This proposal would add TIA as a valid quote asset to Osmosis. This would have the following impact:
- Supercharged pools can be permissionlessly made with TIA as a quote asset
- The Osmosis community pool will begin to accumulate TIA rather than selling for USDC.
- Incentives would begin at the next monthly incentive proposal for all TIA pools paired with another quote asset.
Background
Celestia launched two months ago as a new IBC enabled blockchain that will form the data availability layer for a new generation of modular blockchains.
Osmosis governance chose to incentivize the new Celestia pools with a bootstrapping spend of up to 300,000 OSMO from the Osmosis community pool in Proposal 665.
Celestia quickly proved itself to be a dominant market on Osmosis, reliably being in the top ten of assets by volume for the entire bootstrapping period.
As the spending period draws to a close, this proposal asks whether Osmosis governance wishes to add TIA as a Quote asset at this time. This will have three main impacts:
X/TIA Supercharged pools may be permissionlessly created
Supercharged pools can only be made permissionlessly using the quote assets of USDC, USDT, DAI, WBTC, ETH, ATOM, and OSMO.
This was intended to reduce the number of potential pairings and so reduce routing calculations and liquidity fragmentation.
This would allow any other tokens to create X/TIA Supercharged pools if they consider that to be a beneficial pairing. This may be important if blockchains launch using TIA as their main token but wish to create a secondary token.
Osmosis community pool accumulates TIA
All Taker fees that are obtained in non-OSMO assets are currently split, with 67% being converted to OSMO for distribution to Stakers and 33% being directed to the Community Pool.
These community pool assets are either sent as they are, if the asset is a Quote asset, or converted to a default asset, currently USDC, if they are not.
This means that all TIA directed to the Community pool is currently swapped to USDC.
If Osmosis plans to play a larger part in the Celestia Ecosystem, then beginning to accumulate TIA in the Community Pool may be beneficial.
Internal Incentives
Pairings of Quote assets are currently approved for inclusion in the ongoing Osmosis incentive distribution program as of Proposal 670.
This would maintain a level of incentives on the TIA pools to ensure that Osmosis remains the primary DEX to trade TIA, as well as encourage liquidity to move to or remain in lower fee pools to increase the proportion of swap fees that go to Osmosis, increasing the staking APR and the rate of accumulation of TIA in the Community Pool.
Target On-Chain Date: 16th December 2023
Create Volume Splitting Gauges for Celestia Pools
This proposal creates volume splitting gauges for Celestia paired pools.
Proposed Groupings
TIA/OSMO
- TIA/OSMO 0.2%
- TIA/OSMO 0.2% (Classic pool)
- TIA/OSMO 0.05%
TIA/STABLE
- TIA/USDC 0.2%
- TIA/USDC 0.05%
- TIA/USDT 0.2%
- TIA/USDT 0.05%
About Volume Splitting Gauges
Volume Splitting Incentives gauges were introduced in V20 as a mechanism to divide incentives between pools in proportion to the trades they facilitate. These gauges have been used since to divide incentives between Supercharged pools and the migration-linked Classic pools.
Unlike normal gauges, which only have one destination pool, Volume Splitting Incentive gauges cover a group of pools. Incentives are allocated to this grouping rather than the previous method of allocating to single pool gauges.
The proportion of incentives that go to each pool in the grouping is recalculated every epoch according to the volume that occurred in the pools over the previous day. This allows pools that are generating the most volume per unit of liquidity to increase incentives day on day without waiting for a new incentive proposal to pass.
Volume can be expected to be higher per unit of liquidity in lower fee pools due to lower costs for traders as well as an increased number of times that profitable arbitrage opportunities occur. These gauges will encourage liquidity in high-traffic routes to move to lower-fee pools within the grouping.
As liquidity moves to these pools, the fee per trade is lowered, making Osmosis a more attractive exchange to perform trades on. It also changes the ratio of fee collection between what Liquidity Providers receive and what the protocol receives through the Taker fee.
Example
In a default OSMO/ATOM pool with 0.2% Spread Factor and the default 0.1% Taker fee there is a total swap fee of 0.3%. The Liquidity Providers receive two-thirds of the fees accumulated by that pool, and the Protocol receives a third.
If liquidity migrates to a 0.05% Spread Factor pool, then the total swap fee will be lowered to 0.15%, with Liquidity providers receiving a third of the fees and the protocol receiving two-thirds.
The lower fee pool will have more volume from increased arbitrage opportunities as well as a lower overall fee, helping to attract more traders. This causes the fee generation per unit of liquidity on Osmosis to increase.
Despite this, Liquidity Providers may receive fewer swap fees overall compared to a higher fee pool, so Osmosis Incentives will help cover this gap to encourage liquidity to move to lower fee pools that provide better returns for the protocol itself.
If trading in a pool is limited, as may be the case with most tail assets, there may be little incentive for liquidity providers to accept the lower ratio of fees, and so the volume and incentives will remain in the higher spread factor pool. In the event of a sudden increase in volume then the lower fee pool will adjust at the next epoch to attract more liquidity and make Osmosis a more attractive trading location for the asset pairing.
Target On-Chain Date: 19th December 2023
). It will be quite interesting to see what kind of pools we will see being created for such a relatively new asset compared to all the “oldies” we already have in the quote assets.