Osmosis Updates from the Lab, Grants Showcase: TenderDuty, Yieldmos, Margined Protocol, Aug. 24
Osmosis Updates from the Lab occurs on alternating Wednesdays at 1 PM EST (5 PM UTC) on the Osmosis Zone Twitter Space. Replays are available on the Osmosis YouTube channel or the podcast.
Welcome back to the Osmosis Lab! For our second August session, we welcomed three Osmosis Grants Program recipients to talk about their projects: Blockpane, Yieldmos, and Margined Protocol.
Privacy & Regulation
Discussion opened with the U.S. Treasury’s Office of Foreign Asset Control (OFAC) Tornado Cash sanctions and their potential effects on Osmosis. This is obviously a big deal. Code has never been sanctioned by OFAC before, and it is not entirely clear what compliance will entail. Will validators be on the hook for respecting the sanctions list? And if they are, will they be forbidden from proposing blocks with transactions to or from sanctioned addresses? Will they have to refuse to vote to include such blocks proposed by others? Will they be required to leave a chain containing any such transactions?
Some protocols have blocked any address that has ever interacted with one of the sanctioned addresses, something the Tornado ETH dusting of notable accounts is putting to the test. For the moment, it seems sensible to block only the sanctioned addresses. At the moment, this step is a minor nuisance, since Osmosis is not closely connected to Tornado Cash.
Osmosis validators are blocking sanctioned addresses with the file blocked.go. While some within the community would like to take a fully non-compliant line, the Osmosis DAO effectively approved the block-list by voting down Prop 320, which had attempted to remove it. Abstentions carried the day with 64% of the vote, with the remainder voting roughly 30% to 5% to keep the block-list. These seem to me to represent a wait-and-see attitude: comply for now (more or less reluctantly) while continuing to build and lobby our way to blockchain privacy.
Regulatory clarity will eventually emerge, and it is quite possible that U.S. lawmakers will protect blockchain privacy as a matter of free speech, just as they once loosened restrictions on cryptography and protected internet platforms from being liable for third-party content. If not, we will build our way through.
To that end, a threshold decryptable mempool is planned to be the next big project after orderbooks/concentrated liquidity. And Osmosis is continuing to work with Void Protocol to provide sanction-compliant privacy. This can be done in two ways. The first is by having privacy by default, but with a governance rule that allows de-anonymizing transactions in certain prescribed cases.
For example, if the North Korean Lazarus Group were to steal another billion dollars and try to anonymize it with Osmosis, governance could simply reveal the transacting accounts, allowing everyone to see them. Knowing this, hackers would be unlikely to use Osmosis for this purpose. Further, it should protect developers and validators from penalty, since, however clumsily the OFAC sanctions are currently worded, it is state-funded terrorism that they are most concerned with preventing.
The second, more restrictive way of building sanction-compliant privacy would be to enable private trades — protecting users from frontrunning, copy-trading, and the like — but not private withdrawals. An entity seeking to fully anonymized its funds would be forced to look outside Osmosis. With either method, privacy will be coming to Osmosis.
The OGP just published its Q1 Retroactive Report. From 170+ applications, it funded 33 projects in 6 batches for a total of $1.2m (contingent on projects meeting their milestones).
The report also includes many new RFP suggestions in each funding category. These requests for proposals are meant to generate targeted grant applications, but the OGP welcomes (and has funded) applications that do not fit squarely into a given RFP.
Grant Batch #7 also came out at the end of August, featuring Transak (fiat ramp), a Runtime Monitoring Toolkit (chain and smart contract security), Zodiac Protocol (yield app with forthcoming 10% airdrop to Osmosis users), and a retroactive grant for the Apollo Safe multi-sig.
Blockpane: TenderDuty v2
Todd from Blockpane, an interchain validator and tool developer, discussed the upgrades made to his open-source validator monitoring tool, TenderDuty, as part of the OGP grant. TenderDuty v1 was the first tool that watched for missed blocks. It worked by checking for a validator’s signature in finalized blocks and sending alerts if blocks were missed, if a validator was removed from the active set, or if a chain stopped producing blocks for a given time period.
