The State of Osmosis-September 30, 2022
Over the past few weeks a pattern has become more and more apparent, and may come to surprise most observers of this ecosystem. This week, we will analyze price volatility and the effect it has on the GAMMs of a Liquidity Pool.
The liquid staking revolution is here, and it is being spearheaded by Stride, whose liquid staked Atom pool has found great success in Osmosis as the 5th largest pool in the ecosystem. With the recently launched liquid staked STARS pool, will they find similar success?
A pattern too commonly seen
As volatility has finally come to the Cosmos, the shelter we enjoyed over the last three months has begun to wane. Just as we saw the increased liquidity with Ethereum after the merge. The same pattern was observed with an ecosystem in a similar market; Evmos.
Let us examine the liquidity chart for Osmosis to better explain.
A stark comparison from the price action EVMOS witnessed this week, down over 27% over the last 7 days, meanwhile token liquidity has grown over 14%. This is an acceleration over the previous weeks, which indicated an increase in the number of tokens added to Pool 722.
In order to understand token liquidity, we also need to understand what users of Osmosis doing with their EVMOS tokens. Are they selling them? Swapping them? or providing liquidity to Pool 722?
Let’s take a look at the total liquidity of EVMOS in Osmosis to help understand this.
Liquidity of EVMOS tokens has not slowed since we began tracking it in June. The pool pays one of the highest rewards in Osmosis, 93% APR.
While staking pays over 200%, one has to consider why a user would want to provide liquidity as opposed to simply staking their EVMOS tokens?
A few reasons I think would help explain this behavior
- Diversification from the underlying asset
- APR offers a significant reward
- Reward asset is used as a hedge
You can see from the GAMMs in the EVMOS / OSMO pool that the number of GAMMs has largely been unaffected as a result of the recent token volatility.
What does this tell us? Investors in this pool feel the incentives are sufficient to risk impermanent loss as a result of volatility. OSMO as a token is less volatile than EVMOS and provides a desirable asset for those looking to shelter from the volatility.
Did the Stars Align?
If you were watching Cosmoverse this week, you probably understand how important a role liquid staking will play in creating a more sustainable and efficient ecosystem.
With the recent launch of the stATOM pool, Osmosis users have been able to benefit from liquid staking technology. The pool now comfortably sits as the fifth largest pool in Osmosis.
Will this type of growth be replicated as they recently launched their liquid staking solutions for Stargaze? Let’s take a look at the progress to date.
Token liquidity has decreased since the pool launched on September 22nd. A stark difference in the behavior we saw when comparing stATOM.
This does not necessarily mean Liquid staked solutions for Stargaze are not curtailing capital. It could simply mean that the general use for STARS is not to stake the token but rather to use them, to purchase NFTs.
A look at the GAMM count over time, helps explain.
The pool is continuing to grow since it’s inception. With total liquidity growing over $227,000.00 in the last seven days, it is clear liquid staking continues to play its part to provide efficient liquidity solutions for the Cosmos.
A similar trajectory should not be expected in this pool and here’s why:
- STARS has much lower liquidity in Osmosis and the Cosmos
- STARS is a utility token making the incentive to stake lower
- LP 810 is only incentivized by Stride
However the goal should not be to outperform stATOM but rather to compare how much capital is now being used to secure a chain and being freed simultaneously.
Volatility is what Osmosis was built for, the increase in volatility has not done much to deter users who are still continuing to provide liquidity from doing so! Users are coming to Osmosis for the lack of volatility the token has compared to other tokens in the Cosmos ecosystem and seeking shelter, while still enjoying some of the highest incentives in the Cosmos.
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