Governance proposal #52 [ATOM 🤝 Osmosis: Allocate Community Pool to ATOM Liquidity Incentives]

[ATOM :handshake: Osmosis: Allocate Community Pool to ATOM Liquidity Incentives]
:fountain_pen: Proposer: Sikka

[ATOMs should be the base money of Cosmos, just like ETH is the base money of the entire Ethereum DeFi ecosystem. ATOM is currently well-positioned to play this role among Cosmos assets because it has the highest market cap, most liquidity, largest brand, and many integrations with fiat onramps. ATOM is the gateway to Cosmos. In the Cosmos Hub Port City vision, ATOMs are pitched as equity in the Cosmos Hub. However, this alone is insufficient to establish ATOM as the base currency of the Cosmos ecosystem as a whole. Instead, the ATOM community must work to actively promote the use of ATOMs throughout the Cosmos ecosystem, rather than passively relying on the Hub’s reputation to create ATOM’s value.

In order to cement the role of ATOMs in Cosmos DeFi, the Cosmos Hub should leverage its community pool to help align incentives with other protocols within the Cosmos ecosystem. We propose beginning this initiative by using the community pool ATOMs to incentivize deep ATOM base-pair liquidity pools on the Osmosis Network.

Osmosis is the first IBC-enabled DeFi application.
Within its 3 weeks of existence, it has already 100x’d the number of IBC transactions ever created, demonstrating the power of IBC and the ability of the Cosmos SDK to bootstrap DeFi protocols with $100M+ TVL in a short period of time. Since its announcement Osmosis has helped bring renewed attention and interest to Cosmos from the crypto community at large and kickstarted the era of Cosmos DeFi. Osmosis has already helped in establishing ATOM as the Schelling Point of the Cosmos ecosystem.

The genesis distribution of OSMO was primarily based on an airdrop to ATOM holders specifically, acknowledging the importance of ATOM to all future projects within the Cosmos. Furthermore, the Osmosis LP rewards currently incentivize ATOMs to be one of the main base pairs of the platform. Osmosis has the ability to incentivize AMM liquidity, a feature not available on any other IBC-enabled DEX. Osmosis already uses its own native OSMO liquidity rewards to incentivize ATOMs to be one of the main base pairs, leading to ~2.2 million ATOMs already providing liquidity on the platform. In addition to these native OSMO LP Rewards, the platform also includes a feature called “external incentives” that allows anyone to permissionlessly add additional incentives in any token to the LPs of any AMM pools they wish. You can read more about this mechanism here.

Pools containing Cosmos assets such as AKT and XPRT are already planned to receive incentives from their respective community pools and/or foundations. We propose the Cosmos Hub dedicate 100,000 ATOMs from its Community Pool to be allocated towards liquidity incentives on Osmosis over the next 3 months.

This community fund proposal will transfer 100,000 ATOMs to a multisig group who will then allocate the ATOMs to bonded liquidity gauges on Osmosis on a biweekly basis, according to the direction given by Cosmos Hub governance. For simplicity, we propose setting the liquidity incentives to initially point to Osmosis Pool #1, the ATOM/OSMO pool, which is the pool with by far the highest TVL and Volume. Cosmos Hub governance can then use Text Proposals to further direct the multisig members to reallocate incentives to new pools.

The multisig will consist of a 2/3 key holder set consisting of the following individuals who have all agreed to participate in this process shall this proposal pass:

  • Zaki Manian | Iqlusion & Sommelier Finance
  • Federico Kunze | Ethermint & Sommelier Finance
  • Marko Baricevic | Binary Holdings & Interchain GmbH

This is one small step for the Hub, but one giant leap for ATOM-aligned.]

:woman_astronaut:t2::man_astronaut:t5:Cosmonauts, vote now via:

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2 Likes

I will be voting no on this for now. I think we need to have a unified view of how and when to spend funds from the community pool for LP rewards, not just for Osmosis, but for all the other DEXes that will ask as well in the future. At the very least I think we should wait to subsidize AMM/lps until the gravity bridge is live and working, so liquidity can come in from the Eth ecosystem to earn yield as well. This would also help get more DeFi users from Eth familiar with the Cosmos ecosystem.

You have my support, but I saw a vote No with Veto. Not sure if it means, what I think it means. Any thing to add?

