Osmosis has reacted to the collapse of LUNA and its stablecoin token UST, by pivoting LP rewards to USDC, DAI and ETH pools (paired with OSMO). These Ethereum assets are bridged over to Osmosis via the Axelar bridge solution, which was selected via a series of governance proposals to be the primary bridge for Osmosis.
Stablecoin vacuum.
UST was the dominant stable coin representation of USD on Osmosis, and across much of the Cosmos DeFi eco-system. We all know what happened there, so I won't go in to all the details again, suffice to say UST is dead. EEURO is an option available, but it seems that everyone wants a USD pegged stablecoin.
The bridge showdown that Osmosis governance conducted was done to select which would become the primary (also called canonical) bridge for Osmosis. This is important, because at this time, tokens bridged through different options into the IBC eco-system are not fungible. So, for example, USDC bridged via Axelar isn't fungible with USDC bridged via Gravity bridge, or Peggy (from Sifchain).
Having multiple different representations of USDC would lead to fractured liquidity and a confusing UI/UX. For the sake of simplicity, Osmosis wanted one bridge to be the primary, featured on the main Osmosis page, and then other options would be available through the alternative front end called Osmosis Frontier. This Frontier is the permissionless Osmosis, and several bridge options are available here, along with other Cosmos assets that have not been whitelisted to the main site yet.
Obviously, bridging assets across chains in different eco-systems comes with risk. I don't feel qualified to try and explain all the technical details of how Axelar's bridge works, and if it is safe. So instead, I'll link to their docs, with this learn about Axelar page. With my lack of tech knowledge, I am in a position where I have to trust that the team behind Osmosis, and the validators and dev's involved in the governance decision to select Axelar know what they are doing and have chosen the best options.
High APR.
Osmosis governance voted quickly to remove incentives from the UST and LUNA pairings, which occupied a decent sized share of the OSMO emissions. Incentives have been swung over to the following pools:
- OSMO/WETH
- OSMO/USDC
- OSMO/DAI
As you can see, the "safest" stable-coins have been selected, and USDT has been ignored. USDC is probably the most regulated, and DAI is battle-tested and has proven itself as the best "decentralized" option.
So, here is what these three pools look like at the moment:
As you can see, the APR's on these three pools are high. So far, these pools have attracted around $30 million of liquidity. APR's will adjust over time, but at the moment this is a big incentive to bridge some assets over to Osmosis and get into these pools. In addition, OSMO is at a quite low price, and likely to recover over time, and once the negative effects of the LUNA/UST collapse washes out. Not financial advice of course, but I think OSMO right now under $2 is a steal, and if I had any spare capital I would be building a position.
The big thing here is the safety of the bridge. We have all seen bridge exploits, and given recent events, risk factors are being more carefully considered than previously. Like I said, I don't have the technical know how to really understand and verify the bridge safety. That risk is something you will need to consider yourself.
Thanks for reading, if you enjoyed this post, here are some more you may like:
Cheers,
JK.