Niches, airdrops, and “A Pizza the Size of the Sun”— Conceptual Musings on the Orion Protocol, part II-
Before moving on to cover a number of other exciting projects in the crypto space, I’d like to follow up with part II of III on what to me is the most intriguing project in crypto at the moment, Orion Protocol, with a deeper dive into some of the incentivization mechanics behind broker participation network. Since the DPOB system is not live yet, the information therein should be considered purely speculative, and is based off the Orion Protocol whitepaper, public communications from the team, and inferences from other crypto projects. Part I of the series on Orion Protocol and it’s token, ORN, can be found here: “Orion Protocol and the Broker Black Hole”.
One valid criticism brought forward after part one of my discussion of Orion Protocol’s potential to create a “broker black hole” was that less sophisticated brokers would not be incentivized to buy and hold Orion tokens if they need to compete against HFT (High-Frequency Trading) brokers who are able to offer zero fee trading for their non-broker stakers (see Orion’s staking mechanism here). There are a multitude of reasons why this may be the case:
1- Technical Complexity- In order to offer zero fee trading, HFT brokers need to have access to sophisticated models that ensure they will earn money trading against retail order flow. This often includes AI modeling, sophisticated hardware, and an extremely high, often 24/7, level of human analysis and oversight.
2- Institutional Connections- These same firms typically have the ability to further offset risk from their HFT strategies by arranging OTC deals with large buyers at advantageous prices for both parties, which may require regulatory licensing, extensive social capital, and institutional level security.
3- Capital Requirements- Both points 1 and 2 require significant operating funds and a large asset inventory. The 10k USD worth of ORN tokens to become a broker won’t be anything that the firms would bat an eye at, and since brokers with MORE than 10k in ORN have selection odds corresponding with how much they are holding, such brokers could self-provide a potentially large amount of tokens to raise their selection odds from the get go.
So is it futile? Why should I become a broker?
To be fair, the barrier to entry to becoming a broker is not zero. It requires capital, the ability to maintain uptime for maximum potential to make trades, and direct, KYC certified access on the exchanges you wish to broker from (you must have more than one exchange). That being said, there are several prospective areas in the Orion Protocol ecosystem where I can see “average joe” brokers excel.
1- a “Rich Niche”- The previously discussed, “algorithmically weaponized”, institutional brokers typically deal in a small number of the most popular assets such as Bitcoin or Ethereum. This makes it easy to not only create trading models with many data points, but also keeps a fairly liquid inventory of coveted assets. Crypto is a large, blue ocean however, and as more exchanges and asset pairs are integrated into Orion’s terminal, so too will the number of “niche” assets that are available for purchase. By brokering on a specialized exchange full of small cap gems, obscure derivatives, or even NFTs, you’ll be playing a different game than the quant-driven juggernauts, and be likely to attract a higher number of order fills, and possibly more Non-Broker-Stakers.
2- Dropping dimes*- Though it’s as of yet unclear what exactly brokers will have knowledge of when it comes to their delegated non-broker stakers, one can assume, given similar models, that the addresses of delegated parties would be accessible. This opens up an entirely new method of attracting stakers (and therefore increasing success of filling trades) outside of simple fee reduction: airdrops. This method of bootstrapping a community of token holders into existence using already established ecosystems has proven to be extremely effective, and profitable. It’s not too much of a stretch, given the ease of token generation and the increasingly co-operative crypto community, in which airdrops to NBS become an alternative “launchpad-lite” method of incentivizing participation on the Orion Protocol.
3- The “pizza the size of the sun”
It’s not just a book of limericks, but a true story- the size of the proverbial pie of benefits that Orion Protocol brings to participants is simply astronomical. Because every single revenue stream in the Orion Protocol flows through it’s token, ORN, the value proposition of those holding ORN (yes, even brokers that aren’t selected) means that the more volume flows through the protocol, the MORE YOU WIN! Let’s create an example, shall we?
You are the “little guy”. You decide to broker for Orion protocol using two fairly niche exchanges, to attract equally niche buyers. You attract a small number of NBS stakers, and decide not to provide any rebates to your delegates (they are getting the best price, with no KYC needed, after all- see for yourself!). When you take out the “minimum” protocol fee that is distributed at large to the Orion community, this should be .16% fee for each trade executed.
This is enough to cover fees on most centralized exchanges (let’s hypothetically say the obscure exchange of Coinut, for example, with .1% makers and free takers) so you come out on top, likely even more so if you trade in substantial volume. Should you be bitter about the fact that Mr. Algorithm is doing 100x your volume and offering no fees as a competitive broker?
Emphatically, no! He’s making your pizza bigger. What happens to your 10k of ORN you are holding as collateral? Well, in addition to your direct brokered fees, you are entitled to your share of fees from across the protocol from other revenue sources, and the minimums given back to the protocol at large from other brokers. But factor in the following that provide organic, protocol-driven buy volume to benefit your 10k horde:
1- Licensing fees across the protocol: bought in ORN off open market, permanently removed from circulation= Upward buy pressure
2- Fees from his traders not paid in ORN: portion (undisclosed) used to buy ORN off open market, remove from circulation=Upward buy pressure.
3- Fees paid in ORN: While not burned, the fact that Mr. Algorithm is trading with such volume means that the protocol is receiving a larger sum, which will benefit all holders, broker and NBS alike.
Being a broker is a surefire way to make sure you hold the ORN required for a seat on the intergalactic, self-propelled rocket that is the Orion Protocol, all while benefiting from the orders you do fill along the way. As the protocol expands (and the cold, unfeeling logic of the protocol driven market buys push the price of ORN ever higher) the opportunities to play a key role in it’s expansion will only increase. You can currently apply to become a broker here.
- DISCLAIMER NOTE- I was not paid for this article by anyone from Orion Protocol or otherwise. This is not investment advice.
- *Whether brokers will have access to the public addresses of non-broker stakers is unknown at the time of writing. It is expected, based on other, similar DPOS solutions, that this information will be available.
