This proposal would allocate up to 800,000 OSMO from the Osmosis Community Pool to match Kava Rise Rewards, bootstrap USDT liquidity into the Cosmos, and establish Osmosis as the leading trading location for native USDT liquidity.
Launched in 2014, Tether was the first stablecoin issued and remains the most prevalent stablecoin in use across the crypto ecosystem.
USDT is now available natively on IBC chains via Tether’s contract deployment on Kava.
This proposal asks for up to 800,000 OSMO from the Osmosis Community Pool to bootstrap liquidity of the first natively issued stablecoin in the Cosmos backed by non-crypto assets.
This community spend would match external incentives sourced from Osmosis’ allocation in the Kava Rise initiative over the next three months.
The Kava Rise program creates an exciting opportunity for leading Cosmos chains to bootstrap stablecoin liquidity within their ecosystem and earn a share of monthly KAVA rewards.
The monthly total allocation may increase to 200k through further Kava governance approval.
Kava will carry out a monthly assessment of USDT deposits across eligible chains and allocate a share of the Kava Rise incentives to a wallet on each chain that will then distribute the monthly Kava Rise rewards proportionately. The managing wallet on Osmosis will be the multi-sig DAO referenced in this proposal.
Using these Kava Rise rewards as external incentives, high USDT liquidity can be bootstrapped to Osmosis, maintaining a high pro-rata share going forward.
For more information about the Kava Rise: Cosmos USDT Incentive program, see the blog post here: Introducing Kava Rise: Cosmos USDt Incentive Program | by Kava_Chain | Jul, 2023 | Medium.
This proposal requests 800,000 OSMO from the previously redirected liquidity incentives in the community pool to match the value of deployments of Kava Rise funding within Osmosis.
This quantity of OSMO makes the assumptions that:
Month 1 of Kava Rise will be 100k KAVA.
Months 2 and 3 of Kava Rise will be 200k KAVA each.
Osmosis will gain 80% of this allocation as the liquidity hub of the Cosmos.
The value ratio of OSMO to KAVA will remain approximately constant.
Any OSMO remaining in the multi-sig DAO after matching three months of Kava Rise allocations will be returned to the community pool. This may take longer than three months due to layering of incentives.
Incentives are a way to overcome both the hurdle rate against alternative yield locations and the impermanent loss incurred by participating in a volatile pool to make the location desirable to deploy liquidity. The most efficient deployment method is in highly correlating pairs with minimal inflation.
The USDC/USDT pair should highly correlate as both assets are dollar-pegged stablecoins and have the same inflation as the US Dollar.
The OSMO/USDT pair will likely correlate less. However, the token’s volatility has been relatively low with the recent reductions in OSMO inflation. The multihop discount also allows this pool to facilitate trading between any asset on Osmosis and USDT with a low swap fee until further direct USDT pools are established.
While there are two pools for each pairing with different spread factors, these incentives will be provided solely to the lower spread factor pool as these are typically the most efficient at fee generation in alternative concentrated liquidity models. With the upcoming introduction of the Taker Fee proposed in Proposal 530, the lower spread factor will also minimize total fees for traders.
The multi-sig in this proposal will also be loading any Kava Rise allocation of Kava, allowing the value of the OSMO and Kava incentives to be matched at the time of loading external incentives.
The initial weighting of all incentives will be 50% to the USDC/USDT pair and 50% to the OSMO/USDT pair. All external incentives will be composed of equal values of Kava and OSMO.
Incentives will not be deployed evenly over time but will be layered to provide consistently attractive incentives as liquidity increases. Escalating incentivization will prevent the first participants from gaining excessive rewards above what would attract liquidity to a desirable pairing. Reasonably attractive rewards should also avoid liquidity draining from other Supercharged pools, minimizing extreme volatility in the newly created pools with no bonding period.
Incentives may be spread to any other Major/Stable pairing after the first month of matching once the initial liquidity of USDT has been established. USDT liquidity incentives would then be extended to other major pairings such as ATOM/USDT, ETH/USDT, and WBTC/USDT.
Limitations are that at least two-thirds of the incentives will be allocated to the USDC/USDT and OSMO/USDT pairings, pairings must consist of Major/USDT or Stable/USDT, and the pools must be Supercharged with a spread factor of 0.2% or lower.
Spreading incentives to new pools will take place via community feedback on the Osmosis forums and will not occur unless the following liquidity targets are met:
USDC/USDT Target TVL: $10,000,000
OSMO/USDT Target TVL: $5,000,000
Incentives may adjust from the initial 50/50 ratio to attain these goals.
The multi-sig will utilize DAODAO on Osmosis for ease of transparency of actions and can be viewed at: USDT Rise
The current members are:
- AllNodes (Osmosis and Kava Validator)
- Johnny Wyles (Osmosis Labs)
- WhiteMarlin (Osmosis Validator)