Osmosis DEX- Biggest Decentralized Exchange of the Cosmos Ecosystem
What is Osmosis?
Osmosis is the automated market maker (AMM) protocol that enables developers to create unique AMMs with sovereign liquidity pools. Osmosis, which was created with the Cosmos SDK, uses Inter-Blockchain Communication (IBC) to allow cross-chain transactions.
The Osmosis protocol can be used by developers to create their own AMM decentralized application (dApp). Furthermore, Osmosis offers substantial customizability, including governance features that enable liquidity providers to manage the pools in which they participate.
Users can utilize Osmosis to create liquidity pools with specific parameters, such as bonding curves and multi-weighted asset pools. Osmosis' incentive structure is also adjustable. Liquidity reward (LP) payouts are implemented by Governance for certain pools, enabling strategically tailored incentives.
Osmosis is a customizable automated market maker for interchain assets that enables the construction and management of non-custodial, self-balancing interchain token indexes comparable to Balancer.
Osmosis' purpose is to deliver best-in-class solutions that expand the use of AMMs in the Cosmos ecosystem beyond standard token swap use cases. While bonding curves have found their major application in decentralized trade methods, their application can be further expanded thanks to Osmosis' customizability. The AMM can allow the decentralized formation of token fundraisers, interchain staking, options market, and more for the Cosmos ecosystem. These features are available due to Osmosis' customizability, which includes custom-curve AMMs, dynamic changes of swap costs, and multi-token liquidity pools.
Analysis of Osmosis Protocol
The total liquidity currently present in Osmosis is worth 1.24 Billion Dollars. As it is clear from the graph above, liquidity has been steadily rising. Thus making trading on Osmosis more user-friendly, with less slippage on trades.
The daily volume was around 50 Million Dollars on 13 February 2022. It is evident from data that Osmosis exchange has been actively used by users to buy or sell cryptocurrencies.
Tokenomics of Osmosis
The Osmosis token (OSMO) is critical to the protocol's flawless operation as well as its growth and direction. In the Osmosis Network, the multi-utility OSMO coin serves three main functions which are Liquidity provision, transaction cost coverage, and protocol governance.
OSMO token holders can vote on platform features such as which liquidity pools are eligible for rewards, how many rewards they receive, as well as staking and network fees. As a result, the Osmosis exchange fosters and promotes community engagement, especially when token holders are involved in governance.
Initial Token Distribution (Quadratic Fairdrop)
The genesis supply of Osmosis included a ‘Quadratic Fairdrop’ to ATOM holders. Based on a snapshot collected during the Cosmos Hub Stargate Upgrade on February 18, 2021, a total of 50 million OSMO were distributed to ATOM holders.
Each address's OSMO allocation was proportionate to the square root of its ATOM balance at the time, with a 2.5x multiplier for staked ATOMs. This Fairdrop architecture ensured that all Cosmos Hub members, especially those who helped protect the network through staking, got a fair chance to participate in Osmosis.
At genesis, Osmosis had 100 million OSMO supplies, which were distributed evenly between Fairdrop recipients and a strategic reserve. The strategic reserve will be critical in aligning key advisers and further rewarding individuals who provide significant services to the chain.
Unlike most Cosmos SDK chains, which distribute tokens per block. Osmosis uses daily epochs and only releases new tokens at the conclusion of each one.
Under the initial token model, the ‘thirdening schedule’ is followed to release new tokens. In Bitcoin halving, token issuance is decreased by half every four years. The token emissions of OSMO tokens will be reduced by ⅓ every year (365 daily epochs).
To clarify, the thirdening schedule works like this: A total of 300 million tokens are released in the first year. This will be reduced by ⅓ every 365 days, resulting in a total of 200 million tokens being released in Year 2. A total of 133 million tokens will be released in Year 3. As a result of this thirdening process, OSMO will be able to reach an asymptotic maximum supply of 1 billion.
According to the following distribution, newly released tokens will be awarded to a combination of staking rewards, liquidity mining incentives, developer vesting, and the community pool:
Staking Rewards: 25%
Developer Vesting: 25%
Liquidity Mining Incentives: 45%
Community Pool: 5%
Features of Osmosis
Trade
Users can engage in frictionless cross-chain transactions of cryptocurrency assets. Other automated market makers (AMMs) such as Uniswap, PancakeSwap, and SushiSwap have similar graphical user interfaces. In order to begin trading, users must first connect with a Keplr wallet, Keplr Browser Extension, or Keplr Mobile. Keplr is a Web3 wallet that works like MetaMask, the most popular browser wallet.
Pools
Users can see a dashboard with a live price feed of the OSMO token in this portion of the Osmosis exchange (OSMO). Users can also see the rewards distribution countdown timer and any pools in which they are currently participating. The Pools category also has a complete list of different incentivized liquidity pools for a variety of different assets. The Pool number, asset pairing, annual percentage rewards (APR), and the quantity of liquidity in the pool are all included in the pool.
Staking
The Keplr browser wallet can be used to participate in Osmosis token (OSMO) staking which is available through a different site via the 'Staking' tab on the Osmosis exchange menu. Users can access a list of 100 validators to whom they can delegate their OSMO tokens. The validator's name, ranking, voting power (number of OSMO tokens held), and commission % are all visible to users.
Governance
Voting facilities via the 'Governance' tab on a different site is another option offered through the Keplr wallet application. Any open governance update proposals are presented to users by the Cosmos automated market maker project. The parameters of the update and vote period are presented in proposals. Users can also look at prior governance suggestions.
Team
Sunny Agarwal, a well-known researcher, and developer for Tendermint/Cosmos launched the Osmosis project. Chainapsis, the team behind Osmosis, is also responsible for the Keplr Wallet. Chainapsis is a well-known Cosmos SDK development center, and the Keplr wallet is a testament to their expertise.
Risks
The OSMO cryptocurrency is facing a period of rapid inflation at the moment. Over the next few years, around 700 million tokens will enter the market. The price of the OSMO token will be depressed if demand cannot keep up with the rapidly increasing supply.
There's also a chance that the main Cosmos chain and the Gravity DEX that is being created, will completely overwhelm the Osmosis chain. Although the Osmosis team is working hard to position itself as a main. There is always the possibility that users will select the main Cosmos chain over the Osmosis chain for token swaps and exchanges.
Conclusion
Osmosis had one of the fairest initial token distributions. Members of the Cosmos ecosystem largely benefited from it. Osmosis is the biggest dex of the cosmos ecosystem, where millions of dollars worth of crypto assets are traded daily. Users face very little slippage during the trading of tokens due to high liquidity in the osmosis.
It is bringing a new feature called Superfluid Staking where OSMO holders will be able to use their tokens for both staking and liquidity provisioning. Osmosis always keeps innovating in the DeFi world and leads by example. OSMO token holders have the power to decide the future of the Protocol. Users can earn revenue through staking or by providing liquidity in the pools. Thus, Osmosis has set an example of how to create a community around a protocol and how to reward its members for their efforts.