We at Tendermint believe that having more than one healthy cross-chain DEX in the Cosmos ecosystem is bullish for DeFi in the interchain. We are extremely supportive of the work and effort from the Osmosis team, and we ultimately believe that Cosmos Hub support for liquidity growth in ATOM pairs in various DEXs makes a lot of sense. However, the Tendermint team is making a recommendation against Prop 52 because this is not the right time to decide on this topic.

  1. Most importantly, Osmosis has already succeeded at being a major ATOM trading locale. The ATOM/OSMO pool has $16.6M in liquidity, and over $1M volume in 24 hours, which is close to 1% of all ATOM trading volume, less than a month after launch. A $1M grant to incentivise more liquidity does not seem necessary in such a vibrant market, or likely to be a significant driver.
  2. The determination of how much and when/where to deploy ATOM incentives on various DEXs should be after the Gravity DEX pools are established and settled. Gravity DEX’s deployment will change a lot of features of the trading environment, and the Cosmos Hub community should have all possible data to support deciding where to deploy incentives.
  3. The ATOM pools on Osmosis are already disproportionately higher than OSMO pools. Most ATOM/x pools have at least double the liquidity of corresponding OSMO/x pools. Adding ATOM incentives into Osmosis will make this problem worse. We believe that the Osmosis community needs to address the shallow OSMO pool problem before the Cosmos Hub community decides whether or not to fund additional incentives on the Osmosis chain.
  4. In the spirit of credible neutrality, the Hub community should have a discussion on how the community pool should be used for liquidity incentivization across the various DEXs in the Cosmos ecosystem instead of rushing to allocate a chunk to Osmosis without first considering a more sustainable and long term strategy. This should include LP reward and direct market-making, and include clear guidelines on when to increase support, and when support operations should be complete, and funds returned to the community pool. This proposal does not have any provision for returning funds when they are no longer needed to drive community goals.
  5. Ensuring security throughout the Cosmos ecosystem is one of the most important functions of the Cosmos Hub. As stewards of this responsibility, ATOM holders should ensure that ATOMs from the community fund are utilized in chains that have passed an acceptable level of security scrutiny. Tendermint holds the Osmosis team’s technical abilities in high regard, but we believe as a matter of policy that all supported chains should be audited by a credible third party.

When is the right time to re-propose ATOM incentives for providing liquidity? Tendermint proposes we have another proposal once the following have been achieved:

  1. Have clear metrics for the increases in liquidity and volume we are trying to achieve, and guidelines for what to do if they are and are not met
  2. Wait 1-2 Months after Gravity DEX and Emeris launch to allow the pool allocations to settle between Osmosis and Gravity DEX
  3. Osmosis community figures out a way to shift the pool distribution to be more equitable between ATOM and OSMO pools
  4. There is a discussion with ATOM holders on a general strategy of how to distribute the Community fund to incentivize liquidity across the Cosmos ecosystem
  5. Osmosis team completes a 3rd party audit of their codebase
8 Likes

Dear Cosmos community,

The Citizen Cosmos validator has voted ‘no’ on prop 52:

  1. To our knowledge, there are no previously studied cases in the crypto space, where the base asset of a network is given as an incentive for farming.
    I.E. ETH is never given as an incentive for providing liquidity in a farm, for let’s say, the ANT/ANJ pair or the ANT/YFI pair, etc.
    This puts us in an unclear situation, where we cannot measure the possible risks this actions might cause to ATOM.
    In our opinion, handing out ATOM to the same players on the market that already have ATOM will, most likely, cause these players to carry on dumping the asset onto the market. Hence, leading to more weak hands. This is just simple reward / 0 at stake psychology.
    We need more new hands, not handing out ATOM to those already in possession of ATOM for the sake of handing out ATOM - this will NOT make the token more attractive, but rather the opposite.
  1. The natural distribution of OSMO is yet unfinished. It is hard to make any decisions or any judgments based upon the existing statistics of ‘5 minutes ago’.
    We, the ATOM community, need more time to study the case and the economic behavior of these networks to make such decisions.

  2. We have not seen a counteroffer from OSMO. Handing out OSMO as incentives might seem to many like the counteroffer, but it’s not. OSMO is handed out as a way of attracting new users to Osmosis. What would make this a more equal opportunity, is the transfer of an equal amount (in % to supply) of OSMO to the community pool(!) of the Cosmos hub.

  3. What we propose, is to wait for the launch of gravity DEX and for several months to see what are the economic consequences on the tokens and the ecosystem. Then, offer a step by step proposal, where each time, let’s say 10k ATOM can be released, if necessary to Osmosis. The consequences and the statistics studied. And then another 10k, etc.

1 Like