80% of alloyedBTC on Osmosis isn’t in LPs.
Whats the benefit of these users holding the alloy instead of a singular bridge?
This really shouldn’t be so hard to answer & the lack of an answer will be the reason why this causes an issue in the future. The answer I propose:
there is 0 benefit
Users from Bitcoin should go to a canonical bridge
you can swap to the alloy at any point with no fee so no need to hold
If I’m a BTC whale and I bridge 10M BTC to Osmosis & the alloy has a 1% bridge insolvent blocked by rate limits I lose 100k, possibly without knowing the risks initially. So a concluding question, as a whale, why would I ever take this risk? There are 6 counterparties that could make this happen to me.
I don’t think they care much about allBTC as an asset users actually want to hold or enable its use as collateral to support osmo’s defi ecosystem. The focus seems to be on enabling zero-fee swaps between bridged BTC derivatives across other chains rather than establishing a deep, liquid, and well-integrated “canonical” form of BTC on Osmosis.
Most on-chain BTC liquidity sits idle in the transmuter, and a significant portion of volume flows through 0% fee transmuter swaps and BTC/stable pools with below-standard fee tiers and reduced taker fees. As a result, Osmosis sees little revenue or real benefit from the increased BTC flow—aside from vanity tweets boasting about inflated volume driven by feeless swaps.
Well this is the problem, they do.
Sunny responded to a tweet saying they want users holding it bc it provides liquidity between the variants.
The BTC sitting idle in the transmuter is the issue bc the users have no reason to take that risk, so the point of this is asking why we are forcing users to take that risk. And if the answer is bc we need liquidity btwn variants, this is the most dangerous soluton to doing that & all the users not in LPs shouldn’t be holding the alloy.
Not forcing users to take the risk here - a user could choose to hold a variant alone. However, the default flow is to the alloy since there are an increasing number of variants, which makes it confusing for users unfamiliar with the risk profiles of all variants.
With the alloy, we can diversify that risk so that we only onboard assets that are trusted and then limit the impact if any of these bridges do suffer a failure.
While the limits are very loose while we are seeing rapid growth in the alloys, they will function far more like the IBC rate limits, which keep the majority of the alloy holdings secure in case any one bridge fails, which then the community pool can cover the minor losses.
In short, the main reasons for not using the asset for other purposes are convenience and risk diversification.
For the volume figures @Marty , while the alloy is included in the data, the majority of the volume is in the other pairings, such as BTC/USDC or BTC/SOL, with only usually about 15% being movements in/out of the alloy.
