This proposal would create six new Supercharged Liquidity pools:
- USDC/USDT 0.05% Spread
- USDC/USDT 0.01% Spread
- ATOM/USDT 0.2% Spread
- ATOM/USDT 0.05% Spread
- OSMO/USDT 0.2% Spread
- OSMO/USDT 0.05% Spread
During the rollout period, the creation of Supercharged Liquidity pools is permissioned by governance as established in Proposal 532.
This proposal will end after the proposal to add USDT as a quote asset has been completed.
Choice of Pools
The proposed pools should be the most impactful to gain USDT liquidity.
The USDC/USDT pairing provides a Stable/Stable pool, pairing the currently dominant stablecoin in the Cosmos, USDC, against the newly added native USDT.
The ATOM/USDT and OSMO/USDT pairings provide trading locations for Osmosis’ most liquid volatile assets.
These pairings should quickly establish USDT liquidity for the most common routes.
The higher spread factors mirror the current spread factors used on Classic pools. The lower spreads will potentially be more efficient at collecting rewards for the same liquidity, as seen in other concentrated liquidity models. The addition of two levels of the spread factor will enable the market to decide where liquidity reward collection is optimal.
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.
Target on-chain date: 5th August 2023
So the plan seems to have changed a bit or does these pools not in any way going to effect Pool #831 a.USDT/OSMO, Pool #1 ATOM/OSMO, and Pool #939 a.USDC/a.USDT?
Why is there 400% difference in the two spreads for USDC/USDT (0.05% v 0.01%) but only a 300% difference for both the ATOM/USDT and OSMO/USDT pools (0.20% v 0.05%). On face value, it seems like the starting spread should be 0.04% and 0.01%?
It also seems to me that at least when it comes to actual implementation, the USDC/USDT supercharged pools should be created at least a few weeks after the ATOM/USDT and OSMO/USDT super charged pools as that is where USDT liquidity has more value. If the goal is to gain meaningful native IBC USDT liquidity across these pools, liquidity incentives from any and all Axelar or Gravity bridged USDT pools should be removed. occur at the same time.
There are fixed spreads allowed on Supercharged pools - these are the typical ones in use elsewhere.
This proposal will not touch incentives on the axlUSDT/OSMO, ATOM/OSMO or axlUSDT/USDC pools. I should have a proposed plan for incentives up this week at some point but the USDC/USDT will have the higher value here as a hyper efficient pool to enable USDT onboarding onto dapps since the concentrated will likely be greater in a stable/stable pair.
Still waiting on USDT bridging to become available to propose this, as well as the Osmosis frontend to be fully functional.
What’s your intel on when the USDT conversion will become (officially) available? According to a Kava TG moderator this won’t be before mid-August. (mentioned ‘officially’ because this person also mentioned it’s already possible via CLI, but the corresponding message seems to be deleted by now)
Exactly that. We’re working with Kava to get USDT listed as soon as possible, but it is unlikely to be in common usage until listing on their internal bridge is completed. Mid-August is the only timeline I have for that being the case.
We should have USDT listed and these proposals in progress before then since, as you say, it is technically possible to transfer it via CLI and get the info we need to trigger these proposals.
Yup, fully agree. Good to have everything prepared as far as possible.
There seems to be two goals with that, attracting USDT liquidity to osmosis from Kava, and also bringing in more pools to test the features of supercharged liquidity as the chain rolls them out slowly.
I can’t help but remember that back then with Terra there was similar rush to attract UST liquidity as the preferential stable swap in the AMM. As a professional financial advisor managing risks is my core principle. I would kindly warn that concentrated liquidity in USDT is especially risky considering the current regulatory framework. Remember that there is a major stablecoin bill about to be released in the coming months… Potential depegs get even more violent in such context and concentrated liquidity would just add fuel to the fire by removing extra liquidity away from the 1:1 peg. If it had to occur this would have rippling effect all over the DEX.
Caution would be advised here.
Very fair point. The current system incentivizes depth rather than breadth that would avoid a depeg.
This is less of a problem with established pools since we have breadth by default that will shrink over time. New pools will have this to face right away though…
This will also be exacerbated in a pool such as USDC/USDT where a user’s optimal fee earning may be within the 0.999 - 1.001 range.
In terms of incentivising these pools, this could be a case to:
- Prioritise the ATOM and OSMO (volatile paired) pools more as they will have more inherent depth from more casual users.
- Add Superfluid Staking to OSMO/USDT sooner to get at least some full range liquidity to mitigate any temporary depeg events.
The real risk in this unwanted event is to see a rush for liquidity “at all cost” like it did back then with terra. