While much of the crypto market has been looking shaky of late, and the majors BTC and ETH are well below their peak and struggling it seems, one eco-system has been powering steadily forwards. The Cosmos has carried through this little downturn barely skipping a beat. Again today, ATOM has pushed over $40, and many other Cosmos coins are performing very nicely.
Most of these have one thing in common, deep liquidity on Osmosis.
OSMO ATH.
Again today, OSMO has set its new ATH, just a short time ago at $9.34. It has more than doubled in value, from around $4 just a month ago.
Many Cosmos eco-system coins share one thing in common, Osmosis as their primary liquidity center. Many newer projects are not even on any CEX's, some more established may have some CEX support, but Osmosis has become the main liquidity location. They are also benefiting from being "pegged" through very deep liquidity pairings with OSMO and ATOM.
OSMO has in recent days passed some notable projects in the market cap rankings, such as SUSHI, OHM, CRV, MKR and even the darling of the Leofinance community, RUNE. Yup, OSMO market cap is now well above RUNE, with the gap increasing daily. Currently at rank 59, it is closing in on other notable tokens like AAVE, CAKE and EOS.
Why?
Firstly, the UX is one of the best in DeFi. Smooth, importing and exporting of tokens from dozens of different chains. High incentives for LP's, that have held up over time. I can't remember seeing the OSMO/ATOM pool for example ever dropping below 100% APR, and it has currently over $450 million in liquidity just in that one pool alone.
I think that the real secret is the fact that to earn this high yield, you have to bond your LP shares for up to 14 days. This has had the effect of making the liquidity much "stickier", as people ride out the occasional downturn and just keep collecting the 100% APR along the way. Initially, there was a fear in some circles that OSMO may follow the trend of many other high inflation coins - and hit a point where high APR's were offset by sliding token prices. There was some evidence early on that this may happen, with many ATOM holders in particular pooling on Osmosis and swapping all their OSMO income back into ATOM to build their ATOM stake.
Over the longer run, however, this has not proven to be the case, as OSMO has become a high quality, sought after asset in its own right. The other thing going for Osmosis is that it has quickly become THE Dex for the Cosmos. Gravity Dex had a troubled start and never really gained any traction, with a lack of incentives giving it very little widespread appeal. Sifchain tried once they implemented IBC, but poor execution of a number of initiatives from a confusing and troubled airdrop, to unclear and difficult incentivization attempts have stunted any successes it may have had. No matter what perspective you hold, Osmosis has already won the "Cosmos Dex" space, and is in ascendancy.
The other key driver for continued demand for Osmosis is its attractiveness to new chains in the Cosmos. Cosmos is unique in that it has much lower barriers to entry for new projects, instead of launching as layer 2's on various EVM chains, projects can simply spin up their own chain, add a native token, and tap in to Osmosis to launch their coin through an LBP, and then incentivized pools soon follow. This continues to suck more OSMO in to these liquidity pools, and daily rewards seem to be continually compounded rather than sold off. Add it the ability for external projects to add their own incentives on top of the OSMO rewards, and we can see why this platform has grown exponentially over the last few months.
What's to come?
In my opinion, the killer feature for Osmosis is yet to be rolled out. Superfluid staking is coming, hopefully some time in the current Q1 period. Up until that point, OSMO holders have had a decision to make, stake their OSMO for around 100% staking APR, or pool it with other tokens for varying APR's ranging from 40% up to 200% or more, depending on the pool.
Superfluid staking will be a game changer, allowing Osmosis participants to effectively have their cake and eat it also. OSMO added to LP positions, provided it is bonded presumably in the 14 day guages, will be counted as staked for the purposes of chain security, governance and staking rewards. Yes, OSMO in LP's will earn staking rewards, as well as LP incentives. Double dipping never sounded so rewarding.
Osmosis is implementing a different approach to "staking derivatives" than many other chains are looking at. With most current or proposed liquid staking options, you stake the token, receive a different token as a representation of that stake, and then use that derivative within some DeFi ecosystem in some ways. Osmosis however is flipping that, by simply counting OSMO in LP's that is bonded for 14 day, as staked. The security level is the same as staking for these tokens in an LP, so this process actually enhances chain security, rather than adding risk factors that other liquid staking options present.
The design of Osmosis's "superfluid staking" is both elegant, and enticing, and I believe will strongly propel OSMO further up the coin rankings in the months to come. Who wouldn't want a token that can be added to an LP position, and earn both a high staking reward (likely to drop significantly during this process well below 100% to maybe 70% APR for staking), and a high LP incentive at the same time?
My Non-financial advice is, if you have been sleeping on Osmosis, wake up quickly.
Thanks for reading,
JK.
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