An Ocean of Liquidity: OpenOcean and the Quest to Become the CeDeFi Aggregator

A common problem that crypto traders face is fragmented liquidity and asymmetric market information, leading to trading inefficiencies. Aggregators aim to solve this by providing access to multiple sources of liquidity in a single place. Through algorithms, aggregators route orders across various exchanges to find the best price while taking into consideration slippage, fees, and gas costs. It’s not just the aggregation of liquidity for trading, but other financial services too, such as derivatives.

Besides trading, liquidity aggregators can be helpful for other financial services too. When you want to enter the futures market or lend your crypto assets for example, an aggregator can find the best position or rate across different platforms.Virtually all aggregators currently focus on decentralized markets. But imagine a single platform where users can access financial services from both DeFi and CeFi markets. That is the vision that OpenOcean is building.

What is OpenOcean?

OpenOcean aims to serve as a liquidity aggregator across both centralized and decentralized markets, as well as across blockchains. Currently, OpenOcean aggregates asset exchanges, but plans to expand to other services too, such as derivatives and asset management services. Its ultimate goal is to become the one-stop shop for access to the full spectrum of crypto liquidity.

OpenOcean was launched in September 2020. The protocol is currently deployed on 13 public networks, including Ethereum, Binance Smart Chain (BSC), xDai (also known as Gnosis Chain), Avalanche, Polygon, Solana and Ethereum Layer 2 solutions (Arbitrum and Loopring). OpenOcean is connected to one centralized exchange: Binance.

In March 2021, OpenOcean concluded a $2m strategic fundraise which was led by Binance, and included Multicoin Capital, LD Capital, CMS, Kenetic and Altonomy. The fundraise was completed with a private placement and advisory fundraise which included AU21, FBG, DAO Maker and TRON Foundation. Huobi Ventures Blockchain Fund also made a strategic investment in OpenOcean in July 2021.

How Does OpenOcean Work?

Optimizing for the best swap rate is the essence of aggregators. At the heart of OpenOcean is a routing algorithm that optimizes for multiple parameters, including a better price, lower gas consumption and lower slippage. OpenOcean’s aggregation protocol gets price quotes from all exchanges and then finds the trading route with the best price and low slippage.

To find the initial trading route, OpenOcean utilizes the D-star algorithm, which is an optimized version of the Dijkstra algorithm. It then optimizes the route using machine learning. In October 2021 OpenOcean V2 - aka OpenOcean Atlantic - was released. The new version provides an improved algorithm and other protocol upgrades.

The aggregator protocol is free to use and traders only pay the regular blockchain gas and exchange fees for trades. OpenOcean plans to charge fees (unless a user holds the OOE token) for other services when they become available. Examples include investment strategies run through OpenOcean’s custom-made UI, premium memberships and other future products.

OpenOcean’s UI

OpenOcean has two interfaces: “Go Swap” and “Go Advanced”. The “Go Swap” page is the basic version for swapping assets on decentralized exchanges only. To start trading, the user first needs to select the “Connect Wallet” button on the page. The platform offers several wallet integrations for the different chains, including MetaMask. Once connected, the trader can select a trading pair and amount. The price across the different exchanges are then shown and the user can execute the trade to get the optimal price.

Overall, the user interface is clean and simple, and includes similar features relative to other aggregators. While users can see how much they save on a trade compared to directly using exchanges, it would be helpful to see a comparison with other aggregators.

The interface includes a helpful visualization of the routing for each asset swap. For larger orders, the routing can become quite complex. The example below illustrates the advantage of using an aggregator vs. manually executing all individual trades.

To access centralized exchanges such as Binance, the “Go Advanced” version of OpenOcean is needed. In this version, the DEXes and CEXes are displayed next to each other. The spread between prices on CEXes and DEXes is also shown. In order to access centralized exchanges, a registration with OpenOcean is required. Besides market orders, the centralized exchanges also offer limit orders. This feature is not available yet for trades on decentralized exchanges.

Looking into the Future

As mentioned earlier, OpenOcean currently provides only an asset exchange service, but the roadmap highlights there is more in the pipeline. OpenOcean will continue with algorithm upgrades and expand to more networks. Limit orders are also planned to be introduced soon, and OpenOcean will start offering aggregate derivative products. Furthermore, a SaaS product will be launched that allows for automated arbitrage between centralized and decentralized exchanges.

Looking into 2022, OpenOcean plans to release futures aggregate trading and margin products. Cross-chain aggregation will become available, which allows for cross-chain swaps. Over time, OpenOcean will also integrate other financial products such as lending, insurance and other investment services. In 2023, it aims to launch an intelligent asset management platform for financial solutions, or in other words OpenOcean would be a one-stop shop for centralized and decentralized financial solutions.

The OOE Token

The OOE (OpenOcean Ecosystem) token will become an essential part of OpenOcean. The token serves two purposes: utility and governance. The token’s utility is expressed through several incentives that token holders get when participating in the OpenOcean ecosystem. This includes a means to pay for gas and trading fees, earn liquidity mining and trade rewards and get access to VIP membership and other services. For example, if users want to swap assets across separate chains, the OOE token would function as a means to pay gas fees.

