Integrating FX to Osmosis, the Interchain Portal

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Function X

6 min readSep 20, 2023

Osmosis is a decentralized exchange (DEX) that uses inter-blockchain communication (IBC) to enable cross-chain transactions. It is an automated market maker (AMM) built on Cosmos using the Cosmos SDK. They are, in fact, the leading de facto decentralized exchange in the Cosmos ecosystem. Following its announcement in October 2020, the project was officially started on June 19th, 2021.

The Osmosis blockchain is Layer-1 and it runs on a Proof of Stake (PoS) consensus.

The Cosmos SDK was chosen to build the Osmosis blockchain, which optimizes its functionality for the Cross-Chain Auto Market Maker feature (AMM) as it enables developers to create customized AMMs whilst utilizing the numerous governance systems of the Osmosis blockchain and its modules.

You can find more information about AMM here.

Osmosis is more than just a DEX in Cosmos

As the center liquidity hub and major trading venue for Cosmos, Osmosis is the portal to the interchain and the point of entrance to the infinite array of app-chains. With over 50 connected blockchains and several more in development, the DEX is quickly establishing itself as the primary cross-chain center in Cosmos.

Strengths

Superfluid Staking — Enhanced rewards
Customizability of Pools — Tailored parameters
Inter Blockchain Communications (IBC) — A multi-chain DEX
Self-Governing Liquidity Pool — Every pool has its own voice and incentives
AMM as Serviced Infrastructure — Reducing the hurdle for creating tailor-made and efficient AMMs

Osmosis, like many Cosmos projects, was developed from the ground up to be IBC compatible and is intended to be cross-chain native since its conceptualization. Each liquidity pool in Osmosis is incentivized to preserve its individuality while simultaneously supplying liquidity through a variety of means, and Osmosis draws its sovereignty from both the design of its architecture and the collective sovereignty of liquidity providers.

This means every pool on Osmosis self-governs itself and can be customized through their own governance.

Competitive Environment

Users of the Osmosis AMM have the flexibility to create their own liquidity pools or replicate existing ones with custom-tailored parameters, which sets it apart from other AMMs, such as Uniswap. Osmosis enables developers to formulate and deploy customized AMMs and allow market participants to select which pool yields the best outcomes.

This feature increases variation by generating a competitive ecosystem that promotes swift iterations and explorations. This heterogeneity is produced using a broad variety of customisation choices and enables the pools to have a dynamic range of parameters compared to other DEXes, which rely on the usual bonding curves of X * Y = K.

By fostering competition, this creates a positive etiquette loop and allows the chain to achieve productivity and perpetual innovation and creativity. This enables developers to climb the ranks in an organic structure that promotes the overall well-being of the blockchain.

The current incentives for the Osmosis chain can be found here.

Nothing is explicitly set or hardcoded in the Osmosis AMM. Any pool parameter, including swap fees, token rates, incentive structures, and curve algorithms, may be adjusted by liquidity pool providers via a governance vote.

The Importance of listing FX Token on Osmosis DEX

The Osmosis DEX is an essential component of the Cosmos Ecosystem and as it operates as the major trading venue for investors and traders, beyond the shadow of a doubt, deploying a FX/OSMO liquidity pool pair on Osmosis is a need for Function X to propel further into the Cosmos Ecosystem whilst boosting the TVL and transaction activity of Osmosis.

Osmosis has a total of 369 Validator sets with 150 being active.

In addition to that, they have amassed a staggering 563 number of completed proposals.

$328,183,060M Value
145,319,345 Transactions
8,705 Daily Active Users on Average
92,963 Monthly Active Users on Average
2,224 Total Assets (63.24% Native Asset Rate)
810,516 Total Accounts — increasing at a 35k+ user rate per month

The average transaction fee only cost 0.0025 uosmo. To give some context, at this time of writing, each OSMO is worth $0.3365. The vision for both Function X and Osmosis are aligned as we set the course for a universe of IBC-enabled chains as well as chains that are working to enable IBC.

Osmosis Superfluid Staking

Staking is essential in ensuring the integrity of the consensus mechanism in the standard proof-of-stake approach. Osmosis originated a feature known as Superfluid Staking, in which OSMO may be utilized to simultaneously stake and provide liquidity, enhancing its rewards and the security of its chain while reducing downsides.

A user’s bonded LP tokens may be staked through superfluid staking. This option is only available to OSMO pairs that are bonded for at least 14 days. The superfluid OSMO is intended to be securely staked and inaccessible for at least 14 days (the length of the unbonding time). Superfluid staking rewards are delivered to accounts directly at epoch, similar to liquidity mining incentives, in contrast to standard staking, where rewards must be claimed.

Before the development of Superfluid Staking, users could only offer liquidity and bond for a duration of days 1–14 which means the utility of OSMO ends there. Now, users’ bonded LP OSMO may be recycled with greater efficiency and rewards while strengthening the security of the Osmosis chain simultaneously.

The requirements to enable Superfluid Staking for a pool is that the project and the token that represents it should be widely accepted as legitimate, have a sizable amount of Osmosis liquidity, and be established for a period of time.

Osmosis Liquidity Mining Incentives

On Osmosis, liquidity pools can provide incentives for mining liquidity in a variety of ways. It is home to a battlefield of strategies that users can carefully select and participate in, in order to enhance their reward share. The (internal) Osmosis Liquidity Mining approach is one strategy; Osmosis allocates 45% of its inflation to encourage users to bond their liquidity on Osmosis.

Osmosis also enables the permissionless development of (external) liquidity mining gauges, enabling projects to include their own rewards to boost the incentive for users to contribute liquidity to a pool. In addition to that, Osmosis pioneered the novel idea of Superfluid Staking. This further incentivizes users to provide liquidity to a pool, as they’ll be able to stake their LP tokens for additional rewards, on top of the existing rewards.

Note: Only OSMO pools can qualify for superfluid staking.

Mutually beneficial

By integrating various ecosystems (Osmosis and others), we enhance the liquidity and value of original assets on Function X. Rather than building an ecosystem that competes with others, we aim to leverage on its strength such as providing asset aggregation contracts, connecting to Osmosis smart contracts, and generating interest at the same time in both (and more) chains.

Function X is aspiring to position itself as the financial link between traditional and decentralized markets. Our goal from day one is to mirror traditional financial products on the Function X network and to enable developers to design and deploy their own decentralized financial product with custom-tailored parameters.

As we usher into a new digital money era that is still in its infancy phase, we will undoubtedly witness more innovative and original solutions for the financial markets within the blockchain community as well as the Cosmos Ecosystem.