TM Rating: 84% |
Review Date: January 11th, 2022
Osmosis is an advanced automated market maker (AMM) protocol that allows developers to build customized AMMs with sovereign liquidity pools. Built using the Cosmos SDK, Osmosis utilizes Inter-Blockchain Communication (IBC) to enable cross-chain transactions. Osmosis allows users to launch liquidity pools with unique parameters, like bonding curves and multi-weighted asset pools. The incentive structure of Osmosis is also adaptable. Governance implements liquidity reward (LP) rewards for speciﬁc pools, allowing for strategically targeted incentives.
Osmosis is a fair-launched, customizable automated market maker for interchain assets that allows the creation and management of non-custodial, self-balancing, interchain token index similar to one of Balancer. Inspired by Balancer and Sunny Aggarwal’s ‘DAOfying Uniswap Automated Market Maker Pools’, the goal for Osmosis is to provide the tools that extend the use of AMMs within the Cosmos ecosystem beyond traditional token swap-type use cases.
Bonding curves, while having found its primary use case in decentralized exchange mechanisms, its potential use case can be further extended through the customizability that Osmosis offers. Through it, such custom-curve AMMs, dynamic adjustments of swap fees, multi-token liquidity pools–the AMM can offer decentralized formation of token fundraisers, interchain staking, options market, and more for the Cosmos ecosystem.
Whereas most Cosmos zones have focused their incentive scheme on the delegators, Osmosis attempts to align the interests of multiple stakeholders of the ecosystem such as LPs, DAO members, as well as delegators. One mechanism that is introduced is how staked liquidity providers have sovereign ownership over their pools, and through the pool governance process allow them to adjust the parameters depending on the pool’s competition and market conditions.
Osmosis is a sovereign Cosmos zone that derives its sovereignty not only from its application-speciﬁc blockchain architecture, but also the collective sovereignty of the LPs that have aligned interest to different tokens that they are providing liquidity for. Osmosis introduces the idea of an ‘AMM as a serviced infrastructure’.
Fairly often, adjustment of the value function and a few additional parameters are all that’s needed to provide a highly-eﬃcient, highly-accessible AMM for the majority of decentralized ﬁnancial instruments. By providing the ability for the creator of the pool to simply deﬁne the bonding curve value function and reuse the majority of the key AMM infrastructure, the barrier to creating a tailor-made and eﬃcient automated market maker can be reduced.
As the Cosmos ecosystem has recently been growing at a signiﬁcant pace, Osmosis has been one of the leading forces of the growth and has notably almost doubled its TVL in the last month.