Question:

How do incentivized wAssets on Osmosis impact token transfer volumes for Axelar?

Background: Most "wrapped" assets (WETH, WMATIC, WBNB, WAVAX, etc.) arrive on Osmosis via the Axelar bridge. Osmosis governance decides how to incentivize liquidity pools containing these assets. In the past two months we have seen incentives pass for wMATIC, wBNB, and wAVAX.

Task: Examine the impact of “bootstrapping” proposals on Axelar bridge volumes and fees paid. Did they sufficiently incentivize users to transfer external assets into Osmosis via Axelar’s bridge, or were the assets deposited into the respective pools already on Osmosis. Analyze the results in aggregate and by asset.

Goal: Identify if Axelar should work with Osmosis to incentivize more wrapped assets, in order to increase volume over Satellite and Squid.

Overview of essay:

In this analysis, we are going to study the impacts of proposals related to the wrapped assets on Osmosis over the transfer volume on Axelar. For this purpose various sectors have been analyzed to assess the activity of Axelar.

This analysis divided into the following parts:

• Proposal about wrapped assets and impacts on Axelar bridge into the Osmosis network
• Detailed analysis on proposals and their impacts
• What should Axelar do about working with Osmosis to incentivize more wrapped assets?

About Axelar and bridge:

Axelar network is a scalable cross-chain communication platform. Blockchain platform builders can use it to seamlessly plug-in their blockchains to all other blockchain ecosystems. Application developers can choose the best blockchain to host their applications and use Axelar’s cross-chain communication protocols to lock, unlock, and transfer assets, as well as communicate with applications on any other chain. By connecting dapps with multiple blockchain ecosystems, the Axelar platform empowers users to interact with all applications across the ecosystem directly from their wallets.

The Axelar network serves as the infrastructure for inter-chain exchanges. Axelar acts as both a bridge and a platform for cross-chain communication between smart contract protocols. Axelar bridging makes it possible to send tokens across different blockchains, while Axelar second feature allows decentralized applications to run on different networks.

Osmosis chain:

Osmosis is an advanced Automated Marketer Protocol (AMM) that allows developers to build custom AMMs with robust liquidity pools. Osmosis is built using the Cosmos SDK and uses the Inter-Blockchain Communication (IBC) feature to enable cross-chain transactions. The Cosmos ecosystem follows the "Blockchain as Decentralized Program" architecture; This means that Osmosis is a blockchain connected to cosmos Hub, which is also a decentralized exchange.

Osmosis, with the help of IBC, connects to the entire ecosystem of Cosmos chains and their more than 10 billion dollars of native assets. After supporting active blockchains on the Cosmos hub, the project aims to connect to other chains such as Ethereum and Bitcoin.

Being able to change the parameters of a liquidity pool is important and useful, but this feature would be pointless without a way to coordinate a decision between depositors. The independent governance feature of Osmosis pools leads to the creation and evolution of a diverse range of liquidity pools with different risks and strategies.

Methodology:

The data provided by Flipside has been used to handle this analysis.

• Impacts of proposals on Axelar transfer

  • Details of the approach have been explained in the first paragraph of Part 1.

  • Proposals:

    • WBNB→ #360
    • WMATIC→ #386
    • WAVAX→ #410

  • Metrics→ Count of transfers and unique senders, Total and average volume of transfer (in USD). Paid fee onto Axelar due to the token transfer

• Details of each proposal and related pool on Osmosis (Wrapped assets proposals)

  • Voting distribution and final status of related proposals

  • Actions→ Staking, Transfer, Swapping, Providing LP and voting

  • Providing LP→ Find out the responsible pool, Count of LP and users on these pools, Volume of provided LP on these pools

• What should Axelar do about working with Osmosis to incentivize more wrapped assets?

Part 1: Proposal about wrapped assets and impacts on Axelar bridge into the Osmosis network

According to the results of the previous sections as well as the Axelar network performance review, the following decisions can be made:

• You can see wrapped Token as a stablecoin that derives its value from another asset. To create a wrapped Token, a user typically locks the underlying cryptocurrency into a smart contract, and then a token is created with the equivalent value of that underlying cryptocurrency. To get back the digital currency you locked up as collateral, simply submit a wrapped Token Burn request. Additionally, wrapped Tokens increase liquidity and capital efficiency for both centralized and decentralized exchanges. Because this feature allows you to use unused assets on other chains and increase market integration. wrapped Token increases interoperability between cryptocurrencies and the DeFi ecosystem. These cryptocurrencies open the doors of investment and increasing capital productivity in an effective way.
• According to the description provided, rapid assets have a lot of value in networks. There is a definite relationship between the proposals related to rapid assets as well as the volume sent through Excel, and the relationship between the two is undeniable.
• In order to attract more users, increase the transfer volume and earn more money because of that, it is necessary for Axelar to operate in parallel with the Osmosis network and also provide the necessary support to enhance the support of wrapped assets in the Osmosis network and provide incentives directly to liquidity pools on Osmosis.

Part 3: What should Axelar do about working with Osmosis to incentivize more wrapped assets?

Part 2-3: Proposal #410 about WVAX

Key Findings:

This detailed analysis related to the proposals of wrapped assets and related liquidity pool have been represent in this part:

• All of the proposals (#360, #386 and #410) have been passed by majority of votes (more than 96% of captured votes).
• These proposals would add OSMO incentives directly to the related liquidity pool consisting of 0.5% of liquidity incentives.
• The volume of token transfer on Axelar around proposals (during and after active time period) related to wrapped assets could not be ignored.
• These proposals directly have been affected the average transfer volume of Axelar as can be seen from the scatter plots related to this metric.
• The most popular action after bridging assets into the Osmosis network by Axelar are Swapping and providing liquidity.
• Its important to determine the flow onto the related liquidity pools to wrapped assets around proposals.
• Based on the results, the deposit volume into these pools has been enhanced during and after the activation of the relevant proposal.

Part 2-2: Proposal #386 about WMATIC

Part 2: Detailed analysis on proposals and their impacts

Part 2-1: Proposal #360 about WBNB

Key Findings:

According to the definition provided in the first part and the consequences of this part:

• According to the outcomes, the count of token transfers on Axelar has been spiked around proposals related to the wrapped assets and the highest count of transfer occurred on the time period around WMATIC proposal and December 20, 2022.
• The count of unique senders on Axelar has been followed the pattern of transfer count. More than 400 unique senders sent assets around WMATIC proposal period and on December 20, 2022.
• The USD volume token transfer on Axelar has been coincided with the time period around the proposal related to the WBNB.
• Also, the highest volume of transfer occurred on November 9 with more than 330k USD.
• The paid transfer fee in USD spiked on time period around proposal of WMATIC.
• The highest value of average transfer volume on Axelar happened on November 15 with more than 1200 USD. This date has been coincided with proposal related to WBNB.

Useful links:

• Osmosis network
• Axelar network
• wrapped assets

Author:

Credited by MZG

Discord handle: m.zamani#0361

Twitter handle: @GargariZamani

This part is used to investigate the impacts of proposals related to the wrapped assets onto the transfer volume of Axelar.

For this purpose, the proposals related to the wrapped assets have been listed in the below table:

This table contains the topic of each proposal as well as start and end time of these proposals.

According to these time periods, the time frame around the date of these proposals have been considered as “Around proposal” period.

For example, the time period around proposal 386 includes one week before the proposal and one week after it.