Alloyed USDT: Simplification of Variant Composition

Proposal Discussion Alloyed Assets
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This post documents a moderator action taken on the Alloyed USDT contract.

The canonical USDT on Osmosis was defined in Proposal 792, which defined the moderation subDAO with the ability to remove variants from the alloy.

The moderation subDAO is currently reviewing all Alloys to assess the risk vs. benefit of the variants, as they have been active without change for some time and have seen varied levels of usage while trading within the alloy generates no fees for Osmosis yet incurs risk to the protocol.

Alloy Information

Adjustment Summary

The Moderator SubDAO will remove the following USDT variants from the Alloyed USDT set:

  • USDT.kava - IBC from Kava EVM
  • USDT.wh - Wormhole bridge from Ethereum
  • USDT.e.op.axl - Axelar bridge from Ethereum via Optimism
  • USDT.e.arb.axl - Axelar bridge from Ethereum via Arbitrum
  • USDT.e.matic.axl - Axelar bridge from Ethereum via Polygon

Following this adjustment, Alloyed USDT will consist of only:

  • USDT.axl - Axelar bridge from Ethereum
  • USDT.eth.atom - Eureka bridge from Ethereum
  • USDT.inj - Injective Peggy bridge from Ethereum

Rationale

Observed usage of the USDT alloy shows that non-core variants are primarily used for arbitrage routing, rather than for organic liquidity provision or user-driven swapping.

Key considerations:

  • No protocol revenue is generated from intra-alloy swaps due to zero swap fees.
  • Each additional variant adds operational and bridge risk without corresponding economic upside.
  • L2-based Axelar variants show minimal direct demand while increasing the risk within the Alloy.
  • Wormhole support within the Cosmos ecosystem is declining, this is not fully integrated into the alloy deposit/withdrawal flow and is only available through a multistep process of unwrapping or wrapping USDT.wh from the alloy.
  • Volume for USDT.kava has primarily flowed through a separate pool, highlighting a perceived risk differential for liquidity providers.

Maintaining a broad set of variants, therefore, exposes Osmosis to asymmetric risk with little benefit.

For extracted data on USDT variant flows over the last 90 days see this sheet: USDT Variant Flows - 90 days - Google Sheets

Outcome

  • The USDT alloy is narrowed to widely supported Ethereum bridge paths.
  • The alloy remains functional while being materially simpler, easier to reason about, and lower risk.
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