bearish. We would expect significant price volatility during our growth phase so please do your own research whether this project suits your goals.

What is the point of buying it now when OMIC trades at a very high premium?

When you buy and stake OMIC, you capture a percentage of the supply (market cap) which will remain close to a constant. This is because your staked OMIC balance also increases along with the circulating supply. The implication is that if you buy OMIC when the market cap is low, you would be capturing a larger percentage of the market cap.

What is a rebase?

Rebase is a mechanism by which your staked OMIC balance increases automatically. When new OMIC are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see staked OMIC balance instead of OMIC, the protocol utilizes the rebase mechanism to increase the staked OMIC balance so that 1 staked OMIC is always redeemable for 1 OMIC.

What is reward yield?

Reward yield is the percentage by which your staked OMIC balance increases on the next epoch. It is also known as rebase rate. You can find this number on the Omicron staking page.

What is APY?

APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of Wonderland, your staked OMIC represents your principal, and the compound interest is added periodically on every epoch (8 hours) thanks to the rebase mechanism.
One interesting fact about APY is that your balance will grow not linearly but exponentially over time! Assuming a ly compound interest of 2%, if you start with a balance of 1 OMIC on day 1, after a year, your balance will grow to about 1377.
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The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
A P Y = ( 1 + r e w a r d Y i e l d ) 1095 APY = ( 1 + rewardYield )^{1095}
It raises to the power of 1095 because a rebase happens 3 times daily. Consider there are 365 days in a year, this would give a rebase frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
r e w a r d Y i e l d = O M I C d i s t r i b u t e d / O M I C t o t a l S t a k e d rewardYield = OMIC_{distributed} / OMIC _{totalStaked}
The number of OMIC distributed to the staking contract is calculated from OMIC total supply using the following equation:
O M I C d i s t r i b u t e d = O M I C t o t a l S u p p l y × r e w a r d R a t e OMIC_{distributed} = OMIC_ {totalSupply} \times rewardRate
Note that the reward rate is subject to change by the protocol.

Why does the price of OMIC become irrelevant in long term?

As illustrated above, your OMIC balance will grow exponentially over time thanks to the power of compounding. Let's say you buy an OMIC for $400 now and the market decides that in 1 year time, the intrinsic value of OMIC will be $2. Assuming a ly compound interest rate of 2%, your balance would grow to about 1377 OMICs by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for OMIC now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your OMIC balance to grow exponentially and make this a worthwhile investment.

What will be OMIC's intrinsic value in the future?

There is no clear answer for this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back every OMIC with 100 USDC, the intrinsic value will be 100 USDC.

How does the protocol manage to maintain the high staking APY?

You can track your rebase rewards by calculating the increase in your staked OMIC balance.
  1. 1.
    Record down the Current Index value on the staking page when you first stake your OMIC. Let's call this the Start Index.
  2. 2.
    After staking for some time, if you want to determine by how much your balance has increased, check the Current Index value again. Let's call this the End Index.
  3. 3.
    By dividing the End Index by Start Index, you would get the ratio by which your staked OMIC balance has increased.
r a t i o = e n d I n d e x / s t a r t I n d e x ratio = endIndex / startIndex

Do I have to unstake and stake OMIC on every epoch to get my rebase rewards?

No. Once you have staked OMIC with Omicron, your staked OMIC balance will auto-compound on every epoch. That increase in balance represents your rebase rewards.
Last modified 3mo ago