Allocate additional USDC to OSMO buyback and liquidity strategy (November 2025)

Proposal Discussion
1

This proposal allocates an additional 200,000 USDC from the community pool to the OSMO Liquidity and Buyback strategy.

Background

In Proposal 960, Osmosis governance approved the deployment of community funds into a mechanism that combines liquidity provision and buybacks. This approach allowed Osmosis to enhance liquidity depth while simultaneously creating an additional source of self-sustaining buyback pressure for OSMO.

This methodology was refined in Proposal 984 to better adapt to price movements in a narrower band. This redeployment occurred before October 10th, which was the largest liquidation event in crypto history, resulting in all USDC being converted to OSMO at an average price of 0.15. The purchased OSMO is being burned as specified in Proposal 960. This sudden movement has left the strategy with almost zero USDC inventory.

This proposal requests an additional 200,000 USDC to be allocated from community pool reserves to the strategy, making a total of 400,000 USDC from revenue sources that act as a delayed buyback and burn mechanism after initial collection rather than the regular buyback and burn mechanism that takes place with the majority of taker fee revenue each epoch.

In the event of another market crash, this would result in a sudden buyback and burn of approximately 2.3 million OSMO, assuming a deployment range of 0.075 to 0.095. However, previous deployments have accumulated a greater amount of OSMO for the burn mechanism than would be achieved through a simple buyback. By earning swap and taker fees during volatility, this mechanism consistently retires more OSMO per dollar of USDC deployed than a direct buyback would achieve.

Deployment Details

  • Additional Deployment: 200,000 USDC
  • Spread Factor: 0.5% pool
  • Position Number: 4 active positions
  • Position Size: Up to 25% of the total mechanism allocation
  • Position Placement: 0.001 accuracy
  • Position Width: 5% (~0.005 at current value)
  • Review Period: Weekly
  • New Active Deployment: 200,000 USDC (Previous allocation burned as OSMO)

Mechanism Recap

Liquidity Deployment

  • Four consecutive buy-side CL positions are placed below the OSMO/USDC spot ratio, each covering a 5% range.
  • Example (if OSMO = $0.1):
    • 0.1 – 0.095
    • 0.095 – 0.09
    • 0.09 – 0.085
    • 0.085 – 0.08
  • Liquidity is placed in a 0.5% spread pool with each position using up to 25% of the available USDC inventory.
  • The Liquidity SubDAO manages this liquidity due to the time-sensitive nature of redeployments, which require faster execution than the Osmosis DAO governance cycle time.

Market Movement Handling

  • If the ratio of OSMO/USDC rises:
    • The lowest position is withdrawn and redeployed upward to the closest 0.001 USDC to the sustained spot ratio once the market holds above this level for one week.
  • If the ratio of OSMO/USDC falls into a liquidity range:
    • That USDC becomes active liquidity, earning swap fees and facilitating taker fee generation, which contributes to additional burn.
  • If the ratio of OSMO/USDC falls below a position’s range for a week:
    • This affected position is now entirely in OSMO and is withdrawn and burned, reducing the maximum supply and removing upside resistance.

Target Onchain Date: 10th November 2025

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