This article is a collaborative effort from Osmosis contributors Johnny Wyles and David Goosenberg 
Osmosis is changing the game with Bitmosis, a set of initiatives designed to unlock Bitcoin liquidity across chains and position Osmosis as the go-to venue for BTC trading.
Bitcoin is the most valuable cryptocurrency but it remains largely disconnected from DeFi. Without a native decentralized exchange (DEX) or seamless cross-chain liquidity, BTC holders often face slow, costly transactions, and a frustrating experience when moving between ecosystems.
Osmosis (@osmosiszone) is a DeFi-focused appchain and DEX, and the premier DeFi hub for the Cosmos ecosystem and beyond. It serves as a key liquidity and trading venue for assets on appchains without a native spot DEX, like Akash (AKT), Celestia (TIA), and dYdX (dYdX).
Bitcoin, the largest chain without a native DEX, is a strategic focus for Osmosis.
The Bitmosis initiative aims to make Osmosis the leading decentralized exchange for Bitcoin by:
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(1) Establishing Bitcoin liquidity for the emerging Bitcoin Layer 2 ecosystem
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(2) Becoming the go-to trading venue for Bitcoin
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(3) Accumulating Bitcoin within the protocol’s treasury
Bitcoin Liquidity Hub
Each Bitcoin Layer 2 (L2) — such as Stacks (@Stacks), Merlin (@MerlinLayer2), and Rootstock (@rootstock_io) — issues its own representative version of Bitcoin.
These variants aren’t inherently fungible with native BTC or each other, so moving between them typically requires bridging back to the base Bitcoin network, which is relatively slow and expensive.
A rapid settlement layer like Osmosis is required for assets to move smoothly between the chains secured by Bitcoin, or to other ecosystems in a decentralized manner.
To solve these fragmentation and fungibility issues, Osmosis introduced Alloyed BTC, a mechanism for unifying multiple BTC variants into one liquid token.
Alloyed BTC, a Standardized Form of BTC on Osmosis
To achieve seamless interoperability between Bitcoin variants, Osmosis leverages Alloyed Assets, a system that consolidates multiple representations of BTC into a single tradable asset.
The Alloyed or standardized version of BTC on Osmosis is composed of multiple underlying bridged assets and, at the time of writing, consists of five variants of BTC, including the leading derivatives in use on Ethereum and Base and two decentralized bridges to Bitcoin (@nomicbtc and @OmnityNetwork).
Osmosis governance can vote to expand the BTC Alloy to encompass new assets as they become available as valid transfer routes.
This flow is similar to that found on Centralized Exchanges (CEX), where multiple deposit sources are permitted to a user’s account and treated as fungible once in the exchange, despite not being so onchain .
This flow is most common for assets with multiple issuance locations, such as USDC being deposited from Ethereum, Solana, Noble, or many other chains while being treated identically on a centralized exchange.
The main difference with a DEX is that a user always retains control of their assets.
Alloyed Assets have built-in rate limitation settings, also managed by Osmosis governance, which prevent the ratio of tokens from changing excessively, either beyond a set risk ratio or within a set period of time. These rate limits minimize any issue with one constituent from draining the liquidity of the paired assets in the Alloy, resulting in a risk-diversified pool. As a further security measure, a circuit breaker subDAO of Osmosis can freeze movement in and out in the event of a suspected issue with a bridge.
In previous resources describing Alloyed Assets, the focus has been on a user holding the Alloyed token rather than its use as a routing pool. Alloyed tokens represent LP shares of the pool of underlying assets, and are used as a risk-diversified version of an asset that is usable throughout the Osmosis Ecosystem.
Adoption of this Alloyed Asset mechanism is rapidly growing as liquidity flows into Osmosis and is converted from BTC variants into the standardized form of BTC on Osmosis.
This enables Osmosis to serve as the routing hub of transfers between Bitcoin L2s, each of which have their own, non-fungible representation of BTC.
The alternative is to use the Bitcoin network as the routing hub of transfers between Bitcoin L2s. That is, bridge back to the main Bitcoin chain and out to the desired destination L2, which requires two transactions on Bitcoin with the associated fees and block confirmation times for finality.
For example, a swap of Stacks’ sBTC for Rootstock’s RBTC can settle quickly, crossing between L2s, or be traded for any other token on Osmosis using the overall BTC/USDC liquidity.