The governance function implies that OOE token holders can put forward proposals and participate in voting. The voting power is proportional to the token holdings. OpenOcean has off-chain governance where proposals can be submitted and discussed in a designated channel on OpenOcean’s Discord. So far no votes have been held and details on how the governance structure will look like are still worked on.

The OOE token is a token minted on Ethereum with a maximum supply of one billion tokens. 78,989,286 tokens were distributed on 12 July 2021 and about 150 million are currently in circulation. The remaining supply will be distributed over the coming five years according to the following split:

• 5.6% is distributed over 2 years to strategic investors
• 7.5% over 2.5 to 3 years for private placement and a second strategic round
• 29% over 3 years for OpenOcean Lab to support protocol development, onboard ecosystem partners, community developers and bounty programs
• 33% over 5 years for liquidity mining
• 7% over 3 years to the ecosystem foundation that manages community incentives, marketing and campaigns
• 15.9% over 3 years for the team and advisors
• 2% to early users, which were distributed upon token issuance

The OOE token is listed on a few exchanges, including KuCoin and Gate.io. OOE has a circulating market cap of around $40m, which compares to a market cap of around $780m for 1inch, which is the current market leader of DEX aggregators.

Traction of OpenOcean

Since its launch, OpenOcean has seen about $3b in trading volume, just under 400k addresses and more than 1.4m transactions. The majority of OpenOcean’s volume comes from asset swaps on BSC (about $2.8b), as do the number of addresses and the number of trades. In recent months, Polygon and Avalanche have also started to attract larger volumes and number of transactions. In the case of Avalanche, November saw $70m in volume and over 8500 swaps, compared to $13m in volume and 2900 trades in October. OpenOcean also added support for Fantom in October and saw $50m in volume on that network during that month, and has continued steady growth with $107m in volume for November. With regards to centralized exchanges, OpenOcean has just over 11.5k registered users and has seen a total trading volume of $2.5m.

OpenOcean Competitor Analysis

There are already several aggregators, of which 1inch, Matcha and ParaSwap are amongst the most well-known. These aggregators are active on multiple chains, though not as many as OpenOcean.

A key differentiator for OpenOcean is that it offers access to both a centralized exchange and numerous decentralized exchanges. Moreover, OpenOcean seems generous when it comes to slippage. OpenOcean users receive 100% in case of positive slippage, and the protocol plans to subsidize trading related costs with OOE tokens.

Among the aggregators, 1inch is the clear market leader in volume, seeing almost $15b on Ethereum alone in October. While 1inch dominates the market with quite some distance, competitors such as Matcha and Paraswap are slowly catching up. In October, these two aggregators saw about $3.5b and $2b in volume, respectively. Other statistics such as the number of users and trades also underline that 1inch is the market leader by a wide margin.

Meanwhile, OpenOcean has very little traction on Ethereum. As a comparison, OpenOcean routed just over $1m in trades on Ethereum in October. March and May were the most active months for OpenOcean, seeing well above $10m in monthly volume. OpenOcean also has room for improvement when looking at the number of wallets and trades compared to 1inch, Matcha and ParaSwap.

It is fair to say that OpenOcean’s volume mainly comes from other chains, such as Binance Smart Chain and Polygon. However, 1inch is also the dominant DEX aggregator on these blockchains. 1inch has seen a total volume of over $12b and has more than 115k monthly users on Binance Smart Chain. This compares to about $2.8b in the case of OpenOcean. In the case of Polygon 1inch has seen over $7.4b in volume compared to $50m for OpenOcean.

One route to potentially improve usage is to show users how well OpenOcean’s routing algorithm works. For example, whenever OpenOcean quotes a price for a trade, it could show the comparison with other DEXes and DEX aggregators. Showing users that OpenOcean does indeed offer the best price should help improve traction.

A Race to the Bottom

Competition between exchanges and aggregators is very high. Users aren’t necessarily loyal and mainly care about getting the best price. Aggregators thus compete through developing the superior routing algorithm. As part of releasing its V2 in October 2021, OpenOcean conducted performance tests. Of the 4500 swaps done on Binance Smart Chain, OpenOcean offered a better price than 1inch and ParaSwap in 60% of the cases. For trades on Ethereum, OpenOcean delivered better returns”in more cases compared to other DEX aggregators”. However, the earth doesn’t stand still and aggregators will continue to upgrade their algorithms to beat the competition. It ultimately becomes a race to the bottom.

Another question is to what extent the OOE token is able to capture the value that OpenOcean creates. Aggregators play a crucial role in bridging fragmented liquidity, but with a race to the bottom, it is not clear how aggregators will make money in the long-run. As such, OpenOcean’s intention to provide additional (premium) financial services in the future makes sense.

While OpenOcean is still trailing the market leaders by some margin, it is tapping into a big opportunity by giving the user single access to both DeFi and CeFi markets. OpenOcean is still a young project in a very competitive space and it has an ambitious roadmap. Time will tell if it can fulfill its vision of becoming a one-stop shop for aggregate liquidity.

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This report was commissioned by OpenOcean. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

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