Summary
Osmosis is currently one of the most active hubs in the Cosmos ecosystem, mainly focusing on building up an AMM autonomous app-specific chain. Unlike other AMM applications built on other ecosystems, Osmosis not only includes the core product of the cross-chain AMM DEX, but it is also an underlying blockchain infrastructure called Osmosis Chain, which is based on Cosmos SDK and independently deployed on by IBC Protocol. Through IBC Protocol, Osmosis can achieve cross-chain transactions, transfer and other features on Cosmos. Meanwhile, upcoming features which include Interchain Account, Cosmwasm, cross-chain bridge will allow more innovations /Defi Legos to be implemented on Osmosis. enabling Osmosis to grow from a single app application-specific chain to a unique Layer-1 ecosystem in Web 3.0. Besides that, comparing with other AMM, Osmosis can provide more unique and customizable features based on its unique design and architecture, for example, MEV protection problem, liquidity provider governance structure, Superfluid staking feature, the smoothest UX experience in Defi as well as integrated with different applications, products, features(such as vaults, lending protocols, derivatives and fiat on-ramp etc). According to the latest data by Map of Zone, Osmosis holds 80% of IBC transaction volumes, continuously ranked as the No.1,followed by Cosmos Hub and Crypto.org ;Also, total volume locked (TVL)has peaked at $1.7 billion since April 2022, and it currently maintains at $350million level, which is caused by the collapse of Terra ecosystem.
The Most Frontier Product Design in Web 3.0
The core AMM product of Osmosis is its DEX. Osmosis DEX is differentiated from other AMMs such as Uniswap. The Uniswap V3 concentrated liquidity allows users to choose a price range and swap fees with three options: 0.05%, 0.3% and 1.00% (Flat rate of 0.3% on V2). In terms of the DEX, we need some indexes, such as utilization rate (Trading Volume/TVL), to evaluate the performance of liquidity pools on top of it and even the overall performance of the DEX. It makes no sense to judge solely based on the - TVL or Transaction Fee. One is insufficient with one another. (This is quite different from Liquidity Staking Protocol, whose only reasonable evaluation matrix is TVL) So it’s not strange to see the utilization rate of the ETH-USDC 0.05% pool is nearly five times than that of the pool with 0.3% commision -, even though its TVL is only 1/3 of the latter. The main reason is that the the slippaged has been reduced dramatically for the trader for the first pool. Uniswap V3's dashboard is more complicated than the V2 from the user point of view while the Osmosis AMM is easier for users to understand and use, which provides the optimized/the most flexible trading features.
The transaction fee is affected by many factors, including the protocol’s block time, slippage, gas fee, market volatility, etc. Different blockchain designs, multiple pools' tokens, macro trading markets, and other factors will influence the optimized trading strategy. Thus, Osmosis enables users to customize the parameters of a pool, such as the percentage of tokens-amounts, the numbers, proportion of transaction fees, etc., allowing users to discover and dynamically adjust the strategies for the best combination of liquidity and rates according to the market.
API Product Allows Cross-chain One-bottom Deposit and Withdrawal l, Swap, Payment Function?
Osmosis mainly targets two kinds of products, one of them is the one-stop core product targeting retail users. This product minic the product of the centralized exchange, targeting individual -traders, arbitrageurs and market makers, etc. While another API product, which is still under development, will launch this year and primarily serve the so-called "Swappers" who - don’t mind about Order Book, trading parameters etc but rather the transfer/swap of assets across chains. Then the one-bottom cross-chain transfer feature, which will be launched on Osmosis soon, will be a convenient option for them.
Some users might have found that Osmosis has put tremendous efforts on its user interface (UI). For example, if the users want to make a cross-chain transfer on Kepler wallet, a well-known wallet in Cosmos ecosystem,they need to add different channel ID manually across the chain where the details can be found on Mintscan (Please note the channel ID for the transfer of A to B is also different from Channel ID for the transfer from B to A). Furthermore, Osmosis integrates the complex IBC communication protocol backend with a user-friendly - front interface with simple deposit and withdrawal function, which help to enhance the user experience.
The functionality will be further integrated into -Osmosis unified API product, which is expected to be used by more DEX partners or ecosystems for the functions like cross-chain transfer, deposit and withdrawal payment and othersFor instance, if Curve is connected to the Osmosis’s API, ETH on Ethereum could be sent on Avalanche Chain through the "Deposit" button -. ETH on Ethereum could also be swapped to AVAX on Avalanche through the "Swap" button on CurveAny fees that are associated with the transactions will be paid automatically. This feature will not be live without the support from Axelar team, a bridge server built on the Cosmos SDK, which we will discuss more in detail below.
