The Omni Liquidity Provider (OLP)
What is OLP?
The Omni Liquidity Provider (OLP) is a vertically integrated market maker that acts as the counterparty to all trades on Omni.
OLP can be broken down into three key components: the vault, the market making engine, and the risk management system.
The Vault
The vault is a smart contract where the capital that powers OLP (USDC) is secured. The vault is the source of OLP's margin, and is also where OLP's market making profits are accumulated.
The Market Making Engine
OLP runs a sophisticated market making strategy that is responsible for generating competitive price quotes and acting as the counterparty to every trade executed on Omni. OLP runs proprietary in-house algorithms that analyze real-time data (such as flow and volatility) from CEXs and on-chain sources to determine fair prices. The market making engine's primary objective is to maintain the tightest possible spreads across all markets.
OLP is based on the same market making engine that the Variational founders have been using and improving for over 7 years.
The Risk Management System
OLP uses proprietary in-house algorithmic strategies to manage and hedge its positions to mitigate directional risk exposure and optimize long-term yield.
OLP As The Sole Counterparty
For every trade on Omni, both OLP and the user are subject to margin requirements. This means both parties are required to maintain margin in a settlement pool, and may be subject to liquidation if their margin levels fall below requirements.
A key difference from Omni's design compared to other platforms is that OLP is the counterparty to all trades on Omni. This brings a variety of benefits to traders:
Zero Fees: Since all market making on Omni is done by OLP instead of external market makers, Omni doesn't need fees to generate revenue.
Loss Refunds: A portion of spread revenue is immediately redirected back to traders, including via Omni's loss refund mechanism.
Listing Variety: All OLP requires for a new listing is a reliable price feed, a quoting strategy, and a hedging mechanism — all of which can be built and maintained in-house. This manifests as ~500 tradable markets on Omni, with RWAs and other exotic markets able to be added in the future.
How Do OLP And The Variational Protocol Make Money?
OLP makes money through the following flow:
OLP constantly determines a fair spread for each asset.
Users open trades against OLP at the quoted prices.
OLP hedges out the directional exposure it accumulates from traders via external venues as needed.
The Variational protocol makes money by taking a percentage of Omni's spread revenue. To give a high-level example, the Variational protocol may earn 10% of all spreads paid on Omni.
OLP Compared To HLP & JLP
OLP shares many similarities with the vaults of other platforms, such as the Hyperliquid Liquidity Provider (HLP) and the Jupiter Liquidity Provider (JLP). However, there are some key differences worth highlighting.
HLP does run a sophisticated market making strategy, but is not the only counterparty to user trades on Hyperliquid. JLP is the only counterparty to user trades on Jupiter Perps, but it runs an AMM strategy rather than a complex proprietary strategy.
OLP is the first vault that simultaneously runs a sophisticated market making strategy and is the only counterparty to user trades.
How OLP Is Funded
Initially, the Variational team has provided seed capital for OLP. Once the system's stability is proven over time in mainnet and has a good track record of generating market-neutral yield, we intend to open it up to user deposits via a community vault.
Like any market making system, there is a risk that OLP loses money. Users should carefully understand the risks of OLP and the protections that the Variational protocol provides in terms of risk checks and locked collateral/liquidation rules.
Fund Segregation
OLP uses the settlement pool and P2P clearing design of the Variational Protocol, just like any user. Each user and OLP have a segregated settlement pool (User <> OLP). Each user's funds are held on-chain in this settlement pool, and used as collateral for the user's open positions.
OLP never transfers traders' funds to external venues such as CEXs or DEXs. OLP only transfers its own capital to external venues for hedging purposes. If an exchange were to suffer a hack or incident that loses funds, OLP depositors may face a loss of capital, but traders would still be able to withdraw their remaining funds on the Variational Protocol (as these funds were never moved). If OLP were insolvent, any unrealized or realized PnL accrued going forward would be considered "bad debt," and would not be able to be paid out to the user.
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