The new features (already completed) include more detailed data about missed blocks and endpoint responsiveness, more customizable alerts that can now additionally be sent to Discord and Telegram, a dashboard, and various visualizations of the data, seen below. Todd is currently working to make TenderDuty deployable on Akash for approximately $2 per month.
Yieldmos
From the team that created Dexmos (first covered by us here), Yieldmos is an auto-compounder for staking and LP rewards.
Their UI is attractive and easy-to-use. To use it, you just launch the app, leave the chain selection on Osmosis, and select between (at the moment) 3 strategies: staking, LP, or the specialized Bitsong fan token LPs on Osmosis. You can then connect your Keplr wallet, approve Yieldmos to be able to interact with your account, and finalize your strategy.
For staking, a user can set their rewards to auto-compound with one validator, or set percentages to be staked with different validators. For LP positions (still in alpha), each pool auto-compounds separately, though only one wallet approval is required. There are currently no fees, but the team is requesting user feedback.
Yieldmos works through authz, the Cosmos SDK module that allows one account to authorize another to carry out specific, tunable functions. When a user enables Yieldmos, they are authorizing the app to only collect rewards for a certain wallet/pools and to restake/compound the rewards so collected. This authorization can be revoked at any time, making the scope for misbehavior with authz quite small.
Yieldmos showcases one of the great advantages of authz: self-custodial yield strategies. Traditional DeFi yield protocols like Yearn rely on the custodial vaults, which require trust that third parties will not lose or misuse funds. The trustless, customizable authorization of authz is a giant step forward, and it great to see teams building with it on Osmosis.
Margined Protocol
Margined is a perpetual protocol that will be deploying on Osmosis. A perpetual swap, or perpetual future, is an agreement (non-optional) to buy or sell an asset at a predetermined price at an undetermined future date.
Traders can use these derivative contracts to go long or short an asset for a fraction of the usual cost. To allow market makers to power the trade, users must put up margin funds that can be liquidated if the price moves too far against them. Further, the more popular side of the bet on whatever exchange the contracts are being made must generally pay the less popular side a variable funding rate. For more on the underlying structure of perps, see this illustrated guide by Paradigm’s mechanism wizard, Dave White. For a video explanation, see the Finematics explainer of Ethereum’s Perpetual Protocol.
Perps can be used to speculate (usually with leverage), to hedge, to escape token lock-ups, or to enter a delta-neutral position while seeking to profit either from the funding rate (basis trading) or from various yield farming strategies.
Margined is working to get a basic version of their protocol running as soon as possible. Its basic structure will look like this.
Governance will manage the Margined contracts, most importantly the Factory, which manages the margin engines, the virtual AMM, and the oracle feeds. When users create or maintain positions, their margin funds will be put in escrow, where they can be used to pay funding, pay for a losing position, refunded to increase leverage or pay out a winning position, or liquidated. Users initiate some of these transactions, and the others are carried out by the liquidators.
At first, only native tokens will be available. In the Osmosis deployment of Margined, only OSMO will be available, but more assets will follow shortly. Margined plans eventually to launch its own chain, and as part of its OGP incubation grant, it has committed to airdropping 5% of its token supply to Osmosis users in the future.
Governance Corner
Prop 326 — to incentivize OSMO/BLD, the staking token of Agoric, a hardened Javascript Cosmos blockchain and the creators of IST, the upcoming over-collateralized stablecoin.
Prop 324, the Osmosis Support Lab budget for September-November passed easily (90.7% to 3.5%, with 5.8% abstaining). The spend was 412,170 OSMO from the community pool. You can see the detailed proposal and accounting here. Notes from the OSL Town Hall here.
Prop 322, initializing the ION DAO contracts, which passed in Props 315 and 316. Judging from the ION DAO website, ION can now be staked!
Prop 320, regarding blocked.go, failed, as discussed above.
Prop 319, uploading an Apollo Liquid Staking Contract, passed. Full details in their announcement.
Lastly, if you haven’t noticed yet, the swap widget on the Osmosis front-end has received an upgrade. It now takes up less space on the page, making room for some new upcoming features. 👀
That’s all for August! We will see you again on September 7th.
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