Osmosis and the Alloyed Asset system allow Bitcoin L2s to interact seamlessly with different ecosystems.
Bitcoin Related Assets
Osmosis aims to be a trading venue for all Bitcoin-related assets by utilizing the same connections that connect to sources of Bitcoin itself.
These might include:
- Liquid restaked versions of BTC
- Babylon’s $BABY token (@babylonlabs_io)
- Ordinals
The #1 BTC Trading Venue
Osmosis has seen consistent growth in BTC trading volume and liquidity since the Bitmosis initiatives detailed below kicked off 
1. Low Fee BTC/USDC Market
Osmosis charges taker fees on market trading. This is 0.1% for most pairings, a competitive rate compared to other trading locations.
BTC/USDC currently has a reduced taker fee of 0.02%.
Combined with BTC liquidity being primarily in a 0.01% spread pool, users can market trade BTC against USDC at a market-leading 0.03% fee on Osmosis.
2. Free Limit Order Trading
While Osmosis collects a Taker fee on all trades as mentioned above, the protocol does not currently levy a Maker fee. Thus, the party fulfilling an order pays all fees.
Combined with Osmosis’ fully onchain Orderbooks, which allow orders to be filled by a third party when a price target is reached, users benefit from being able to place limit orders for free on all assets on Osmosis, including BTC.
3. BTC as the Quote Asset
The quote asset for markets is the asset in which trades are denominated in.
On CEXes this tends to be a fiat equivalent token or stablecoin, with USDT and USDC often taking this role. On decentralized exchanges, it is usually the local or native ecosystem token.
For example, Uniswap has dominant pairings in WETH, Orca has dominant pairings in SOL, and historically, Osmosis primarily had major pairings in OSMO.
This is often because the chain’s native token has the most liquidity and widest distribution. Additionally, liquidity providers benefit when their pair moves in sync with ecosystem tokens or global markets, rather than being tied to a more stable fiat currency.
The non-stable quote asset of choice for Osmosis is quickly becoming BTC, allowing traders and liquidity providers to easily work in Satoshis (or Sats) on an increasing variety of trading pairs.
BTC Accumulation Strategies: Liquidity and Sustainability
With Bitcoin becoming the dominant quote asset on Osmosis, the protocol is also actively accumulating BTC to further strengthen liquidity and ensure sustainable growth.
1. ProtoRev & Protocol Fees
The Osmosis chain actively arbitrages BTC between exchange pools using the ProtoRev module, accumulating BTC in the community pool.
Protocol fees taken by Osmosis on trades are divided into three ways:
- 45% is used to buy back and distribute to OSMO stakers.
- 30% is sent to the Osmosis Community Pool, forming a regular source of BTC and other assets.
- 25% is reserved for regular purchases and LPing of BTC to increase trading liquidity
2. Purchases of BTC
The Osmosis community pool purchased $250k of BTC in November 2024 using USDC obtained from Taker Fees.
This purchase formed the first protocol-owned BTC liquidity, which has since catered to millions of dollars in trading.
As of January 2025, Osmosis owns approximately $750k in BTC/USDC and BTC/ETH liquidity. As signaled by the regular purchase proposal, this would increase by $250k every month if revenue remains consistent.
This liquidity generates LP fees and increases trading volume on the exchange, which in turn increases ProtoRev and protocol fees.
Taking Bitcoin Interchain
The Bitmosis initiative positions Osmosis as the premier decentralized venue for Bitcoin trading and liquidity. By integrating Alloyed BTC, enabling low-cost trading, and strategically accumulating Bitcoin, Osmosis is transforming the interchain landscape for BTC.
As Bitcoin L2 solutions continue to develop, Osmosis will serve as a critical hub, allowing BTC to flow seamlessly between chains while maintaining decentralization. With strong governance, efficient markets, and expanding liquidity, Osmosis is set to become the go-to trading venue for Bitcoin in a multichain world.
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About Osmosis
Osmosis is the premier interchain DEX and DeFi hub for the Cosmos ecosystem and beyond. To date, the Osmosis DEX has facilitated over $39 Billion in trading volume, and more than 100 separate blockchains have connected to the Osmosis appchain via IBC. Osmosis is home to an ever-expanding suite of DeFi applications, merging native tooling with powerful third-party integrations to provide a one-stop experience that raises the bar over centralized exchange offerings.
- Osmosis on X: https://x.com/osmosiszone
