Osmosis Governance | Part 1: What Drives Governance Participation on Osmosis Zone?
Governance Primer
The Osmosis Zone is a proof-of-stake blockchain built on top of the Cosmos Hub and serves as a decentralized exchange for the greater Cosmos and IBC ecosystem. The native token of the Osmosis zone, OSMO, is used for governance and paying transaction fees for actions performed on the DEX.
Self-Governing liquidity pools are a point that makes Osmosis unique among decentralized exchanges. On Osmosis, the LP shares are used to calculate the fractional ownership of an LP, as well as the right to participate in the strategic decision making of the LP via governance. To incentivize long-term liquidity commitment, shares must be locked up for an extended period. Longer-term commitments are awarded by additional voting power and additional liquidity mining revenue.
Any user who stakes their OSMO tokens with a validator is eligible to vote on governance proposals. In addition, anyone is welcome to submit a governance proposal. The only requirement for proposal submission is that 500 OSMO tokens must be locked into the proposal in a two week period before a public voting period can begin.
While there are no barriers to participation in Osmosis governance, users are also not rewarded with tokens to participate in governance. Without direct incentivization, how does governance participation grow? What type of governance proposals are users most likely to vote on? Do high impact governance proposals bring new users to the chain? Let’s use the Osmosis data provided by Flipside Crypto to answer these questions.
Drivers of Governance Participation On Osmosis
New Users & First-time Voters
Figure 1 below shows the total number of new users and first time voters on the Osmosis Zone per day. A new user in this analysis is defined as a wallet that makes their first transaction on the Osmosis zone of any type. While this is usually a deposit of another IBC currency, this first transaction can also be a transfer, stake, etc. What is important is that the wallet interacts with Osmosis for the first time. A first time voter is defined as the first time a distinct wallet address votes on a governance proposal. While an individual can control multiple wallets, each voting wallet is considered a unique voter.
There are several notable spikes in this chart that correspond to major events on the Osmosis chain and in Osmosis governance. The two events that resulted in the acquisition of the most new users are the enabling of superfluid staking on 22 February 2022 and proposals 205–210 regarding the technical solution of bridging wrapped Ethereum (WETH) onto Osmosis Zone around 23 April 2022. First time voters, who were largely already using the Osmosis blockchain, were excited by proposals to restore the LUM network on 16 June 2022 and to establish a carbon market on 23 March 2022.
However, it’s hard to say these proposals alone served as the drivers to growth as there are usually multiple proposals open for voting at any given time. Let’s dig deeper by breaking out voter participation by proposal.
Proposals that mobilize voters
As seen in Fig. 2, voters are mobilized by proposals regarding the addition of other chains on the Osmosis DEX. If we look at the total number of unique voters, Proposals 205–210 were the most voted on proposals on Osmosis. These proposals all were in regards to the best technical solution for bridging WETH.
Two other notable proposals that mobilized a large number of voters are proposal 185 “Enable Superfluid Staking on OSMO/STARS, OSMO/SCRT and OSMO/CRO” and proposal 187 “Multihop Discount on Osmosis Pools.” Superfluid staking is a feature unique to the Osmosis zone that allows users to stake their liquidity pool tokens to earn additional rewards and the multihop discount significantly decreases swap fees when OSMO is the intermediary token.
However, proposals 205–210 were not the proposals that attracted the most first time voters to participate in Osmosis governance. That was proposal #178, which attracted over 11 thousand first time governance participants (Fig. 3). Proposal 178 added external incentive matching to the WETH/OSMO pool and is the first time there was a governance vote involving ETH in any form on Osmosis.
The next most attractive proposal for first time voters was proposal 256 — the first proposal to restore the frozen LUM network on Osmosis. This proposal was ultimately voided and replaced by proposal 258, which received only slightly more total votes but did not attract a significant number of first time voters unlike proposal 256. However, 94.5% of first time voters on proposal 256 returned to cast a vote on proposal 258.
Time between first transaction and first vote
The proposals with the most overall first time voters and biggest voter turnouts (the ETH proposals) had one thing in common. The median of new first time voters on Osmosis made their first transaction on the Osmosis network either the same day or day before (Fig. 4). ETH proposals seem to bring a fair amount of new users onto the Osmosis chain as a whole and not just governance.
However, when it came to restoring the LUM network, there was a much larger median time difference between first transaction and vote( — 55 days). This proposal also did not attract a large number of new wallets to join the Osmosis network to vote. This proposal largely mobilized current Osmosis Zone users, 57% of first time voters on this proposal provide liquidity to either the LUM / OSMO or ATOM / LUM pool.
Analyzing the Drivers
There are several primary drivers for governance participation in Osmosis governance. The first driver is users from other chains onboarding onto the Osmosis platform and participating in governance to influence the integration of their crypto of choice. This can be seen with new wallet creation to vote on proposals involving WETH. It is expected that this type of user growth will continue as more PEG zones are developed to bridge other chains to Osmosis and the greater IBC ecosystem.
Another factor driving an increase in governance participation is voting on proposals of special interest to liquidity providers in a certain pool, such as the LUM network restoration. These are largely users that already participate in the greater IBC ecosystem, and are incentivized to vote on high-impact proposals that affect their pool or IBC zone of interest. This group of users will be harder to mobilize for consistent governance participation, as their interests are largely specialized.
In addition, the community as a whole is more likely to vote on proposals that add new features to the Osmosis Zone. This can not only be seen in the total participation numbers for the WETH bridge solution, but also in the proposals regarding superfluid staking on certain liquidity pools and enabling multihop discounts on OSMO pools. These proposals can be seen as high impact and will play a major role in shaping the future of the Osmosis network. Users are more likely to participate in governance when their votes play a major role in shaping the future of the network.
Additional Information About the Data Source
All charts and statistics used in this article were created by using the Osmosis database provided for free by Flipside Crypto. Flipside Crypto provides Osmosis data back to the genesis block for Osmosis, as well as specialty tables to make analysis for staking, liquidity providing, governance, swaps, and transfers easy to perform.
To learn more about Osmosis data on Flipside Crypto, one can read the documentation here: https://docs.flipsidecrypto.com/our-data/tables/osmosis-tables
The SQL queries used to create the charts used in this article can be found here: https://app.flipsidecrypto.com/velocity/collections/f1f6d39b-7c18-4d22-97aa-80528e53af95
