Background Behind Osmosis (OSMO)
Initiated in 2021, Osmosis was developed by the core members of the Cosmos ecosystem – Sunny Aggarwal and Dev Ojha from Sikka and Tendermint. Its Proof-of-Stake protocol runs the native token OSMO.
Osmosis (OSMO) Basics
The OSMO token was built on an Inter Blockchain Communication Protocol, specifically to assist Automated Market Maker (AMM) applications, such as the Osmosis decentralised exchange. AMMs allow assets to be traded in an authorization manner against liquidity pools rather than traditional order book market makers. Users depositing tokens into liquidity pools are called liquidity providers (LPs) and are essential to the operation of an AMM.
Osmosis differs from other decentralised exchanges in that it offers single liquidity staking in different size ratios, making it easy for anyone to become a liquidity provider.
Their DEX is a vast ecosystem for IBC-linked apps and is fully customizable, meaning the users have more management and flexibility to stake and earn Annual Percentage Yield (APY). In addition to making interest on their idle assets, users can also participate in the governance of the Osmosis DEX. Each user gets to voice their opinion on any decision or proposal for developing the protocol. The platform also introduces the idea of “AMMs as serviced infrastructure’’. Automated Market Makers have been facing a rise in complexity in the system, which Osmosis tries to solve by providing AMM creators with an option to characterise the bonding curve value function and reuse the rest of the infrastructure using Osmosis’ products.
Osmosis protocol gives users control over their liquidity pools by allowing them to vote on proposed changes via governance. The Osmosis team claims that no part of the Osmosis code structure is hard-coded, meaning users can make changes to different parts of the Osmosis finance protocol.
Osmosis (OSMO) Blockchain
DeFi adoption has been phenomenal. However, as these systems gain traction, they’re confronted with many limitations and, unsurprisingly, interoperability is one of the main issues.
Solutions like Osmosis DEX are influencing other advanced blockchain technology to overcome these limitations and bring users greater possibilities, further decentralising the DeFi space.
Osmosis (OSMO) Staking
Superfluid staking allows you to stake the network token and equivalent tokens. The initial version of this service was for liquidity providers on a DEX, where if you have a token that represents a position on OSMO, you should be able to stake that for OSMO equivalents. They have since expanded upon that.
Osmosis (OSMO) Mining
Liquidity mining, also called yield farming, is when users earn tokens for providing liquidity to a DeFi protocol. This mechanism is used to offset the fluctuation loss caused liquidity providers. Liquidity mining has proven to be highly popular among investors because it earns passive income, which means that you can obtain rewards from liquidity mining of crypto without needing to make active investment decisions along the way.
Osmosis (OSMO) Speed and transactions fee
Fees are subject to change based on storage, computation costs and the minimum gas cost proposed. These fees are distributed to OSMO stakers and validators.
Anyone who swaps assets on the DEX will pay swap fees, which are determined by each liquidity pool’s parameters and trade size. These fees are distributed pro-rata to that pool’s liquidity providers. Providers who pull their liquidity out of a pool will also pay exit fees. The provider’s shares are then burned and the value is distributed to the remaining liquidity providers.
Osmosis (OSMO) Supply
There’s a max supply of 1 billion OSMO tokens, though there less than 500 million in circulation today.
The token’s opening price at launch – 5 October 2021 – was $5.12. The coin price dipped a bit before reaching a high of $10.71 on 17 January 2022. However, as the crypto bear market kicked in, it lost about 40% of its value, dropping to $5.81 by the end of April 2022. And that was just the beginning of it’s fall from grace, as today it sits at a mere $0.82.
Osmosis (OSMO) Security and Safety
The Inter Blockchain Communication Protocol OSMO was built on allows chains that need to talk to one another to do just that without forcing such a relationship on the entire network. Osmosis’ founder believes that the Cosmos ecosystem has already established a mesh system similar to the ‘yellow system’. Within the security world, Aggarwal asserted that the NATO association is the best example of a ‘yellow system’ in the real world. To unpack this ‘yellow system’ – In NATO, each country is a sovereign nation with its internal policies and network architecture. However, if one is attacked, article 5 states that all other members must protect it.
The NATO example is one Aggarwal believes is directly relevant to interchain security. Currently, validators validate their own blockchains.
However, while your tokens are on an exchange you’ll never have the guarantee locking your assets up in a hard wallet provides.
Osmosis (OSMS) Volatility
One fundamental problem faced by all DEXs is volatile liquidity. Liquidity is often referred to as “mercenary” because users will, of course, stake their tokens in whichever pool offers the highest rewards – this results in extreme volatility across the AMM space as pools compete to maintain their supply of liquidity. This is one area where Osmosis is different, with its Superfluid staking, though this only amounts to so much.
Review and Final Thoughts on Osmosis (OSMO)
As the most well-known DEX in the Cosmos ecosystem, Osmosis has positioned itself to be one of the first Cosmos dApps many newcomers interact with. However, it seems the Osmosis mission goes far beyond simply just being a foundational pillar in Cosmos.
With the potential to connect other token blockchains into a network where fast and cheap value transfer is possible, the path ahead for Osmosis looks bright, despite its crash in price.
The network’s early traction seems to revolve around providing liquidity and staking. By plan, Osmosis is a fascinating case study of how a DEX can offer an alternative to mercenary yield farming practices, leading to a better and more stable trading experience for all.