Truly Permissionless Frontier Platform and New Feature of Token List?
Osmosis Frontier has been launched officially, which supports the Ethereum-bridged assets and CW20 assets from Cosmwasm. What is the difference between it and the Osmosis main dashboard?The Frontier truly enables permissionless censorship resilience and helps to curate assets for users-. This brand-new and cutting-edge technology helps to realize Osmosis's vision through providing the user-friendly UX while also allowing the permissionless listing of assets.
The Frontier allows Osmosis to curate the primary front-end (app.osmosis.zone) for the best possible user experience, while at the same time allowing assets to appear permissionless on Frontier. We found some projects like AssetMantle, Galaxy Universe and others while not having their core products launched yet, their tokens have already been listed on the Frontier. Pay attention to the high slippage caused by the low initial liquidity of the pool.
Not only that, but the community will also get a chance to test the various bridging UX flows before voting on the canonical bridge for the primary front-end. By the time of writing, we have found an asset like USDC, Frax natively on Axelar on the Frontier, which is done by externally connecting with Satellite, the UI of the bridging functionality of Axelar.
We may treat Frontier as a "Huangpu Military Academy.” Only the “graduated” assets can be listed on the main dashboard. Also, this will also only be possible through the governance voting as only the incentivized assets approved by the governance will be allowed to list on the main dashboard..- Therefore, Osmosis governance is not only for the financial-related proposals, such as incentive pool parameter adjustment, but also allows for the asset to be listed on the main dashboard, empowering stakeholders with significant voting rights.
Ultimately, app.osmosis.zone will continue to optimize the user experience around the governance-selected canonical bridge, which is expected to provide the best combination of UX and security, built by a fast-shipping, high-reputation, IBC/Osmosis-aligned team. Running in parallel, frontier.osmosis.zone will provide a permissionless proving ground where the best assets and bridges can demonstrate their thesis to Osmosis governance.
It is in Osmosis’ DNA to be censorship-resistant, and adding assets to the Osmosis DEX will always be permissionless. Any front-end can list and optimize curation for a set of assets however they choose. Further, even on app.osmosis.zone, a solution similar to token lists will soon allow users to search for and access every token.the function is similar to the Token List on Uniswap. The functionalities of Osmosis include the default token list and the opt-in token list. For example, the bridge governance-selected as the Canonical Ethereum Bridge Service Provider is called Axelar. Its native assets will be on the default asset list. But for the assets of the liquid staking protocols, we will need to add manually. For instance, if we want to trade cToken from Compound, we must first add the Compound Token List on Uniswap manually. On Osmosis, we also need to manually add a Quicksilver list if we want to add assets of Quicksilver (A liquidity staking app-chain built on Cosmos SDK). Currently, the default token list is maintained and updated manually through the Repo of Github. It is expected that not only can it decide what assets will be added to the default list but also can autonomously update the default token list through governance. It’s expected the different assets will be allowed to be added to the list through on-chain governance, but the on-chain governance itself can also help to facilitate the default update of the Token List.
Single Bridge or Multiple Bridges? More EVM Compatible Liquidity Incentive Pool will be available?
Recently, the most controversial governance with the most voting participation is the proposal about the selection of a canonical Ethereum Bridge Service Provider. Axelar is selected as the - winner with other competitors from Gravity Bridge, Wormhole and Nomad. The reason for the one bridge choice only is the concern about UX and liquidity. Firstly, we need to understand that the assets that transfer through different bridges are not fungible with each other. For example, the Ether come from the Axelar and ETH from theWormhole they are not fungible with each other. On the Osmosis side, they have to be traded as two distinct tokens. Since they are not fungible with each other,, you will have to create different corresponding liquidity pools for them and you will have to fragment liquidity. From the point of UX, since there are two different version ETH come from different bridges, and you will have to find ways to signaling the differences, standard used in crypot users are prefixes, so there will be like XETH, or WETH, WETH is already a different things, you have to come up with the new name. On Terra, they have wormhole wrapped ETH, its the weird name I heard, there are 4 prefixes attached to that, But if you go the centralized exchange such as Coinbase, you would not have this issue. Hence, Osmosis provides the simple UX, , Osmosis believes the bridge is a front-end API product rather than the customer-facing product. Users would not need to go to the bridge website to do the cross-chain bridging first before making the swap on OsmosisTherefore, Osmosis currently chooses Axelar as the Ethereum Bridge Service Provider and it’s gonna be the -long-term and in-depth cooperation. Axelar is chosen due to the following reason
- Axelar supports multiple EVM chains while its competitor Gravity Bridge only supports Ethereum or a single EVM chain.
