Osmosis (OSMO) is a decentralized exchange (DEX) for Cosmos, an ecosystem of sovereign, interoperable blockchains all connected trustlessly over IBC, the Inter-Blockchain Communication Protocol. Osmosis also offers non-IBC assets bridged from the Ethereum and Polkadot ecosystems. Originally based on Balancer-style pools, Osmosis is moving to a more sustainable concentrated liquidity model that provides a superior trading and liquidity provision experience.
As an appchain DEX, Osmosis has greater control over the full blockchain stack than DEXs that must follow the code of a parent chain. This fine-grained control has enabled, for example, the development of Superfluid Staking, an improvement to Proof-of-Stake security. Superfluid staking allows the underlying OSMO in an LP position to add to chain security and earn staking rewards for doing so. The customizability of appchains also allows for the development of a transaction mempool shielded with threshold encryption, which will greatly reduce harmful MEV on Osmosis.
Osmosis’s vision is to build a cross-chain native DEX and trading suite that connects all chains over IBC, including Ethereum and Bitcoin. To build out the trading functionalities, Osmosis has invited external developers to create a bespoke DEX ecosystem that includes lending, credit, margin, fiat on-ramps, Defi strategy vaults, NFTs, stablecoins, and more – all the functionalities of a centralized exchange and more, plus the trust-minimization of decentralized finance.
Who Are The Founders Of Osmosis?
Osmosis was launched by the members of two core Cosmos teams: Sunny Aggarwal and Dev Ojha from Sikka validator and Tendermint, and Josh Lee and Tony Yun from Keplr, the Interchain Wallet.
One of the investors in Osmosis is Paradigm, a digital asset investment firm with stakes in countless other blockchains and protocols like Uniswap, Maker, and Coinbase to name a few.
What Makes Osmosis Unique?
The Osmosis blockchain protocol has three key strengths that set it apart from other AMM money market protocols.
First, Osmosis has customizable liquidity pools. Unlike Uniswap, where LPs can provide liquidity only to a two-token pool with an equal ratio, Osmosis allows for providing liquidity to pools with several tokens and unequal ratios. Osmosis argues that agents in a maturing DeFi market like arbitrageurs and LPs need a more flexible solution that allows them to self-identify opportunities and react to them by adjusting parameters. Thus, on Osmosis LPs can adjust factors slippage, transaction fees, and more.
Coordination between stakeholders is of equal importance, which is why liquidity pool shares on Osmosis are not only used to calculate the fractional ownership of a liquidity pool, but also the right to participate in the strategic decision-making of the liquidity pool as well. This incentivizes long-term liquidity provision and prevents possible vampire attacks from other protocols. Thus, liquidity providers with more skin in the game get a bigger say in the strategic direction of the pool, which is in line with the bigger risk they’re taking.
Finally, Osmosis introduces the idea of “AMMs as serviced infrastructure.” With an increase in the amount and complexity of DeFi products, AMMs have had to:
- Compromise efficiency and trade on AMMs with non-optimal bonding curves.
- Take on the risk of building a custom AMM to maximize efficiency.
Osmosis wants to remedy that by providing AMM creators with an option to define the bonding curve value function and reuse the rest of the infrastructure using Osmosis’ products.
How Many Osmosis (OSMO) Coins Are There in Circulation?
OSMO is the protocol’s governance token with a total supply of 1 billion. At genesis, 100 million OSMO was released, split evenly between airdrop recipients and a strategic reserve. Tokens are being released at the end of each daily epoch and follow a “thirdening” schedule, meaning token issuance is cut by a third each year. In the first year, 300 million OSMO will be released, in the second 200 million OSMO, in the third 133 million OSMO, and so on. Newly released tokens are distributed as follows:
- Staking Rewards: 25%
- Developer Vesting: 25%
- Liquidity Mining Incentives: 45%
- Community Pool: 5%
The total token distribution is as follows:
- Liquidity Reward Mining: 40.5%
- Developer Vesting: 22.5%
- Staking Reward: 22.5%
- Community Pool: 4.5%
- Strategic Reserve: 5%
- Airdrop: 5%