Alternative to OSMO-ATOM Merger: Aggressive Anti-Inflation Model (70% Buyback & Burn)

General
1

Context

There have been recurring discussions about a potential path where OSMO would effectively be phased out or merged into ATOM.

I want to propose a clear alternative direction.

In my view, merging or eliminating OSMO in favor of ATOM is a structurally flawed approach:

  • It forces agreement on a conversion rate that neither side considers fair
  • It transfers value under disputed assumptions rather than creating new value
  • It risks weakening both ecosystems instead of strengthening them

Instead of resolving the underlying issue, it repackages it.

Core Thesis

The problem is not that OSMO exists.

The problem is that its tokenomics currently create persistent sell pressure.

If that is fixed, the rationale for eliminating the token largely disappears.

Proposed Direction (for discussion)

Rather than merging with ATOM, Osmosis could transition to a highly aggressive anti-inflation model:

  • ~70% → buyback & burn (or long-term protocol lock)
  • ~20% → staking rewards
  • ~8-10% → treasury (active, yield-generating)
  • ~0-2% → liquidity incentives (only critical pools)

Why This Is a Better Alternative

1. Solves the actual problem (sell pressure)

The current system incentivizes:

earn → sell

A strong buyback & burn model shifts this toward:

emission → market demand → supply reduction

This directly addresses price pressure without requiring external restructuring.

2. Avoids forced value negotiations

A merger requires agreeing on:

  • relative valuation of OSMO vs ATOM
  • exchange ratios under current market conditions

Both sides will naturally view those terms as unfavorable.

This creates:

  • governance friction
  • perceived loss of value
  • long-term dissatisfaction

An internal tokenomics fix avoids this entirely.

3. Preserves sovereignty of both systems

Osmosis and Cosmos Hub serve different roles:

  • Osmosis → application-layer DEX
  • Cosmos Hub → base-layer security & coordination

Merging tokens blurs these roles without clear benefit.

A stronger OSMO allows:

  • clearer separation of concerns
  • healthier interdependence instead of consolidation

4. Creates real value instead of redistributing it

A merger redistributes existing value.

A burn-driven model:

  • reduces supply
  • introduces structural demand
  • aligns token with protocol performance

This is value creation, not value transfer.

Expected Trade-offs

This approach is not without cost:

Short-term:

  • lower liquidity incentives
  • reduced farming activity
  • potential drop in TVL

Long-term:

  • reduced inflation
  • stronger holder alignment
  • improved price stability

Open Questions

  • What is the lowest sustainable staking reward that maintains validator health?
  • Should buybacks be fully burned or partially locked as protocol-owned liquidity?
  • How aggressively can liquidity incentives be reduced without harming UX?

Closing Thought

If OSMO is underperforming due to its tokenomics, the solution should be:

fix the tokenomics

-not eliminate the token through a merger that both sides are likely to perceive as unfavorable.

A 70% buyback & burn model is one possible direction to explore.

Curious to hear thoughts from validators, LPs, and the broader community.

2

The parameters right now are:

OSMO
Staking Rewards: 30%
Burn: 70%

Non-OSMO
Staking Rewards (Buyback and distribute) 22.5%
Community Pool: 25%
Buyback and burn: 52.5%

Since around 50% of revenue is collected in OSMO we overall end up with taker fees going to:

Staking Rewards: ~26%
Buyback and burn: ~62%
Community Pool: ~12%

  • What is the lowest sustainable staking reward that maintains validator health?

Is the main driver keeping staking rewards at this level. Several validators have closed down over the last few months due to unprofitability to the point where we should be lowering the set again.
Staking participating has also been falling under the reduced rewards. https://analytics.smartstake.io/osmosis/stats/staking

Should buybacks be fully burned or partially locked as protocol-owned liquidity?

Burning eliminates supply. Adding liquidity of a bought back asset allows to to reenter circulation.

How aggressively can liquidity incentives be reduced without harming UX?

Liquidity incentives are at zero and have been for some time.

3

I love your heart and passion and your perspective is understood. However, OSMO isn’t underperforming because of tokenomics. It’s underperforming because all of crypto is in the shitter, because liquidity is flowing from not into Cosmos, because the uncertainty around Sunny’s attention to Polaris vs Osmosis, because staking yield plummeting to near 4% and other reasons I’m not thinking of off the top of my head.

Reducing inflation to bring the price up is a common misconception I see all over crypto. It flat out doesn’t work. In fact, it puts validators out of business and decreases demand for the token. Osmosis needs users to spur demand.

I’ve managed many millions of dollars for both retail investors and 401k plans and what needs to be considered is risk/reward and to always remember that money goes where it’s treated best.

We have all become used to the risk in crypto, Stockholm Syndrome, but the average investor still sees it as as far out on the risk curve as you can get. Junk bonds that are actual businesses underwritten by reputable agencies yield much higher.

As of March 2026:

I realize that bonds are income assets and OSMO is a speculative growth asset with 4% staking yield that can be added. I’m just trying to illustrate a point.

Most cryptos have done nothing but go down over the last 9 months or so. So OSMO is not unique. Think from an investor’s mindset…. would I rather put my money in short term treasuries at 4% with no risk to my principle, go for junk bonds at 6% to 13% or speculate?

Investors have told us. They prefer the former. They’re not interested in riding the chart down and if the staking yield is lowered any further, OSMO becomes even less attractive.

Lowering the staking yield last year was an enormous mistake. Lowering it further will kill the project, I fear. Remember, LPers get paid OSMO. If the token becomes even less attractive, liquidity will dry up even further.

Inflation is not “bad.” It serves a purpose short term. I’m not against lowering inflation, I just disagree on timing.

Osmosis is in bad shape and IMO the acquisition is a good move as long as the price is right and Sunny and the team vow to stay on and advance the DEX and not get paid to walk away. Their compensation must be paid in traunches and contingent upon performance benchmarks. Otherwise, why would the Hub bother?

You’re right that loud voices on both sides won’t like the price, but in my experience the loudest voices:

  1. Have no money or voting power
  2. Have never run servers or any serious tech, especially for clients
  3. Have never managed money and investments for clients
  4. Are hanging onto the idea that “crypto will make me rich”
  5. Have the misguided dogmatic belief that their favorite token is due for new all time highs regardless of reality

My comments come with love and respect for you and all OSMO holders. I own lots of OSMO and lots of ATOM, fyi. I drank the IBC Kool-Aid and want nothing but for both projects and the whole ecosystem to thrive.

But I am totally against lowering inflation in any form. I think any crypto project that lowers their staking yield below 7% and even 10% instantly shoots themselves in the foot because they’ve made their token substantially less attractive to investors.