This proposal allocates an additional 80,000 USDC from the community pool to the OSMO Liquidity and Buyback strategy, while also iterating on this mechanism.
Background
In Proposal 960, Osmosis governance approved the deployment of community funds into a mechanism that combines liquidity provision and buybacks, utilizing funding sources from top-of-block auctions. This approach allowed Osmosis to enhance liquidity depth while simultaneously creating an additional source of self-sustaining buyback pressure for OSMO.
Initially, 120,000 USDC was deployed across five positions, covering the OSMO/USDC price range of 0.14–0.19 in increments of 0.01.
These positions have resulted in the direct burn of 116,810 OSMO, as well as the collection of 20,455 OSMO in swap fees pending burn, at a net cost of 16,567 USDC, with 103,433 USDC remaining deployed to the strategy.
These positions also resulted in the indirect burn of an additional ~1,000 OSMO per day due to increased taker fees, which were enabled by this liquidity being available onchain.
The OSMO burn rate, therefore, was increased by approximately 3,750 OSMO per day through this mechanism, at a lower funding cost than the USDC accumulated in the community pool over the same period (27,500).
The acquisition of OSMO by the protocol occurred at an average cost of $0.142, representing a 10% discount to the typical market price during this period, compared to purchasing OSMO directly with revenue. This suggests that this mechanism is more efficient than the integrated buyback and burn mechanism.
| Metric | Result |
|---|---|
| OSMO burned | 116,810 |
| OSMO from swap fees pending burn | 20,455 |
| OSMO burned from additional taker fees | ~40,000 |
| Net USDC cost | 16,567 |
| USDC remaining deployed | 103,433 |
| Avg acquisition cost | $0.142 (10% below market during period) |
Proposed Mechanism Changes
Observed inefficiencies with this mechanism are that the majority of funds are idle as they are out of range. Some liquidity being unused during standard volatility is inevitable, but only four of the five positions have been entered so far, with one remaining out of range for a sufficient duration to be withdrawn and burned.
The mechanism operates well when the position is entered and exited during typical volatility. The 0.01 bands proved too coarse, resulting in no liquidity being used during periods of modest volatility when fluctuations occurred just above the top position.
This proposal asks that the positions follow the price more closely by decreasing the position placement from every 0.01 to 0.001 granularity and reducing the number of positions to four.
Deployment Details
- Additional Deployment: 80,000 USDC
- Spread Factor: Maintained in 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% (~0.007 at current value)
- Review Period: Weekly
- New Active Deployment: 183,190 USDC
This structured deployment provides continuous depth while ensuring that the position remains relevant to the market rate, balancing efficiency and adaptability.
Refer to the original proposal for worked examples illustrating how this mechanism repositions.
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.
Rationale
With the initial deployment, OSMO was acquired at a 10% discount to market, amplifying burn efficiency. Narrowing bands should increase the frequency of in-range positions, further improving utilization.
Allocation of further USDC to this strategy further enhances liquidity for OSMO against USDC, thereby increasing ratio stability and increasing the amount of OSMO trading that occurs onchain vs offchain CEXs, leading to fee generation and buyback/burn.
This strategy directly reduces the maximum supply of OSMO while reinforcing market stability and expanding the allocation signals that governance supports this valuation range as an appropriate use of community resources.
Target Onchain Date: 28th September 2025