What is the OMG Network? And why did the price of OMG Token crash?
Ethereum scalability is currently a hot topic (in fact, it has been for years). However, it is not an easy problem to solve, and the Ethereum developer community is exploring multiple different avenues.
One of them is OmiseGO, which recently changed its name to OMG Network. It promises faster transaction times and lower commissions on the largest innovative contract platform. Let's see how it works.
What is OmiseGO (OMG)?
OmiseGO (renamed OMG Network) is a Layer 2 solution for transferring value in Ethereum, without the necessity of relying on intermediaries. It aims to reduce transaction times and fees without compromising Ethereum's security.
How does OmiseGO (OMG) work?
OMG Network is what is known as a Layer2 solution. A Layer 2 solution is built on top of an existing blockchain (in this case, Ethereum). By processing transactions on this "secondary" layer, valuable block space is freed up on the Ethereum blockchain as a result.
In a way, you can imagine a Layer 2 solution as a kind of blockchain on top of a blockchain.
Supposedly, the OMG Network features the same security as Ethereum, but with lower fees and faster transaction times - and it works with all ERC-20 and ETH tokens.
This technical quality is good news for anyone using Ethereum. However, although it has brought many innovations, using the Ethereum network can sometimes be extremely expensive, especially for smaller transactions.
Moreover, the OMG Network has proof of its success. A portion of the money supply of the world's largest stablecoin, Tether(USDT), has been issued on the OMG Network.
The OMG Network is just one of the Layer 2 solutions amidst a sea of competitors aiming to solve Ethereum's scalability - such as Optimism, Loopring, and zkSync.
Why is OmiseGO (OMG) important?
Network congestion is a severe drawback of Ethereum. Typically, on Ethereum, transactions are relatively fast and are confirmed within 10-20 seconds. However, if gas prices rise, transaction times can take hours (even days).
Since transactions with a higher gas price are processed earlier, if you offer a low gas price, the transaction may be stalled for a long time, waiting to be confirmed. So naturally, when the network experiences a high load (i.e. demand for block space), gas prices go up, and transaction time increases.
In such circumstance, you can pay a higher price for the transaction to go through, or you sit around waiting for gas prices to drop. Thus, there are two issues with regard to the Ethereum platform when it is under stress: high gas rates and long confirmation times.
The OMG network addresses this situation by offering high-speed, low-cost transactions. It provides thousands of transactions per second (TPS), at about a third of the average cost of using Ethereum.
This statistic is not only crucial for token trading. With many DeFi applications being deployed on Ethereum, network congestion will continue to be an issue. While the Ethereum 2.0 update should make Ethereum more scalable, Layer 2 solutions are still expected to be needed in the future. Furthermore, Eth2 will take years to implement fully. Naturally, Ethereum users can't wait that long for lower gas costs and faster transactions.
OmiseGO (OMG) Use Cases
Crypto exchanges can use the OMG network for faster and lower cost ERC-20 token transactions instead of using the Ethereum network. Like exchanges, wallet providers can also benefit from short, high-performance, and low-cost systems.
While we generally think of these types of systems in terms of financial assets and cryptocurrencies, the OMG Network can also be used for untrusted community points transactions and various other online reward systems. For example, Reddit's community points system was very efficient when used with the OMG network. This was made possible with the recently developed Community Points Engine (CPE).
The OMG token
The OMG token is a staking token and has been used to fund the development of the project. OmiseGO held an ICO in 2017, raising $25 million. OMG is also used to pay fees on the network; however, support for other currencies is being developed. The token is also used by validators who run network nodes and validate blocks. They earn transaction fees in exchange for their service.
How to Store OmiseGO (OMG)
Since OMG is an ERC-20 token, you can store it in a wide variety of wallets. Think of software wallets (web or mobile-based) or simply exchanges like Binance. OMG can also be stored in cold storage hardware wallets, such as Ledger and Trezor, when combined with MyEtherWallet or MyCrypto.
Recent fall in prices
It looks like OMG investors "sold the news" after a BOBA airdrop for holders of that coin triggered massive sell-offs.
The price of the OMG Network (OMG) cryptocurrency, a second-layer scaling protocol for Ethereum, formerly known as OmiseGo, plummeted more than 30% on Friday after an airdrop triggered a massive sell-off of the token. According to data from CoinMarketCap, the OMG coin fell 34% from a price high of USD 19.6, recorded on Thursday, to USD noon this Thursday. The price collapse coincided with announcing a free token distribution from Boba Network to OMG holders at midnight UTC on Friday.
BOBA's Airdrop caused the crash
Boba Network, a new Layer 2 product created by Blockchain developer Enya in collaboration with OMG Network, had previously reported Airdrop last September 20, when OMG cost around USD 9.50.
According to the announcement, the team would conduct what is known as an "airdrop snapshot" among OMG token holders. In short, it means that all OMG coin holders would be eligible to receive BOBA tokens for free in their wallets on November 19. As such, users will receive BOBA in proportion to their OMG holdings.
The move was part of a broader campaign to publicize the launch of the Boba Network manner, a layer two solution from Optimistic Rollup that helps scale Ethereum smart contracts. Users holding the BOBA token will then be eligible to submit and vote on proposals for Boba DAO.
OMG, Investors "sold the news."
Users possibly began liquidating their holdings in OMG after the Airdrop, suggesting that many were holding the coin in the interest of qualifying for BOBA tokens. Investor reaction is colloquially described as "selling the news," which refers to when market participants buy an asset when they expect positive developments and then take back profits when the expected event (in this case, the Airdrop) is confirmed.
Ten major centralized cryptocurrency exchanges, including Binance, Crypto.com, Huobi, Bitfinex, Binance.US, and FTX, are supporting BOBA airdrop for their users.
The latest reaction from OMG investors seems to coincide with the price spikes recorded by the token over the past few months. On September 29, shortly after Boba Network's announcement, the OMG cryptocurrency jumped to USD 16.7 and more recently spiked back to USD 19 amid expectations for the Airdrop.