This proposal is for a feature to allow users to seamlessly and instantly transition their bonded liquidity from all pool types into a fully staked OSMO position, bypassing any lock period present.
Osmosis has historically implemented a 14-day lock period for staking and liquidity provision.
For staking, this gives the chain the ability to slash malicious actions if they are discovered after the fact by other validators.
For liquidity provision, the bonding period was initially intended to improve liquidity stickiness during volatile periods, which has been unpopular with liquidity providers and has resulted in emergency unbonding proposals such as Proposal 226 during the UST depeg event and drafts being raised during subsequent USDC and WBTC minor depegs.
With the introduction and rollout of Supercharged Pools, the bonding period has been removed for standard liquidity provision in these pools. The lock period is still in place for Superfluid staked positions due to the same requirement as Staked OSMO.
Users who wish to transition their liquidity from a Superfluid staked pair, whether in a Classic pool or a Supercharged pool, to full OSMO Staking must first unbond their liquidity, wait for the 14-day lock period to expire while not receiving staking rewards, swap to OSMO, and then stake.
This proposal asks that a feature be implemented that allows a bonded position to be migrated to a fully staked OSMO position without undergoing an unbonding period.
This feature would take the form of an on-chain message that breaks any current bonds (including superfluid), swaps all assets involved to OSMO, and stakes this. As the same bonding period would exist in both the start and end states of this message, there would be no way for staked value to become fully unbonded by a bad actor through this to avoid slashing.
Enabling this message would reduce friction for the transition of liquidity to a staking position by minimizing the time taken for this user flow and maintaining staking rewards during the process.
This user flow results in more OSMO being staked that otherwise may only be staked at a superfluid discount which improves the security of the chain.
As well as the specific user flow this smooths, this mechanism allows users to instantly freeze impermanent loss on a bonded liquidity position by moving entirely into an OSMO staking position. This ability may make liquidity provision on non-Supercharged pools, which may be more sustainable than Supercharged pools for highly volatile tail assets or have long-term external incentives already in place, more attractive. This also reduces the impermanent loss risk still present in full range, Superfluid staked, Supercharged pools, which now consist of the only bonded liquidity in Supercharged pools by allowing these to switch to the single asset staked position at will.
This feature would be implemented during a future software upgrade proposal.
Target On-Chain Date: 30th July 2023