Thoughts on OMG’s cryptowinter FUD
By: Joel Foster
Tags: Ethereum, Omg, Staking, Proof Of Stake, Omisego

Photo by Johannes Plenio on Unsplash

With the thawing of cryptowinter, excitement has been building up again. Is 2020 “rock year” for OMG, when the product reaches the “promised land” of real-world use, powered by stakers on a decentralized network? The rise of new hope from faithful OMG token hodlers has inevitably come with revived FUD (fear, uncertainty, and doubt) from folks both informed and uninformed, many of whom lost faith in OmiseGo.

We’ve enjoyed having enthusiastic discussions with many of these folks over the past few months on various social channels and felt it valuable to compile some of the optimistic speculations we arrived at with the broader community — if not to restore hope to the hopeless, then simply to provide perspective into the business mindset of Omise and OmiseGo that some token hodlers may not have. As many in the community don’t have formal business or tech backgrounds, I’ll expand on business and tech terminology used throughout here to help them in their understanding.

That being said, the following is based on informed speculation — derived from published facts mingled with “breadcrumbs” (clues found by the community on Github, Twitter, LinkedIn, the OmiseGo blog, and other obsessive means of information-gathering). It is hopeful optimism that cannot be confirmed as fact and, rationally, should not be relied upon for blind decision-making. The goal of this article is not to give you false hope (“hopium”, as the community calls it, can be quite the addictive substance!), but rather to give you access to new, community-grown “hopium” where you decide how much is legit or how great a dosage you’ll allow yourself to take.

Let’s get started!

On NDAs and marketing

NDAs (non-disclosure agreements) are a hot topic for the community. Why is OmiseGo so secretive? Why not share who these mysterious conglomerate partners are and how they are planning on using the OMG network? That would surely hype up the project and increase speculative prices of the token — OmiseGo would benefit from this too because they have large holdings of their own token (more on that in a different section below)! Why not market this product like crazy and get tons of public visibility for it?

There’s a few layers to this. The first is obvious: if a massive company is planning on utilizing new technology to gain a business edge, why on earth would they announce it? What would that accomplish for them? Would it actually gain them more users/clients (which is the only rational goal for such an action)? In the B2C (business-to-consumer) world, no one cares about the technology, they care about the product and features. If OMG is powering a merchant payment processor for example, and the end user (someone buying something from a merchant who uses that payment processor) experiences no change whatsoever, they don’t care; so, no need to announce to those folks. In another scenario, what if a gaming company that uses OMG’s network via Hoard allows for cross-game collectables? They’d let the gamers know that that is now possible, but the gamers wouldn’t care whatsoever about the technology behind that. It is again useless to market OMG to consumers.

On the B2B (business-to-business) side however, things are different. There are two categories of this: small merchants where the business cycle is self-serve (like an ecommerce startup using Stripe to process payments), and large companies where implementation and use is much more hands-on (like signing a multi-year contract with Salesforce and implementing it all across the core processes of your organization). Large companies expect a white-glove level of service from dedicated account executives and a lengthy implementation process with (oftentimes) custom features. Making a deal with these companies is always far more profitable in terms of manpower, resources, time, and effort expended than casting a wide net with smaller companies via a low-cost, self-service model. Churn (people dropping out of the service) is less as well, creating an increase in average customer LTV (lifetime value, the total amount of money paid over the course of a customer buying or using your services or products). OMG is in the stage of life where they are honing their product — when doing this, listening to a few insightful and highly professional and competent voices that are well-representative of the target market is infinitely more valuable than the cacophony of hundreds of small (and often times more amateurish) companies. By accommodating these most “needy” of enterprise use-cases, they are creating a product that is flexible enough to fit all the various use-cases of the masses. As Omise already has extensive influence in Southeast Asia as a payments processor (here are just a few of their clients in Thailand alone as of 2 years ago) and through their business development team and personal connections (oftentimes via Jun), we believe OMG has all the early traction (conglomerates under NDA) it needs for both development/product/performance/implementation feedback as well as business clout needed to expand into a wider market after the network’s public launch. So there really is no need for marketing — even after launch, the vast majority of B2B deals get struck through networking and direct contact with decision makers, not through airport/internet/LinkedIn advertisements.

Declaring partnerships prematurely also is quite a lost opportunity — the momentum from what is usually a “we’re open for business” call is wasted and dies down for when it is actually needed. Imagine drawing people to a closed storefront with a “opening soon” sign, instead of when the shop is open. It’s good that OMG is not doing this, and it is unfortunate how common this amateurish practice is with many crypto and blockchain projects. Many ragtag crypto/blockchain projects try to use hype to establish clout and legitimacy just so other companies will even talk to them — Omise doesn’t need this because they’re the largest payment processor in SEA and don’t need to convince people to take them seriously (in both business and tech) in order to have a conversation. Most large companies will require their potential partners to sign an NDA before even starting the partnership, and breaching those agreements would be immediate grounds for cancelling the partnership. Given this, OMG’s conservative approach in this area is well-merited.

