The Ones in the Arena: Overlay

Published in

Code4rena

3 min readNov 11, 2021

Illustration: three identical winged horses with wolves’ heads rear up on their hind legs, wings outstretched. Their manes have laurel wreaths overlaid on them, and each horse is a different colour: the one in the foreground is a greenish colour, like a classical European statue, the second one behind it is greyscale, and the third is a faded sepia. They are all isolated on a flat yellow background. — Illustration: Jaime Robles for Code4rena

“As long as the data sources are non-manipulable and non-predictable, any data source can serve as a marketplace.” — Michael (Co-Founder) and James (Lead Dev), Overlay

One of the upsides of being part of Code4rena is that we get early insight into novel applications of DeFi, when relatively young projects come to us for audit contests. Overlay is one such protocol: a cryptocurrency that lets you long or short DeFi data streams.

It’s a fascinating concept, and one that is sure to intrigue C4 wardens, as they prepare to comb through Overlay’s code on the hunt for vulnerabilities.

As we gear up for Overlay’s entrance into the arena, we asked Michael (Co-Founder) and James (Lead Dev) for their thoughts on where Overlay is heading, how DeFi projects should be thinking about security — and to name their favorite physicist (as one does).

What are you building, and what sets it apart from similar offerings in the space?

Overlay is a protocol for trading nearly any data stream, long or short, with leverage, using price oracles and a native token (OVL). Potential data streams Overlay can make markets out of can be as simple as Uni V3 TWAPs to as out of the ordinary as sunspot numbers, as long as data from the feed is manipulation-resistant and driven by a random process.

We don’t have liquidity providers in the traditional sense to support trading on the protocol. Users take positions by staking OVL as collateral on different markets offered by the protocol. If the trade is profitable when the trader looks to unwind, the protocol mints more OVL to the circulating supply to compensate the trader for their gains.

Conversely, if the trade is at a loss, the protocol burns OVL from the position’s staked collateral, removing the tokens from the circulating supply. As long as OVL token holders can reach consensus in onboarding new markets, the possibilities are limitless.

What’s your vision for your project? What are you building towards in the longer view?

Overlay’s vision is to be a nearly limitless marketplace. The protocol is building towards a future of decentralized and open finance, one where community members, who have skin in the game, choose the markets that they wish to participate in.

These markets could be data sources that community members have been excluded from, or the markets could simply not exist in the current financial system. As long as the data sources are non-manipulable and non-predictable, any data source can serve as a marketplace.

“We believe getting the most eyes on our code is the best path forward despite the risk considerations that come with it.”

What’s the most innovative idea in your protocol?

The mint/burn mechanism for user payouts, one token model, and comprehensive risk framework to control inflation.

Security has become an increasingly vital topic in DeFi. How do you think the ecosystem needs to evolve in order to rise to the challenge?

We believe getting the most eyes on our code is the best path forward despite the risk considerations that come with it. Code Arena has come recommended by wardens, notable DeFi protocols, and investors alike. Although we do not intend to use it as a substitute for an official audit, it only adds to our current security review process.

What gets you most excited about DeFi?

Composable money legos, freedom of expression, and open access to financial opportunities.

Complete the following sentence: “I wish more DeFi projects would…”

Open source their Github repos.

What DeFi project name do you wish you’d thought of first?

Manifold.

What do you geek out about, beyond DeFi?

Physics, art, and math.

Nice! Care to share your favorite artist, mathematician, or physicist?

Physics: Feynman. Math: Mandelbrot. :)

Learn more about Overlay:

Overlay’s $50K security audit contest opens November 16, 2021, and runs for 7 days. Details at code4rena.com.

The Ones in the Arena spotlights emerging and established DeFi projects and their founders, with an eye to celebrating and learning from them. The series’ name is inspired in part by Teddy Roosevelt’s famous quote, which has a central place in Code4rena’s philosophy.