Overlay

Overlay is a protocol for long/short trading of DeFi data streams.

It offers users the ability to trade nearly any scalar, non-manipulable and unpredictable data stream. It recreates the dynamics of trading, but without the need for counterparties. It therefore completely solves the liquidity problems that occur in prediction markets (i.e. markets are so niche there is nobody trading), replacing them with an inflation problem.

The Overlay mechanism is simple: traders enter positions by locking up OVL tokens in long or short positions on various data streams offered by the protocol. Data streams are obtained via reliable oracles. When a trader exits that same position, the protocol dynamically mints/burns OVL based off of their net profit/loss for the trade. The contract then credits/removes OVL tokens from the trader's balance and adds/subtracts from the total existing supply of OVL.

Protocol revenues come from trading fees charged in OVL on each trade. Fees are sent to a community-governed treasury, with incentives for secondary market liquidity providers. This secondary market incentive creates a feedback loop to offer a reliable price feed for OVLETH on the Overlay trading platform, that traders can then use to hedge out OVL risk.