What is Omnichain Fungible Token? Omnichain Fungible Token is a product in Omnichain, the concept was born to solve all limitations of communication and interaction between Blockchains. From there, products such as Blockchain Omnichain, dApp Omnichain, Token Omnichain, NFT Omnichain were born.
In this article, I will introduce to you the Omnichain Token standard called Omnichain Fungible Token (OFT).
What is Omnichain Fungible Token?
OFT, fully written as Omnichain Fungible Token, is an Omnichain Token standard released by LayerZero. With this Omnichain Token standard, the Token will be compatible with all chains other than the original chain.
Because LayerZero is not a separate Blockchain, it is just a communication protocol, the dApp’s Token will be issued on a root chain and can use the Omnichain Fungible Token standard to bring it to all Chains.
New projects can issue Tokens under the Omnichain Fungible Token standard to send Tokens to Omnichain. Especially Stablecoins or Multichain governance tokens are using this standard a lot. Stablecoin projects like Lybra also integrate the OFT standard for Stablecoin peUSD or Liquid Staking projects like Swell bring swETH to Omnichain.
Old projects that have issued Tokens on an original Blockchain can still use this OFT standard to put Tokens on other chains. This case is very useful for governance tokens of Multichain development projects. With products on multiple Chains, in order to bring users on sub-Chains to participate in Voting, administration on the original chain is too complicated. So projects can use this Token standard to easily move Tokens between Chains or DAO accepts Tokens on many Chains, meaning Tokens on any chain can participate in Voting.
LayerZero’s OFT Token standard has 2 versions: version V1 and version V2. With version V1, Tokens are only moved and supported on EVM Chains and this version will have no usage fees. But there will be a Token transfer fee for version V2, this version allows Token movement on all Chains, including non-EVM.
Mechanism of Action
Tokens using the Omnichain Fungible Token (OFT) standard will be compatible with connected chains and can only be transferred between Chains. When moving, Tokens will be burned on the source chain and new mints on the destination chain. This is very convenient because there is no need for liquidity, the fees are very cheap and the original token of the project is used, significantly reducing the problem of liquidity fragmentation.
Advantage
- Multi-chain issuance: Omnichain tokens are compatible with multiple chains, helping Multichain development projects easily operate and be able to bring assets in the source chain to the destination chain for use.
- Moving between chains without connection: Tokens will be moved across chains quickly and simply without liquidity or price slippage.
- Original assets: Assets issued on chains are original assets so there is no liquidity fragmentation.
- Cheap fees: Thanks to using the mint-burn mechanism and LayerZero’s infrastructure, Token transfers only cost very cheap network fees.
Defect
- Security: Security is the biggest risk because this Token standard uses a bridge. If the bridge is hacked and a lot of these Tokens are minted, the Token will no longer be valid and the project will collapse.
- Liquidity fragmentation: Although not using wrappers, it will reduce liquidity fragmentation. But when sending a Token to multiple chains, the original amount of Tokens is divided across the chains.
Summary
The Omnichain Fungible Token (OFT) standard is the most used Omnichain Token standard at the present time. This Token standard helps increase the applicability of multi-chain dApps and opens up the development of many new products for the market.
So, I have clarified about Omnichain Fungible Token (OFT). Hope the article brings a lot of useful information!
