Speaking as just a hobbyist in the aspect of being a liquidity provider, resolving the process to become an LP on Osmosis for the first time using the airdrop tokens I received felt like a grand experiment to me. The incentives were aligned to promote stability rather than solely the opportunity to profit from selecting the right tokens.
Despite offering descriptors that seem to present these elements (traditional bonding periods) as negative qualities in the early protocol, I think you’re identifying a key and fundamental aspect of what separated the Osmosis community from every other DEX that existed during that era of the market. I think that distinction better explains the dominance of Osmosis among DEXes on IBC chains as well.
I do want to acknowledge that profit is absolutely a motivating factor for many, and likely the vast majority of, participants in this community. So making the protocol attractive and flexible to economic interests cannot be ignored. When this community navigated the Terra collapse, I felt like I had an ownership stake, shared risk, and shared interest in the future of the protocol. At the height of my engagement, I was staking, serving as an LP, a Superfluid staker, and making frequent exchanges on Osmosis.
I believe the pursuit of the changes I observed to support Supercharged pools don’t appear to have delivered on the promise or opportunity that “attractive” and “flexible” policies were intended to offer. In an anecdotal sense, these changes explain how I lost any enthusiasm I had for being a “small-time” LP. Pursuing the “best” incentives as an LP required more formalized risk (“strike prices”) and more active management. The logical conclusion I could only draw as bonding periods were de-prioritized and then discontinued was that I should only stake OSMO to secure the chain. I shouldn’t try to be an LP because I’m not capable of tending to time-sensitive market events like a large, professional LP.
So I want to express my appreciation for such a detailed reply. I expect that it is difficult to find time for this type of discussion when you’ve had similar discussions with real experts and reviewed real data and analytics about network usage from the largest LPs. Those people putting significant value and risk on the line are likely managing their assets using automated resources and real-time calculations to measure their economic opportunity, unlike an amateur hobbyist.
A large number of pools supported Superfluid, which required a 14-day bond in exchange for additional staking-derived rewards, and uptake was relatively low.
I didn’t know this was the case. I was enthusiastic and anticipating use of these features that weren’t available at launch. Putting a portion of my tokens from Osmosis and other chains into LPs felt like a natural progression, increasing the utility and value of diverse IBC chains while simultaneously making the networks more resilient against future events like the collapse of the Terra chain.
From your reasoning, though, it sounds like what you’re actually looking for may be incentives for longer-term liquidity provision, rather than bonding itself?
That’s a perspective I can understand, certainly, but I don’t perceive incentives as the key benefit of bonding periods. Bonding periods impose a cost that formalizes stability. If we’re not doing the bare minimum of staking, our choice of bonding contract places us on a “bus” with predictable stops.
If investments from automated traders and LPs are just unemotional calculations anyway, this cost won’t actually reduce engagement if there are incentives of some kind for individuals on the “bus.” Bonding is formalizing the risk aspects of LP engagement which are more accesible to the amateur, the manual investor, and the emotional human behind the transactions.
Incentives tended to be captured heavily by active LPs who could maintain very narrow ranges and reposition frequently.
What we found was that highly active LPs were often willing to sacrifice those incentives and reposition anyway because the additional fee revenue from maintaining an efficient range could be worth more. More broadly, liquidity incentives were also proving expensive relative to the additional sustainable liquidity and volume they generated. This was part of the move away from regular OSMO incentives, which also reduced OSMO inflation.
These comments seems to highlight the consequences of implementing Supercharged pools alone. Were highly active LPs engaged in the same tactics when 1-day bonding was the minimum? If so, logic would appear to support the idea that tweaking incentives for lengthier bonding commitments would eventually motivate additional uptake the same way that traditional finance has LEAP contracts. You could not buy your way out of a bonding commitment on the protocol - though I would be open to that accommodation, purely for the benefit of the protocol. Once you’ve “bought the ticket” you are incentivized to maximize the benefit of “the ride.”
I think that most stakers would generally be opposed to increasing inflation in order to allocate liquidity incentives unless there was proof that this resulted in proportionate liquidity and revenue increases for the chain.
I wouldn’t dispute this. I’m a 100% staker and I provide 0% liquidity at present. I appreciate the Osmosis protocol and the contrast in experience I had using it as compared to Uniswap, Curve, Balancer, 1-inch, Aave, Bancor, Loopring, Sushiswap, JunoSwap, Demex, and Crescent. I knew I was just a small-time dabbler and didn’t expect my opinion to matter when Supercharged pools began pushing bonded LP incentives to the wayside.
Now that we’re on the other side of the experiment with high inflation incentives, though, I feel like we can draw better conclusions about the impact of Supercharged pools. Osmosis never needed to imitate Uniswap, from my perspective, and what you suggest are “attractive” and “flexible” qualities of the current protocol were never what I found most attractive about it.
I think the proposal I submitted is more centered on re-balancing whatever incentives remain to favor stability among LPs and better engagement with lower value wallets and lower (but still regular) activity. I don’t have any credentials to support the opinion, but I believe attracting the largest number of small fish - real individuals, not just trading bots - is the best incentive for attracting and retaining whale investors on the protocol. I’m still here and I would like to see an Osmosis Renaissance.
Thank you again for your thoughtful response.