- Regarding the argument between the Optimistic and Validator-based models, Nomad uses the former while Osmosis prefers the latter which is adopted by Axelar. 3) Axelar is a native built Cosmos SDK chain on the Cosmos Osmosis can interact and implement it through IBC and use the same development tools as before, it also allows the new modules deployed such as interchain accounts etc. In contrast, Wormhole the main bridge adopted by theSolana ecosystem, will be required to deploy on Cosmwasm first before connecting to the Cosmos ecosystem.
Of course, there will be more proposals coming up if there are other non-EVM bridges or new design options in the future. In that case, Osmosis will also re-propose, vote, select or migrate the bridge (a reflection of a dynamic governance process).or example, if Osmosis plans to connect through the Solana ecosystem. Wormhole, currently the largest and the most widely adopted bridge in the Solana ecosystem, would be a potential choice. Osmosis would need to submit a proposal and seek the community's approval before it can be implemented. Another scenario is that if Osmosis considers a Bitcoin-Bridging solution, it may consider accessing a bridge solution such as Nomic Bridge (a provider of cross-chain Bitcoin bridging services built on the Cosmos SDK).
What new features can be expected after Axelar is integrated? In fact, we have mentioned some of them above, such as the development of enterprise level API products, the development of Frontier's permissionless front-end, the accessibility of Axelar's native assets, the deposit and withdrawal function of Ethereum, the access of various EMV-compatible assets through Axelar and also some new liquidity pairs, such as ETH- Osmosis trading pairwill be incentivised through governance decisions .
New MEV features based on Tendermint BFT development?
Osmosis is working on threshold encryption technology to encrypt all transactions within Mempool, which requires not only encryption at the consensus protocol level but also during the transaction process. It’s hard to achieve for other AMM projects, while Osmosis, as mentioned previously, as an application chain, consists of the core AMM DEX and the underlying technical infrastructure of the Osmosis chain, which provides support for all the applications built on top of it. The team is also responsible for maintaining products such as the Keplr wallet, which helps for the full-stack development capability of the team and facilitates more applications/features to be deployed on Osmosis. Besides, this MEV solution is unique to theOsmosis as an app-specific chain that implements the BFT consensus mechanisms , where new blocks can only be proposed after 2/3 of validators have verified the old block. This property would be much harder to achieve in a setting like POW where blocks are concurrently proposed and finality emerges over time because it would expose the chain to MEV exploits through potential reorgs after decryption. Of course, we will come out with a special report afterwards to study the MEV protection on Osmosis.
Osmosis’ Innovative Governance Mechanism
The governance system for Osmosis, Cosmos, compared with Ethereum is very much different. In the Cosmos ecosystem, they use a design that is more similar to liquidity democracy. Because they are based on the consensus mechanism of POS, the governance is implemented based on Stakeholder Voting. It means that only staked tokens have voting rights, while non-staked tokens don't have the right to participate in the governance process. At the same time, like most Cosmos ecosystem projects, Osmosis uses a DPOS where the delegator can delegate to the validator and hence the voting/governance right is transferred by default. However, if the validation node votes for something you disagree with, you can always use your vote to override his vote. So it provides user the maximum governance protection while they can participate in the governance through passive voting. Of course you can always choose to vote on your own, or you can override validators' vote, which is very flexible. All the governance is currently implemented on-chain in Cosmos, while most of the governance is off-chain (Such as Snapshot) for Bitcoin and Ethereum and others due to the considerations such as high gas cost. The governance types in Osmosis mainly consist of three different types, the taxed governance, such as the Canonical Ethereum Bridge Proposal which is the most controversial proposal with the highest participation rate in history liquidity pool parameter adjustment and software updates governance. For example, if you are the liquidity provider for Osmosis, not only does your liquidity position take up a certain percentage of the corresponding pool, but by locking your position, you can participate in the governance of the pool you are providing liquidity to and receive the corresponding liquidity incentives (depending on the size of your position and how long you will lock it), such as the Proposal#214, which tries to modify the transaction fees of Atom-Osmosis pairs from 0.3% to 0.2% etc. The long-term liquidity commitment by the liquidity providers prevent the impact of potential vampire attacks, where ownership of the shares are delegated and potentially used to migrate liquidity to an external AMM. This provides equity of power amongst liquidity providers, where those with greater skin-in-the-game are given their rightful power to steer the strategic direction of its pool in proportion to the risk they are taking with their assets. Of course, the community can also choose to open another pool if there are significant conflicts on governance. The current Osmosis governance scheme looks pretty successful on an apple to apple comparison, with an average participation rate (Community call them Turnout Ratio) of 50%-80% and number of 20,000-40,000 votes. The highest number is 55,358 for the bridge selection proposal, while the governance participation ratio in the Ethereum community is only single digital
Adhering to Osmosis' attitude of excellence, we will see several important upcoming progress in governance.
