A brand new Dex, built on a Cosmos SDK chain called Osmosis was launched just a couple of days ago. The launch has been a great success, with only a couple of minor issues experienced on day 1. Osmosis is the first major application of the IBC protocol at significant scale, and it has passed this live stress test with flying colors. A very small number of transactions on opening day became stuck, and eventually refunded. Apart from that, it has been a very smooth experience overall.
For some more recent Osmosis content, take a look at these posts:
The UI for Osmosis is fantastic, its clear and straightforward to understand. The learning curve is quite small, and actions like moving funds from other wallets to Osmosis, staking and adding to Liquidity Pools are all very intuitive and easy to perform. The User Experience so far has been sensational, in my opinion.
Now, it's time to look at the returns currently on offer from this project. It is important to note that its very early days, and as the network matures, LP incentives begin, and staking rates change, thses numbers will become outdated very quickly.
Staking APR.
Staking is the backbone of most Cosmos based chains, and Osmosis is no different. Holders stake their OSMO tokens to a validator or multiple validators, who run the blockchain and validate transactions. Validators earn a commission from the earnings from this stake, with many on Osmosis currently setting their commission rate at 5%.
To see what APR is being generated on staked OSMO, we need to understand the Osmosis token model. From the linked document, we can see that in the first year, a total of 300 million new tokens will be minted. These tokens get release once a day (called an epoch) into circulation. So, a total of just over 820,000 new OSMO tokens per day are added to the circulating supply.
Next we, can see from that document that 25% of those new tokens are allocated as staking rewards. This totals 205,000 (rounded off) per day. Next, we look at the Mintscan block explorer to see that currently (at the time of writing this post) there are 5.1 million OSMO tokens staked. 205000/5100000 = a daily return per token staked of just over 4% This gives a staggering APR of 1467%. APY from that, with daily compounding, is currently a mind blowing 176 million%.
Now, obviously this rate will drop as more tokens get staked, and people compound their returns to build their positions. But, a current APR of 1467% is an incredible return on staking. OSMO tokens take 14 days to unstake. There is also a small risk, like all Cosmos based chains, that you could lose a small percentage of your staked tokens if the validator is bad, usually a slashing event happens if the validator double signs a block, or misses a number of blocks and is jailed. In my experience, these kinds of events are very are. I have only once been slashed, on an AKT staking, and the penalty was 0.05 AKT (a tiny portion of my AKT). Something to be aware of, no doubt, but not really something to worry about.
Liquidity Mining.
Rewards for liquidity mining on Osmosis have not commenced yet. A proposal is up for governance voting to kick start rewards, and it has sufficient votes to pass. Once the vote ends in a couple of days, LP rewards will be activated. To see what these rewards will look like, we'll start back at the token model linked previously.
45% of the tokens issued each day will go to LP rewards. To begin with, this initial proposal will allocate all these rewards as follows:
This proposal provides initial incentives for pools.
It sets the initial distribution of incentives allocation points. It allocates 5% of the LP incentives to the community pool.
The rest is based upon the current TVL for each pool. ATOM/OSMO has the most liquidity, so we have it at 25%. For the remaining pools, we split the incentives evenly between the ATOM and OSMO pools. The AKT pools have the next most liquidity, so we add them at 25% total, split between the two 12.5% pools. After that is the XPRT pools, so its 20%, split across both. Then DVPN at 15%. Not much liquidity has arrived for IRIS or CRO, so we set them to 4% of the allocation points each. Finally, we allocated 2% to these ION things… Whatever they are…
Osmosis has capabilities for incentivizing passive liquidity. Correspondingly, 80% of the allocation points are dedicated to people who bond their LP shares for at least 1 day. 15% who bond for at least 7 days, and 5% for those who bond at least 14 days. (So if you bond for 14 days, you get the rewards for 1 day, 7 day, and 14 day)
- So, 369,000 OSMO per day will be allocated to LP incentives.
- 5% to the "community pool"
- 25% to the ATOM/OSMO pool - 92,250 per day.
- 12.5% to AKT/ATOM - 46,125 per day.
- 12.5% to AKT/OSMO - 46,125 per day.
- 10% to XPRT/ATOM - 36,900 per day.
- 10% to XPRT/OSMO - 36,900
- 7.5% to DVPN/ATOM - 27,675
- 7.5% to DVPN/OSMO - 27,675
- Other allocations are 4% to IRIs and CRO, and 2% to the mysterious ION token.
So, I worked out using current values, and current TVL in each pool what the returns on these pools would be. A simple spreadsheet with the current OSMO price, and the liquidity amounts in each pool as the variables.
Now, obviously a lot will change between now and rewards going live, and I'll update this in the run up to rewards being activated. The actual returns will vary, and required bonding your LP position. Osmosis is implementing a "bonding period" to earn from liquidity mining, locking up your LP position for a period in return for the mining incentives. The time period you choose will impact the returns you receive.
Now, I'm no genius, but if TVL does not increase by ALOT over the next 2 days, those are some enormous APRs. These potential returns will likely lead to a couple of possible outcomes:
- Massive increase in liquidity. Once people work out these APR's, new liquidity could flood in and push the APR's down to more realistic levels.
- Significant downward pressure on OSMO price. With its highly inflationary token release schedule early on, I'm already surprised that OSMO's price has held up so well. The activation of these kinds of APR's could weigh on the price in the short term.
- Some combination of the above is probably most likely.
Please don't relly on the above table to allocate your funds. DYOR and keep an eye on the variables mainly of the current pool liquidity if you are chasing yield. Or just pool the tokens you like from that list, and take the rewards as a bonus.
Personally, I have most of my OSMO staked, earning the daily returns outlined above. I have an AKT/ATOM pool position, and am adding my daily return from staked AKT to the equivalent OSMO (from staking income) into the AKT/OSMO pool. Soon, I will have some XPRT unlocked from staking, and I will add it likely to each of the XPRT pools in equal portions. That's my current plan, but I'm watching closely and ready to change at short notice. My primary goal for Osmosis is to grow a large staking position, alongside my AKT staking for the long term. Secondary goals are to build LP positions in a number of pools, and grow my overall assets in the Cosmos eco-system.
The OSMOSIS launch has been awesome, and the stability of the platform, and the price of OSMO has far exceeded my early expectations. I'm very excited to build my position in this new platform, and (without providing financial advice) would encourage people to take a closer look at Osmosis.
For more Osmosis content, check the following links out:
- Osmosis post by @nulledgh0st
- Osmosis launches soon
- Osmosis and Akash, a match made in decentralized Heaven
- Cosmos based DeFi part 2 - Osmosis
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JK.