The State of Osmosis-November 18, 2022
Market volatility has continued into this week. And the data starting to reflect these changes within Osmosis.
Over the last week the liquidity of stable coins has continued to drop while the number of ecosystem-native tokens has continued to increase. This week we will examine the inverse correlation of the liquidity composition within Osmosis.
Market Down, Stable Coins Down?
Over the last week since the collapse of the FTX exchange, downside volatility has picked up significantly. Although the price of the OSMO token has faired quite well considering the market sentiment, the make up of its liquidity has changed.
Osmosis has maintained a track record of gaining stable coin liquidity since the inauguration of Axelar as its canonical bridge. As a result, stable coin growth has been amongst the highest when compared to other tokens in the ecosystem.
One can see this by how large the TVL of USDC has grown ($15.6M) in the last 6 months. USDC is the second largest token by TVL in Osmosis, while DAI is the 10th largest. They both represent some of the most popular pools that Osmosis offers.
Here’s the growth in liquidity for both of these stable coins over the last month:
- USDC 14.57% at a total of 14,003,106.69 tokens
- DAI -2.68% at a total of 3,165,357.28 tokens
Although liquidity continued to increase over the last 3 weeks for USDC and remain steady for DAI, last week’s volatility created a shift in this pattern of growth.
Here’s how stablecoin liquidity looked over the last 7 days:
- USDC -13.46% to 16,042,851.801 tokens from 18,537,971.54 tokens
- DAI -10.84% to 3,080,452.665 tokens from 3,455,061.98 tokens
Both of these tokens exhibit similar patterns of growth followed by a sharp drop, correlated with the increase in market volatility and dampening of investor sentiment in crypto.
Let’s examine the other side of the “coin”.
The Return of the Cosmos tokens
An important factor one has to be aware of in tracking liquidity is the inverse correlation of buys and sells occurring within an exchange such as Osmosis.
For example, let’s take a look at non stable coins and their liquidity over the last week, many of which had significant changes in volatility.
- ATOM 1.72%
- EVMOS 11.87%
- CRO 12.89%
These 3 tokens all suffered heavy drops in price and all 3 of them had significant increases in the total liquidity make up within Osmosis.
Here’s what could be occurring: users who are more risk adverse are selling these tokens and trading them for other tokens (possibly stable coins) as they are trying to “risk off.” Secondly, they could be depositing their capital into a liquidity pool in an attempt to capture the fees generated as a result of the increased volatility.
Take a look at how price movements can impact liquidity changes.
All this volatility is a positive for the swap fees liquidity pools are generating, however you can see the majority of participants trading their stable coins are doing so by trading their OSMO pairs. This can be seen in the increase in the number of OSMO tokens in the exchange over the last week, a reversal from what we saw during the Binance listing at the end of October.
Osmosis is highly responsive to the activity occurring outside of the Cosmos, even if the price remains highly sheltered. Changes in the make up of liquidity point to a shift in sentiment and an interesting metric to track over the coming weeks as the market digests more volatility.
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