Different Weight allocated to Active and Passive Voting?
Validators currently have access to 100% of the delegators vote. Although the delegator can always choose to override the validator's vote, they believe that it may be more reasonable to allocate only 25% of the voting rights.The 100% voting set previously aimed to allow the delegators to vote actively while also being able to participate in the governance through passive voting. In the futureOsmosis will be able to treat active and passive voting as two types of behaviors that assign different weights accordingly, e.g. if the validator votes for me, then the weight of voting right will be 20% off. If I vote on my own, the weight will not change. And if this can be implemented in the whole Cosmos ecosystem on a large scale, it will significantly improve the governance efficiency and encourage participation of governance.
Diversity of Governance Issues? Token Listing Decided by Shareholders?
As mentioned above, more issues will be added to the governance in the future, not only the governance of parameter changes, the governance of partner selection, for example, through the governance proposal with the decision to deploy on the Cosmwasm, more developers and applications can be built on Osmosis more easily and quickly; Through the governance of the selection of Ethereum Bridge Service Providers, for example, we got Axelar in, one of the largest bridge service providers,Through governance of technical upgrades, we will be able to maintain and update codes as always in the community-owned way.For example, a lending protocol Atomic will be developed on on Cosmwasm, and its stable coin trading pair incentive plan will be decided through the governance, with new functionalities such as Cross Margin, collateralized LP asset lending and others ; The governance will also include the listing of different tokens, which includes the Token List, the assets types in the default token list will not only be chosen through the governance process, but it will also be automatically maintained and updated through governance.Optimism Collective's new Two-House Model is just launched, bringing a new generation of governance frameworks?
Two-house governance model/framework is the cutting-edge design and consists of two equal chambers , a Citizens’House and a Token House, through which the faster, more sustainable growth of the governance can be expected. The Citizens’ House will govern public goods funding, creating a flywheel of protocol development.Citizenship will be conferred as non-transferrable NFTs, and will grow over time with the community.The Citizens’ House will keep the network in check from plutocratic capture.The Citizens’ House will keep the network in check from plutocratic captureThe Token House is (surprise!) a token.It is called OP.It governs protocol upgrades, project incentives, and more. It drives growth.There’s not just one airdrop. There will be many airdrops.
For Osmosis, how can we achieve a fast and sustainable governance in the long run? It will be guid by t some experts and core contributors through the community. For example, we have core developers and ecosystem partners. We have Cosmostation, who created the most prominent browser Mintscan and wallet Cosmostation wallet in the Cosmos ecosystem, Axelar, the largest bridge service provider we have been working with, and a lot of very respected developers from the the IBC core, Cosmos and Osmosis communities. So we can make quicker decisions from them first and get token holders' approval through on-chain governance voting. Indeed, both governance are required to be implemented on-chain and approved by the token holders (Osmosis shareholders), through this way we can achieve fast governance while keeping the governance decentralized and sustainable enough.
We also notice that Osmosis has implemented features such as Cosmwasm. In the past, all the updates of protocols and functionalities within the Cosmos ecosystem needed to be communicated, reviewed, tested, integrated by the Cosmos SDK team, which significantly increased the time cost and communication cost of the developers who needed to approve and review everything, while Cosmwasm can be deployed through smart contracts on the chain. Cosmwasm can significantly alleviate these problems by deploying smart contracts on the chain. However, Cosmwasm will still be implemented in the governance-gated way where decisions such as code updates, contract reviews and others will be made. In short, unlike Juno Network, which is an entirely permissionless Generalized app- chain, the products/functions/applications deployed on Osmosis need to be governed and complementary with the Osmosis core visionBelow we have attached the new products/features that we can expect on Osmosis in the future (copied from the Osmosis Grants Programme). We also firmly believe that the Osmosis ecosystem will make dramatic progress in 2022 and transform from a single-app application chain to the most dazzling L1 giant in Web3.0. Osmosis Beyond Coinbase? We'll see.
Our next article will discuss Osmosis's ambition: the sovereign app chain is rising.
