What is an Omnichain Fungible Token (OFT)? Benefits of OFT

Omnichain Fungible Token (OFT) is a multi-chain standard for alternative tokens developed by Layer Zero. OFT is designed to be a standard that is compatible with all types of fungible tokens across different blockchains.

Follow the AZCoin article to explore the details of OFT and its benefits in the current blockchain ecosystem.

What is an Omnichain Fungible Token (OFT)?

Omnichain Fungible Token (OFT) is a new multi-chain standard for fungible tokens, developed by Layer Zero. The main goal of OFT is to improve interoperability between different blockchains without the need for packaging solutions or intermediate chains.

With Omnichain Fungible Token, fungible tokens move across network chains securely and seamlessly, keeping their original form and balances synchronized across different networks.

How Omnichain Fungible Token works

To understand how OFT works, you first need to know about the existing bridge solutions. Bridge solutions are generally divided into two main types:

• Lock & Mint: This solution locks assets on the source chain and mints assets on the destination chain.
• Burn & Mint: Bridge solutions of this type burn assets on the source chain and create equivalent assets on the destination chain.

Omnichain Fungible Token works on a Burn & Mint mechanism. This means that when you send an OFT token from one chain to another, the token on the source chain is burned and an equivalent token is minted on the destination chain. This doesn’t require the presence of liquidity pools, making token transfers easier and more efficient. To better understand the new trends in this field and Ethereum Staking solutions, you can learn more about Ethereum Staking.

What problem does Omnichain Fungible Token solve?

As the Multichain trend grows, decentralized applications are increasingly relying on bridge solutions to issue wrapped tokens. However, using these solutions can lead to liquidity fragmentation and inconsistency between tokens.

For example: In the USDC ecosystem, there are different types of USDC, such as:

• Force Bridge USDC: Wrapped USDC issued by Force Bridge.
• USDC.e: Wrapped USDC from Avalanche Bridge.
• USDC.E: Wrapped USDC issued by Plenty Bridge.
• USDCPO: Wrapped USDC issued by Wormhole.

These wrapped tokens often don’t include the full features of the original token. When using the Bungee solution to transfer UNI tokens from Ethereum to BNB Smart Chain, users will receive the version of UNI tokens on the BSC network, but can’t use it to vote on governance decisions like the version of UNI tokens on Ethereum.

Benefits of OFT

OFT offers several significant benefits:

• Easy asset movement: With OFT, assets can move between chains without requiring liquidity between the two chains. This means that users don’t have to pay fees to liquidity pools, reducing overall costs.
• Risk mitigation: Omnichain Fungible Token uses a Burn & Mint mechanism, which don’t require the participation of a third party to store assets between network chains. This helps to limit risks in the context of many bridges being attacked, causing huge losses such as the Ronin Bridge ($622 million) and Wormhole ($325 million).
• Uniformity: OFT brings uniformity to alternative tokens. This means that whether on Ethereum or Avalanche, OFT-standard tokens have the same functionality, similar to how platforms like StakeStone help streamline staking processes across various networks.

Top 5 projects that have applied OFT standards

Below are 5 prominent projects that have adopted the Omnichain Fungible Token standard:

Uniswap

Uniswap is a one of the leading decentralized exchanges on Ethereum, has adopted the OFT standard for its UNI token. This allows UNI to be traded and used on multiple blockchains such as Arbitrum and Optimism.

The integration of OFT reduces transaction fees by about 20-30% compared to trading on Ethereum alone and improves transaction speeds by up to 25%. This expansion not only enhances the usability of UNI but also provides a smoother user experience.

PancakeSwap (CAKE)

PancakeSwap, a prominent decentralized exchange on Binance Smart Chain, has integrated the OFT standard for the CAKE token. This adoption allows CAKE to seamlessly trade on other networks such as Ethereum and Polygon. 

Thanks to OFT, CAKE transaction fees are reduced by about 15% compared to trading on BSC alone, and transaction speeds are improved by another 10%. This expands CAKE’s usability and enhances liquidity across multiple platforms.

Curve Finance (CRV)

Curve Finance, launched in 2020, specializes in providing stablecoin trading services on Ethereum. Curve Finance has applied the OFT standard to the CRV token, enabling trading on networks such as Avalanche and Fantom. With over 1 million users and a daily trading volume of around $400 million, the adoption of OFT reduces transaction fees by 10-20% and improves transaction speed by 12%, increasing liquidity and attracting users from multiple chains.

SushiSwap (SUSHI)

SushiSwap, a competitor of Uniswap, has implemented the OFT standard for the SUSHI token, allowing the token to be traded on other blockchains such as Binance Smart Chain and Polygon. 

Thanks to the OFT standard, SUSHI transaction fees are reduced by 15-25% compared to trading on Ethereum alone, and transaction processing speed is improved by 20%. This integration expands the interoperability of SUSHI, benefiting SushiSwap’s users and ecosystem.

Balancer

Balancer, founded in 2020, is an AMM platform on Ethereum. Balancer has adopted the Omnichain Fungible Token standard for the BAL token, enabling trading and use on networks such as Arbitrum and Optimism. Balancer currently has around 500,000 users and a daily trading volume of around $150 million. Adopting OFT reduces BAL transaction fees by around 10-20% and increases transaction speed by 15%, improving liquidity and user experience across multiple platforms. To learn more about top projects and best crypto exchanges, check out AZcoin – best crypto exchange 2024.

Conclusion

Above is a detailed look at Omnichain Fungible Token (OFT) and the benefits it brings to the blockchain ecosystem. With the ability to move tokens securely and efficiently between chains without the need for a packaging solution, OFT is opening up new opportunities for DeFi applications and users.