Summary

The Osmosis automated market maker (AMM) affords users the ability to create new and unique liquidity pools that are controlled and voted on by participants. The Osmosis token (OSMO) is used to vote, stake, and provide liquidity throughout its pools. Superfluid staking, a process novel to the Osmosis protocol, allows users to stake assets to secure the network while simultaneously providing assets in a liquidity pool.

The Osmosis AMM

Osmosis is a DEX protocol, which means it uses smart contracts to determine the price of digital assets, to produce liquidity via a peer-to-peer (P2P) methodology, and to exact trades between users. This approach to an exchange platform is known as an AMM — a DEX protocol that prices crypto assets in liquidity pools. Contributing tokens to these pools helps foster decentralized liquidity, which is then used to facilitate trades on the exchange. Participating as a liquidity provider (LP) can earn you both trading fees and newly minted LP tokens as incentives for participation.

The Osmosis AMM is unique in that it affords users the ability to create their own liquidity pools, or to duplicate existing ones with their own unique parameters. Because Osmosis is built on the Cosmos ecosystem, users are able to natively trade assets from more than 47 different chains within Cosmos.

While most AMMs today are fairly efficient at providing liquidity in a decentralized manner, they still operate as service-based products: the platform creates pools that are free to join. In the dynamic landscape of decentralized finance (DeFi), this can arguably compromise the efficiency of the liquidity pools available for use. To help solve these issues, the Osmosis AMM was conceived as a “serviced infrastructure” that provides users the ability to tweak the values of tokens and the supply, therefore lowering the barrier to creating custom-built AMMs.

Two primary concepts that drive the Osmosis protocol are sovereignty and heterogeneity. To that end, Osmosis makes use of self-governing liquidity pools. These liquidity pools that exist in Osmosis are not hard-coded and users can use the native Osmosis token (OSMO) to vote on pool parameters and protocols, provide liquidity, and stake. Essentially, it allows holders of the token to decide the make-up of specific liquidity pools, in addition to playing a central role in wider Osmosis protocol governance.

analysis

Description

Osmosis is an advanced AMM protocol built with the Cosmos SDK that will allow developers to design, build, and implement their own custom AMMs.

• Osmosis is a Cosmos-based blockchain that disrupts market making by cutting out the middleman.

• As the leading decentralized exchange on the Cosmos Internet of Blockchains, Osmosis has a head start over competitors.

• Osmosis is backed by a talented software developer team, and it has secured venture funding and support services from highly regarded investment funds.

• Osmosis continues to innovate, with plans to introduce front-running protection through an encrypted transaction queue later this year.

  
  
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It achieves this by offering deep customization to AMM designers and a governance mechanism whereby stakeholders in each AMM pool (i.e., liquidity providers) can govern and steer their pools

Description

Governance is a critical component of how Osmosis evolves as an AMM protocol. Because the speed at which Osmosis will add new features and subsequently software updates is expected to be much faster than Cosmos Hub, active stakeholders and liquidity providers must be actively involved in the discussion and voting process and pass protocol updates.

Groups eligible for liquidity rewards will be selected by the governance of the Osmo token holder, allowing stakeholders to formulate an incentive strategy that better aligns with the long-term interests of the protocol.

The OSMO token will be launched in an entirely fair manner. It will only be distributed to network participants who contribute resources to the success of the Osmosis network, such as liquidity providers, developers, stakers, and more. There will be no sale of previously mined OSMO tokens

Description

While OSMO will initially function as a government token and a share token, Osmosis intends to transition to a Cosmos Hub shared security zone as soon as the feature is ready. A signage proposal to finalize this will be put to the vote once Osmosis has been launched.

Osmosis has ==135 validators, as of this writing. Out of 135, the top 10 validators control about 42% of== OSMO delegated, based on data from the Keplr wallet web app. Thus, the network validator set is not as decentralized, based on voting power, as it could be given the availability of 135 validators. Greater decentralization would ensure that the network is more secure against attacks by a cartel of malicious validators

The native asset of Osmosis is the $OSMO token, a governance token that provides a decentralized coordination method for token holders to decide the strategic direction and all future changes to the Osmosis protocol.

Within the protocol the native asset will be used for voting, allocating liquidity mining rewards for the different liquidity pools, setting the base network swap fee and governance. Because of the expectation that the rate at which Osmosis changes and adds new features, software upgrades etc., is expected to be way faster than the Cosmos Hub, active stakeholders and liquidity providers must be actively engaged in the process of discussing, voting, and passing protocol upgrades. Osmosis will have an initially released supply of 100 million OSMO at genesis, split evenly between the Fairdrop recipients and a strategic reserve. Unlike most Cosmos SDK chains where tokens are distributed on a per-block basis, Osmosis has daily epochs and releases new tickets only at the end of each epoch.

Tokens that are newly released will be distributed to a combination of staking rewards, liquidity mining incentives, developer vesting, and a community pool:

• Staking Rewards: 25%
• Developer Vesting: 25%
• Liquidity Mining Incentives: 45%
• Community Pool: 5%

Description

For instance, popular AMMs like Uniswap V3 allow users to create liquidity pools with different fee sizes, specifically between 0.3% and 1%. This creates a bit of a quality of life improvement for casual users in that they are not required to spend time tinkering with the underlying tokenomics and implications of a given set of LP fees. It also provides some flexibility and is useful in cases that involve more exotic token pairs. For more sophisticated users, however, additional parameterization might be useful to better react to changing market conditions. This approach also shifts the focus of fee structures away from how common or how rare a given token pair is to be more comprehensive by including other factors such as slippage and market volatility. Ultimately, there is no single solution that fits all AMM design goals, and an additional layer of customization helps developers fine-tune optimal strategies around fees and liquidity provision, and takes into account other factors that may directly impact success of the AMM.

Conclusion

Traditional market making is a lucrative business for banks, brokerages, and proprietary trading desks. Until blockchain, it was infeasible for individuals to participate in market making. A decentralized exchange like Osmosis cuts out the middleman and gives the value of crypto market making to users and investors. Osmosis is not only the leading decentralized exchange, but also the leading application-specific chain on Cosmos by interchain transaction value.

Analyzer

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Methodology

> I have used

>
> osmosis.core.fact_transfers > > osmosis.core.dim_prices > > osmosis.core.fact_daily_balances > > osmosis.core.dim_labels > > osmosis.core.dim_labels.ADDRESS

> to get the charts, tables and data above. > > and I got an idea from the codes of this dashboard > >