Quasar Announces the Launch of Concentrated Liquidity Vaults on Osmosis, in Collaboration with DeFine Logic Labs

Osmosis Magnesium upgrade has brought uni v3 LPs to the Cosmos, a crucial backbone to facilitate the advancement of DeFi across the entire Interchain. Today, we are happy to introduce the first Cosmos CL Vaults with our new design, new partners, new infrastructure and best in class yield. Let’s dive right in!

Our new vaults capitalize on the new concentrated liquidity pools available in Osmosis v16 for more efficient liquidity provisioning and increased yield. With concentrated liquidity pools (aka supercharged liquidity on Osmosis), LPs set a price range at which liquidity is provided. This differs from the balancer pools on Osmosis that distribute the availability of provided liquidity across the full price range (0 to infinity); in such a pool, there is always some liquidity that is not used, which is suboptimal and inefficient.

While Osmosis Supercharged Pools changed the Cosmos Ecosystem game, 85% of users never adjusted their positions. What’s worse, over 50% of users were at some point out of range, meaning they received zero incentives or swap fees during that time! We presented a primer on how concentrated liquidity works in a recent blog post.

We’re thrilled to present three distinct strategy types: Stablecoin Plus (S+), Aggressive Plus (A+), and Moderate Plus (M+).

Selecting the correct range at which to provide liquidity means setting the upper and lower bounds in a way that maximizes the swaps that take place within that range to generate the most rewards (rewards are provided to LPs from transaction fees). This must be done carefully; with additional yield potential comes greater risk. If the price moves outside of your set range, all of your liquidity gets swapped into a single lesser-performing asset, and you stop earning rewards. A vault is well-suited to handle the complexity of overseeing a concentrated liquidity position. We cover how and why this is the case in this blog post.

CL Vault Overview

The vaults are an essential infrastructure similar to previous vaults: they track shares of total liquidity provided and allow users to deposit and withdraw shares from the total. The same CosmWasm vault standard used in previous vaults is being used. However, the vault will actively rebalance its position with the help of independent off-chain computation and automatically execute updates.

This access to off-chain data provided by an independent team, Define Logic Labs (DLL), makes the new concentrated liquidity vault unique. DLL is a data science firm devoted to developing DeFi yield strategies. They will collect, analyze, and monitor on-chain and off-chain data relevant to the CL pool and provide signals transmitted to the vault. These signals then inform the vault’s autonomous execution of the strategy. While the vault is the ultimate decision maker regarding strategy execution (the actions it can take based on received signals are limited), there is a sense in which the vault (and its users) rely on the received signals to be effective in moving the strategy toward a more optimal position.

Deposits

When a user deposits assets, the vault creates a new position for the user that follows the current position informed by the strategy. The vault merges all user positions for easy bookkeeping. In essence, the vault is handling one large concentrated liquidity position which all depositing LPs automatically follow. Soon, multi-range liquidity position will go live.

When a user deposits, the vault mints native vault tokens that track the user’s pro-rata shares and issues them to the user. Because rewards are constantly being accrued and not immediately compounding, the vault must claim existing rewards before minting new shares to ensure that incoming users do not have access to rewards accrued by the vault before their entry. In this way, the vault appropriately tracks each user’s share of liquidity as well as rewards gathered over time.

The vault provides two tokens as liquidity for the CL position in a specific ratio based on the swap price and given upper and lower bands. A user provides both tokens in the appropriate ratio to supply the position. In the future, the user should be able to provide liquidity with a single token, with the vault executing a swap to simulate a single-sided join (a feature which, unlike in Osmosis’s typical balancer pools, is not provided by default in Osmosis’ CL pools). With our upcoming implementation of the PFM Skip-API, we will also allow deposits of most assets from most Cosmos chains in a singular transaction!

Unlike previous vaults, there is no bonding mechanism involved in concentrated liquidity, meaning that withdrawals do not need to be subject to a 14-day unbonding period. This one-step withdrawal means that users will have access to instant withdrawals when they redeem their shares or rewards. Shares provided to LPs are unique to the vault and reflect the position followed by the vault.

Withdrawals

When a user withdraws, the shares associated with the user and tracked by the vault are burned. The vault removes the proportionate amount represented by the user’s shares and makes them available for instant withdrawal. The vault also claims the relevant rewards and sends them to the user as part of the withdrawal.

Rewards accrue on Osmosis, with the vault smart contract owning and tracking all rewards. Rewards come from trading fees as well as incentivized liquidity mining. While the vault does not continuously and automatically compound rewards, accrued rewards are included in the updated position each time it rebalances.