On OmiseGo’s business strategy, and token price

One interesting curveball to the typical B2B bizdev model is the fact that OMG is a public network — OMG is building a public network while still wanting to get paid for their work. How might this manifest? The company’s investment in B2B deals above is probably incentivized by 1) getting paid in cash for the professional service of onboarding enterprise-level companies onto the public network, 2) OmiseGo holds many OMG tokens and thus the more people on the public network, the more they get paid through staking fees. So what might OmiseGo be thinking with regard to OMG token price?

Fundamentally, the OMG token has value because of your future ability to stake it and reap rewards for your actions in maintaining the integrity of the network. Whatever the amount you get for staking will be considered by the market to determine the price, compared to other financial instruments that give you return on investment. The asset itself has no other value. Artificially-high token prices that have no sound economic basis for what their price is exist only to sell to dumb people in order to steal their money. If OmiseGo were as dirty and underhanded as other projects, they would do this in order to gain fiat funding to line their own pockets (for both funding as well as profit). Thankfully though, they’re not. They do not want to hype up and artificially-inflate token prices in order to continue maintaining their reputation in a space where this repulsive practice is so common.

So why did they do an ICO (initial coin offering) instead of get traditional startup funding? The obvious answer is so that the network can remain decentralized through widespread ownership of the token (as opposed to equity ownership of the company and network in the hands of a few venture capital investors like a traditional startup). Yes OmiseGo has a lot of tokens, in order to reap the rewards of their work; however, it can be speculated that the reason Omise is holding so many OMG tokens is to protect future decentralization. After the ICO, Omise secured additional funding through traditional means (i.e. Nomura), and they very well might pay out their VCs and investors with their OMG reserves (as opposed to traditional equity in a private company) to further spread out token ownership and ensure the network stays decentralized. This way, they get the funds needed to continue running their startup pre-launch, without selling tokens at a low price now. There was/is no other better way to go about funding a startup with enough capital (enough funding until you run out of salary money) to launch a highly-impactful, highly-complex public network while still keeping it decentralized: the alternative would have been that OmiseGo do all this development work, then ICO after the network is live in an attempt to become decentralized, hoping that there’d be enough different/diverse token buyers to keep the network decentralized. But, the value in the product itself is derived from its decentralization! It’s a chicken-and-egg problem. No one wants to invest in a worthless product, yet the decentralized nature of the product and the broad number of people who hold and stake the tokens (in the course of solving the needs the network was built for) is what makes it valuable! And in order to get initial funding pre-ICO they’d need traditional investment, but a board/VCs would be crazy to fund a business plan as risky as that — imagine all the times a group of ragtag blockchain developers have been laughed out of a room for seeking traditional investment for an unbuilt product on emerging, yet-unproved technology, in a space so pervasive with scams.

Sidebar: It is genuinely amazing to see Omise Holdings (Omise, OmiseGo, and Go.exchange) getting funding from Nomura (and others) post-ICO and pre-mainnet. It speaks incredible amounts to the legitimacy of Omise and the favorability of OMG. Getting funding is a massively arduous process where analysts and partners at venture capital firms and banks conduct insane amounts of research, due diligence, and risk analysis far better than any amateur OMG community member could: market trends, competitive landscape, potential financial returns for investing in a company, etc. Imagine if an ecommerce brand secured a new round of funding if they pitched that 2 of the 3 arms of their business are about drone delivery or some other emerging tech in a highly regulated space — there would have to be an incredibly compelling case for it. That’s the equivalent for this blockchain project; a “wild west” space where legitimacy is so rare that even proposing that a VC invest in it is laughed out of the room. Any project that gets VC funding (in this case, OmiseGo being funded through its parent company Omise), like Maker did with Andreessen Horowitz, should be taken very, very seriously.

On Go.exchange

Go.exchange announced it would shut down its consumer exchange. Many of us saw this coming a mile away, with the low volume and a barely-passable token value mechanic. Go.exchange continues to be its own company/project under Omise Holdings, supporting speculation that its original intent was never to be a consumer-facing tool, but rather on the back end be the DEX (decentralized exchange) upon which the OMG network facilitates currency-agnostic value exchange necessary to its core value proposition (what makes the product appealing and useful). It is indeed very questionable as to why they decided to make a consumer-facing exchange to begin with, in addition to a token-based model. This has been universally regarded by the community as a misstep and a loss of face for OMG as a whole, especially after the underwhelming communication around the reasoning behind the consumer-facing exchange’s close and lack of explanation for the entity’s path forward. Regardless, we do see the DEX as filling its (speculated) original purpose in the grand scheme of things in the overall OMG vision — for example, users seeing a new feature in an app may say: “Oh wow I can add Burger King loyalty points directly from my Kasikorn Bank app, and can also cash out those points back into cash in my bank”. They would have no idea it’s powered by the OMG network and its connection to Go.exchange’s API (application programming interface — it’s how software “talks” to other software).

