[Cross-Post] Article originally published on Astroport’s blog on March 13, 2024:
High-level Summary:
- After overwhelmingly successful votes on both Astroport governance and Osmosis governance, Astroport will soon deploy an outpost on Osmosis where it will activate a new pool type on the DEX: passive concentrated liquidity (PCL)
- PCL pools will live alongside Osmosis’s existing “supercharged liquidity” pools, so LPs will be able to choose the best option based on their liquidity provisioning goals
- Standard PCL pool fees will flow back to xASTRO stakers. In addition, all trades that are routed through the Astroport’s PCL pools on Osmosis will generate a 10 basis point (0.1%) fee for Osmosis, which will be split between the Osmosis community pool and the OSMO staking pool
Liquidity providers (LP) can generally be grouped into one of two buckets: passive LPs or active LPs. Astroport’s optimized for passive LPs. Osmosis is optimized for active LPs. And now, after successful governance votes on both protocols, they’re joining forces.
Specifically, Astroport has begun preparations to deploy its passive concentrated liquidity (PCL) pools on Osmosis. That will give Osmosis LPs a new pooling option in addition to their flagship “supercharged liquidity” pools.
“This is easily the biggest alignment I’ve seen in Cosmos. It’s two massive DEXes that outsiders look at as rivals coming together and assimilating. And they’re doing it in ways that benefit both protocols. They’re leaning into their strengths and combining to improve liquidity for the entire Cosmos ecosystem,” says Delphi Labs Founder and CEO Jose Maria Macedo.
Sunny Aggarwal, Co-Founder of Osmosis Labs, agreed: “Competition is good, but aligning for the benefit of the greater community is even better — so it’s very exciting to see Astroport and Osmosis joining forces here. From genesis to the launch of Supercharged Liquidity was just the first phase in the evolution of Osmosis. Astroport’s new outpost on Osmosis introduces PCL pools, providing users with more flexible LP strategies than ever before. Only time will tell, but I predict that the Astroport deployment on Osmosis will become one of the biggest by volume within a month or so of the launch.”
The Astroport and Osmosis protocols appear similar on the surface. Both enable on-chain liquidity provisioning and swapping for Cosmos-based tokens. And both have leaned into offering “concentrated liquidity” pools – that is pools, which concentrate or amplify liquidity around prevailing prices to improve their trade efficiency. Under the surface, though, the protocols take very different approaches that we believe are powerfully synergistic.
Osmosis’s supercharged liquidity pools give LPs the ability to set price ranges for the assets they deposit into supercharged pools. By offering this level of granular control, LPs can mitigate potential impermanent loss and improve their returns.
This added control does however require more active management of the LP’s positions to fully maximize returns and ensure their liquidity is being utilized.
Astroport’s passive concentrated liquidity (PCL) pools on the other hand aim to give LPs the benefits of concentrated liquidity pools without requiring active management. PCL pools do this by using an advanced repegging algorithm.
This algorithm looks at ongoing trades and rebalances liquidity and fees around the exponential moving average of those trades. The moving average determines a specific price range around which to amplify trades. If prices move outside the range, the repegging algorithm automatically sets a new price range.
After successful signaling proposals on Astroport and Osmosis, Astroport’s PCL pools will be offered alongside Osmosis’s supercharged liquidity pools.
“Astroport’s codebase is portable. It’s like a magic suitcase. We can take it and deploy it on any Cosmos chain. It doesn’t matter if that’s the entire codebase with all our pool types, or just a chunk of the codebase with a single pool type. We can go wherever there’s a need for liquidity in the Cosmos. And thanks to IBC, each deployment is interconnected. It’s part of a bigger whole, which is this backend layer of truly passive, truly infinite liquidity,” says Astroport core dev, Donovan Solms.
While supercharged liquidity and PCL pools may look like competitors, PCL pools are better viewed as an evolution of passive XYK pools. They should perform 2-3x better than XYK pools, while requiring no active management. Supercharged liquidity pools on the other hand can and often will outperform PCL pools when being used by a highly skilled and active LP.
Professional market makers, for instance, often run their own internal algorithms and programmatically readjust their liquidity to match market conditions in real time. These power users are more apt to use Osmosis-style supercharged liquidity pools.
More casual LPs typically take a “deposit and chill” approach. They prefer to deposit once and let the pool’s algorithm concentrate their liquidity automatically.
Rather than competitors, then, supercharged liquidity and PCL pools complement one another. And by offering them both on Osmosis, they should grow the “liquidity pie” for both protocols in a mutually beneficial way. Specifically, the move should:
- Expand Astroport’s reach to the largest and most important DEX in the Cosmos ecosystem, and grow it’s global trading volume and fee generation in the process
- Attract more passive liquidity on Osmosis and give Osmosis LPs more optionality/pool types to choose from
- Improve capital efficiency for anyone who swaps (or has trades routed through) Osmosis
- “Defragment” liquidity, which may be spread across other AMMs throughout the Cosmos
Standard PCL pool fees apply and will flow back to xASTRO stakers. In addition, all trades that are routed through the Astroport’s PCL pools on Osmosis will generate a 10 basis point (0.1%) fee for Osmosis, which will be split between the Osmosis community pool and the OSMO staking pool.
“When most people hear the word DEX, they think of an app where they can go and input token tickers and amounts and execute trades. But that’s just the end result. DEXes are really infinite liquidity machines. They’re a place where traders can find liquidity 24/7/365. And Astroport offers a very specific type of liquidity: liquidity that’s passive," says Astroport core dev, Andre Sardo.
“‘Passivity’ has some negative connotations, but we think it’s Astroport’s superpower. Passive LP’ing is what made Uniswap successful in the first place. With PCL pools, you go and LP in a pool, and you can leave your tokens there for days, months or years, and have it automatically adjust to market conditions. Impermanent loss gets minimized, and fees get maximized. And because your liquidity is passive, it’s truly programmable or composable. It can be tapped by apps and vaults and aggregators anywhere in the Cosmos.”
Preparations for the deployment are ongoing, and PCL pools are expected to go live on Osmosis in the coming weeks. The future awaits!
DISCLAIMER
Astroport and Osmosis are experimental technologies. This article does not constitute investment advice.
Read the original article on Astroport’s blog 