Strategy

While the vault handles the management and execution of the CL position, there are multiple moving pieces and fail-saves around the data, verification and execution of the range changes. Our partner DLL provides the data, the Quasar Association takes over the verification, and Quasar Labs the execution.

When appropriate, DLL will send a message to the vault to rebalance the position, providing new upper and lower bands for the CL pool. Every user in the vault automatically follows along with the liquidity range provided. Key within the data provided by DLL is information about when to rebalance.

The vault converts the data received from DLL into ticks and submits the new liquidity position on the CL pool. For now, the vault is only managing a single range to attach users’ positions to and moving all liquidity in a previous position to the new position based on DLL’s calculations. Whenever the vault receives an update from DLL, it breaks the current position, collects outstanding rewards, and updates the maps of shares and rewards for each user. Everything happens asynchronously, made possible by the vault smart contract existing as an outpost on Osmosis.

The vault does rebalancing with multi-step swaps. This process involves first a withdrawal of the existing range, a deposit into the new range (as much as is possible without doing a swap), and then a swap against the new position to get the final token balances. These can then be deposited again without any remaining tokens before the vault creates and merges the balances into a single new position.

While anyone can view what new ranges the vault is moving toward with on-chain data, a key part of DLL’s calculations is knowledge of when to rebalance according to specific triggers. Rebalancing happens dynamically rather than at fixed intervals. Doing so allows the vault to constantly seek optimized yields that would be difficult or impossible to access without combining the vault’s automation and DLL’s data.

“The partnership between Quasar Labs and DeFine Logic Labs is the perfect mix of robust smart contract know-how and concentrated liquidity expertise. What this means for Osmosis is professional concentrated liquidity vaults backed by data science and cutting edge smart contracts, allowing users to access automated range optimization with a single click,” says Stephen “The Calculator Guy”, CEO of DeFine Logic Labs.

An Osmosis Outpost

Unlike previous vaults, this vault will follow the “outpost” model used by other protocols such as Mars and Astroport. With this model, the vault smart contract exists on the Osmosis chain, cutting down on IBC complexity. Our early vaults depended on ICA and ICQ functions of IBC to execute cross-chain strategies. The ICQ/ICA infrastructure has so far shown itself to be less stable than ideal for our needs, requiring more resources to maintain. With the outpost model, this is no longer an issue and we can operate more efficiently. The vault will still be fully connected to and accessible via the Quasar web app. Except for improvements around stability, the user experience remains unchanged.

Outpost vaults will be uploaded via a whitelisted Osmosis address. That means that the uploading of vault code to the Osmosis chain, which is permissioned, has been cleared in advance. This is a vote of confidence for Quasar on behalf of the Osmosis team. You can read more about the details of this in the relevant proposal #562 which was passed on the Osmosis chain.

Sunny Aggarwal, Co-Founder, Osmosis Labs, says, “We’re incredibly excited to embark on this journey with Quasar. The launch of concentrated liquidity vaults on Osmosis is a significant milestone, not just for our two platforms, but for the entire DeFi community. It’s about reimagining the possibilities, optimizing liquidity management, and ensuring that our users have access to the most advanced tools in the market.”

Bringing Professional Yield Strategies to Cosmos

Valentin Pletnev, Co-Founder & Lead of Quasar Labs explains,
“DLL’s Partnership with Quasar is the first step for professional yield strategies in Cosmos — with the onboarding of the first independent strategist team that’s currently advising on $40M of DeFi Liquidity, Osmosis and Quasar are elevating their product offerings and are maturing into professional protocols.

“It’s also the perfect time for us to reveal our outpost model and bring a new interchain-yield aggregation design choice to market, one with less complexity and more stability without losing out on IBC as the backbone for liquidity provision. We are excited to be pioneers on so many fronts alongside our partners DLL, Strangelove, Skip Protocol, and Osmosis as we work on making chain-agnostic yield aggregation mainstream”, added Pletnev.

About Quasar

Quasar is building the primary asset management hub of the Cosmos ecosystem, representing the gateway to IBC-enabled yield opportunities. We’ve co-developed key IBC implementations such as interchain queries and pioneered IBC-enabled CosmWasm contracts for interchain vaults. We’ve recently launched our native token, QSR.

Quasar is striving to become the premier yield aggregator across all of IBC. We are a global team passionate about improving the Cosmos UX by pushing forward IBC technology while abstracting away its unwieldy technical details for users.