On Plasma

FUD has also arisen from criticisms of OMG’s Plasma implementation, as new research in the ETH space has given rise to new, appealing Layer 2 scaling solutions (technical implementations that scale network performance for a “root” chain, in this case ETH). The other Layer 2 scaling solutions — optimistic rollups and sharding, most importantly — intend to scale the EVM (Ethereum Virtual Machine), the engine that powers Ethereum smart contracts, meaning one could run smart contracts on those Layer 2 frameworks. Plasma was meant to be a standard framework for Layer 2 scaling but Ethereum researchers have stopped pursuing this path and moved their focus to these other Layer 2 scaling solutions. This does not mean OMG’s tailor-made Plasma implementation is bad, limited, or inadequate for their needs; OMG has a very specific use-case (it does not use smart contracts) that does not require leveraging those solutions. For their use-cases of high-volume, rapid, currency-agnostic value exchange, Plasma is the perfect solution. Plasma as a framework for Ethereum developers may be dying and replaced by other solutions more inclined to benefit smart contract executions, but it certainly won’t bury the OMG network.

Sidebar: Even in the case where the network needs to be upgraded with the emergence of more suitable frameworks, it is entirely possible to upgrade a decentralized network. How? You fork it (duplicate the code then change it) and tell everyone to use the new network, and then relinquish control/ownership of the forked network so that it is now decentralized. Token balances are forked as well. As everyone upgrades to the new network, the old one continues to operate in parallel and continues to perform the same functions, but eventually stagnates into oblivion as everyone moves over. It’s like when software used to be sold on CDs — Microsoft would release a new version of Excel and everyone would move to it. Eventually as the years went by, old versions of Excel died out. This potential for upgrade as the blockchain space matures is why we see the company of OmiseGo sticking around for a long time, even if the OMG network it created outlives it in the open-source community (code that is publicly available to see and work on by passionate independent engineers). So then, what’s to prevent someone else from forking OMG? Nothing! That’s the beauty of blockchain projects: whoever uses the network determines what the “real thing” is. Yet, if a ragtag band of developers in a garage fork OMG and say “hey move to our network, we upgraded it and it’s better”, no one actually would because they do not have the clout and reputation of Omise and OmiseGo. This is where Omise’s reputation as a business is so important. They will always act conservatively when it comes to their enterprise reputation because they don’t want to risk damage to their market position by angering enterprises/conglomerates they have deals with — this is their primary focus, NOT pleasing token holders (more on that below).

On community communications

Speaking of investment, the community has been livid at “lack of (desirable) communication” from OMG. Truthfully the team provides updates on a very regular basis compared to traditional investments (e.g. quarterly documents from public companies as per regulations). Even their Github (the platform where they keep the code they’re developing) is publicly visible and open for anyone to keep track of, although only a very technical person would be able to make sense of the daily progress that happens there. But even in those updates from publicly-traded companies and other similar traditional investments, you don’t see mentions of secretive tech they’re working on or big deals in the pipeline, unless those companies find it strategically beneficial to disclose them — even in highly-regulated IPOs (initial public offering: the act of a company going public to raise funds on the stock market), there are no rules mandating them to do that. As such, the OMG community’s expectations around what constitutes an “update” in both content and cadence is incredibly misaligned with reality. Board meetings with VCs who invested millions of dollars happen once a quarter, and are not even intended to be status updates, but rather opportunities for company executives to leverage the insight and perspective of their board to paint long-term strategy. Compared to that, community OMG token holders do not provide insight or financial value to OmiseGo’s success aside from the few thousand dollars they put in. Logically, the only necessary amount of interaction with the community that OmiseGo needs to maintain is however much is adequate to maintain decentralization: if people in the community abandon OMG, decentralization is marginally weakened. Any additional level of “desirable” communication from OmiseGo beyond that is a fantastic gesture of good faith from the team — expecting that (or more) is unreasonable entitlement from inexperienced investors. Nonetheless, the community has raised some very good constructive criticism around this area, and which we find sensible and reasonable.

Wrap-up

There’s so much more to add but this is a good start. Conversations we’ve had with folks in the community have been absolutely riveting, mixed with emotional highs and lows (a lot more lows than highs during this winter) but overall, hope has stayed strong. OMGpool’s optimism has never waned and we still eagerly look forward to the “promised land”, and hope that when we all arrive you’ll consider using us as your staking pool. Check out our website and some of the tools we’ve built for the community (especially our wildly popular Staking Calculator and our guide to all things OMG!) and sign up for email updates. We have a lot more content to share with you now that cryptowinter is over! Look out for more soon™.