Pro
Overlay: An Exchange for Unexplored Markets
Key Insights
- Overlay allows traders to take directional risk without a direct counterparty; this allows users to trade all kinds of assets, including those without much or any liquidity.
- Control of the protocol’s monetary token supply is key as it underlies the basic trading mechanism as well as offers traders leverage.
- Leverage is available through a temporary minting process where tokens are burned immediately following the close of a trade (but not available to US users).
- Protocol parameters, such as funding payments, fees, and caps on open interest and price action are in place to decrease protocol risk.
- Changes to any aspect of the protocol are set by the Overlay DAO.
Conventional exchanges match one trader with another trader to form a multi-sided market. When a party goes long an asset, another counterparty somewhere is willing to take the opposite view. This is a classic model where the exchange performs order matchmaking services to earn trading fees.
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Jerry joined Messari as a Research Analyst after working in management consulting. He graduated with a B.S. in finance and a minor in computer science from Indiana University's Kelley School of Business.