Osmosis Ecosystem Spotlight: Phase Finance
The Osmosis DEX suite is growing exponentially, and it can be hard to keep track of all the teams building new features. This series of Ecosystem Spotlights allows you to get to know the teams in their own words (lightly edited). To see more, check out our other posts or the Osmosis Ecosystem website.
What is Phase Finance?
Phase is building automated investing strategies for Osmosis users, starting with capital-efficient dollar-cost averaging. As one of the most effective risk-management tools for investors, especially in a market as volatile as crypto, DCA is an ideal first strategy to attract users and prove product-market fit. And since the deposited funds can be lent out through Mars Protocol, users will be able to earn yield on funds that would otherwise be idle.
How does it work?
When users deposit assets into a Phase DCA strategy, they will set up a schedule for them to be converted into the other assets of their choosing. Phase will then automatically carry out the DCA process by making periodic swaps on Osmosis.
Under the hood, a Phase strategy works largely like a Yearn vault: a smart contract custodies user funds and initiates the strategy’s transactions, and the protocol charges a fee. Phase will take a small percentage of the yield generated from lending and any other other strategies that are implemented. The exact amount is to be determined.
However, unlike Yearn vaults, Phase strategies will be customizable. At first, this will be limited to adjustable DCA and lending parameters, but as interchain DeFi grows, Phase users will be able to choose among an increasing set of user- and team-created strategies, each of which may have its own custom parameters. Further, each customized strategy will have its own contract, meaning that, because the attack surface is limited, even popular strategies are less likely to become honeypots for potential attacks.
While Phase initially planned to use the Cosmos SDK’s authz module to allow users to retain full custody, it became apparent that for complicated strategies with many moving parts, contracts were the right tool for the job. That said, authz implementations are excellent for simple strategies like auto-compounding staked tokens and LPs, and Phase hopes to build some of these in the future.
What risks exist, and how can they be mitigated?
The main risk to users is front-running, since upcoming Phase transactions will be viewable on-chain. We expect to solve this with the upcoming threshold decryptable mempool on Osmosis, where transactions cannot be seen until after they are executed.
A TWAMM could also help combat front-running. This time-weighted average market-maker can infinitesimally segment long-term orders and stream them over time. Breaking down the orders this way practically eliminates all-or-nothing sandwich attacks, reducing front-running to something more like traditional arbitrage. Of course, without an encrypted mempool, the TWAMM would still leak order information, but the front-running it generates would be more complicated to execute and less obviously profitable, since 1) other arbitrageurs would simultaneously be attempting to front-run the front-runner, and 2) users getting unacceptably bad execution can change their strategies at any time.
Lending carries its own additional risks. Assets lent out through Mars while waiting to be dollar-cost averaged could default if falling asset prices drives their loan health (collateralization ratio) too low. Users will be responsible for picking strategies and collateral levels they are comfortable with and monitoring loan health during volatile periods. Alternatively, they may choose not to lend out their assets at all.
Finally, beyond front-running and lending risks, there are the usual token and platform risks inherent to all DeFi. Chains, bridges, and contracts can be hacked, projects can disappear, and assets can lose their value. Phase will make every effort to secure its own strategies, but users will still have to assess the underlying risks for themselves on an asset-by-asset basis.
II. Team
What are your origin stories? What got you into crypto and DeFi?
Lex and I (Luke) met in school at the University of Chicago. Lex comes from a Big Tech background, and I come from TradFi. Our journey began as a mission to expand the crypto community on the UChicago campus and create a new-wave attitude amidst the traditional academic culture. We played a part in starting up Blockchain Chicago and Chicago DAO, the only organizations at UChicago dedicated to the blockchain space. As a part of these organizations, we attended multiple hackathons around the country. Phase was actually first created at the LionHack hackathon at Columbia, where it was called AgriFi. Sunny Aggarwal was actually a judge at this hackathon, and suggested we apply to the Osmosis Grants Program to build out the app more fully.
III. Building on Osmosis
What attracted you to Osmosis? Why build here?
We love the Osmosis vision of seamless UX enabled through permissioned smart-contracting and vertical control of the stack. If mainstream users are to adopt DeFi, the experience must be as easy and seamless as any web2 experience. Osmosis is making this happen.
How do you see yourself developing within the Osmosis ecosystem?
We would love to integrate with as many apps on Osmosis as possible. Our product is designed to make DeFi more efficient and accessible to everyone, so the more composability the better.
Our first integrations will be with the Osmosis AMM itself, followed by the Mars Protocol outpost. Our relationship with Mars will be symbiotic, generating yield for our users and more liquidity for Mars from assets that would otherwise be idle.
Additionally, Phase is planning to integrate with Kado to allow users to set up recurring purchases from their bank accounts.
Are you planning to spin off your own appchain?
We are not currently planning to build our own chain, but are instead focused on establishing ourselves on Osmosis. However, if it makes sense in the future, we would consider deploying on other chains or even spinning up our own.
IV. Token / Governance
Which features of your app require governance, if any? And how do you expect that governance to be conducted?
Phase will not require any governance at launch, but if we were to launch a token in the future, the whitelisting of assets for lending and yield distribution would be controlled by governance.
Will you have a token?
There are no current plans for a token, but we are not against launching one for governance purposes. We could possibly explore a Curve-like vote-escrow model that gives yield-distribution power to token holders and incentivizes their long-term support of Phase.
V. Roadmap & Additional Features
What is the timeline for the features you’ve already described?
We are hoping to launch our DCA product on Osmosis mainnet by November, with the lending feature being dependent on Mars deployment. After that, the timeline for adding additional strategies and features is TBD.
Where do you see your project long-term?
Long term, we see Phase as an automated investment hub, where users can easily deploy complex investment strategies and manage their risk in a seamless way. DeFi in its current state is highly fragmented. Most users have assets sitting on dozens of different platforms. This can make keeping track of positions quite difficult, and utilizing multiple products at once is a painstaking process. Phase will help to unify many of the great DeFi products that already exist, vastly improving the end user experience.
Where do you see the Osmosis and Cosmos interchain ecosystem going in the near to medium future?
It is hard not to be bullish on the Cosmos interchain. With a giant like dYdX spinning up its own chain, and countless other teams from EVM and Solana moving over, we are seeing serious validation of the appchain ecosystem. Cosmos provides the best composability in crypto, not just for Cosmos chains themselves, but for all chains and all apps.
