amOSMO Support Liquidity at launch of Amulet

Proposal Discussion
1

This proposal outlines a plan to support Amulet’s amOSMO on Osmosis, similar to the support provided for other OSMO-based Liquid Staking Tokens (LSTs).

Amulet’s offering of amOSMO is unique compared to other LSTs on Osmosis as it is used to enable self-repaying tokenized loans and aims to maintain a static 1:1 value with OSMO. To foster its growth, this proposal asks for an initial 250,000 OSMO allocation to establish foundational backing liquidity.

Background

Osmosis has a history of supporting OSMO LSTs by providing liquidity from the community pool. These initiatives aim to align with the principles of:

  • Minimal OSMO staked using Protocol Liquidity
  • Diversity of OSMO LSTs
  • Resilient Pegs for OSMO LSTs

About Amulet

Amulet is a self-repaying loan protocol, enabling users to borrow against their staked assets while maintaining yield. amOSMO represents OSMO that will be earned in the future from OSMO staked as collateral within Amulet. Therefore, unlike traditional LSTs, amOSMO does not increase in the underlying assets that it represents due to staking-derived yield but instead forms a market of users who wish to sell their future yield now for a discount vs the steady redemption of amOSMO into OSMO, establishing a self-repaying loan structure.

A user deposits OSMO into the Amulet vault and receives a loan of up to 50% of the OSMO quantity in amOSMO. This can then be used in secondary markets such as swapping, liquidity provision or deploying in locations that enable their acceptance as collateral for stablecoin or other borrowings. As the initial stake accumulates yield, withdrawals of the collateral are then permitted, and the protocol has underlying assets to offer to amOSMO holders for redemption.

Currently, Amulet has a Total Value Locked (TVL) of approximately $97,000 and the proposed liquidity deployment will significantly enhance its accessibility and usability in the Osmosis ecosystem from its current ATOM offering.

Amulet Resources:

Proposed Support for amOSMO

To establish strong liquidity for amOSMO, a static position will be created in a 0.9-1.0 range. This differs from the approaches used for other LSTs, as amOSMO maintains an underlying value of 1:1 with OSMO due to being backed by vault deposits and future staking yield. The market price will vary around this point depending on loan quantities taken. This ensures a stable and deep liquidity position that allows seamless conversions between OSMO and amOSMO.

Key Details:

  • Initial Liquidity Deployment: 250,000 OSMO
  • Liquidity Range: 0.9-1.0 OSMO
  • Expected Peg: amOSMO always represents 1 OSMO underlying

Implementation

This proposal would transfer 250,000 OSMO from the community pool to the Osmosis Liquidity subDAO. The subDAO will then deploy the liquidity into a concentrated liquidity position from 0.9-1.0 within a newly created amOSMO/OSMO pool with a 0.1% spread factor.
This position will underwrite the market for amOSMO, allowing protocol usage in the early deployment stage.
The liquidity position will then be transferred back to the Osmosis community pool.

This support will provide the following benefits:

  1. Enhance Liquidity for amOSMO: Improve the efficiency and usability of amOSMO across DeFi applications.
  2. Ensure a Resilient Peg: Provide stable backing for amOSMO to maintain its 1:1 peg with OSMO.
  3. Diversify OSMO LST Offerings: Expand the range of yield-bearing and DeFi-enabled OSMO derivatives available on Osmosis.

Future Expansion

If amOSMO adoption and demand increase, additional liquidity could be deployed following a similar model. This will be evaluated based on the performance of the initial 250,000 OSMO deployment and overall market conditions, as well as the availability of amOSMO redemption arbitrage to maintain the market rate as close to underlying as possible.

2

How does this compare to the support for other LST-providers? Should we look for deploying more funds or maybe to redistributing assets first?

3

Generally pretty small, we mostly have 1M deployed to LSTs, but Amulet has a lower initial Tvl and currently no redemption loop available right now so this is a smaller initial allocation.

We could redeploy from elsewhere but the community pool has a surplus of OSMO for tentative use cases such as this.

4

Yeah, but for me it is more about the question what we want as exposure in terms of LSTs. Having the funds available does not necessarily mean one needs to put it at risk :wink:

If we don’t need the funds, then we could also consider removing it from existence in the first place. I mean, people are really happy inflation goes down over time… but removing coins from existince also contributes to a lower amount of generated OSMO, since the inflation is calculated over the total supply. And when the total supply is lower… hence the amount of newly generated OSMO.

5

Kinda a different discussion there! Burning the community pool now we have a surplus is something I’ve been pondering too, but there are pros and cons there.

I agree that we shouldn’t just put funds at risk because we can, but this is one reason why this is a relatively small initial allocation compared to previous deployments.

Osmosis’ inflation works differently to the Cosmos SDK standard unfortunately. It’s not a % on the total supply, but a daily allocation, which takes the form of both an unlock and a mint.
How frontends calculate Osmosis’ inflation is the allocation/total supply * 365, so lowering the total supply would make inflation look larger!
We’re hoping to tackle this soon with a new endpoint that will reflect the actual daily mint. Emissions are a little tangled to casual observers - look out for a blog post soon :slight_smile: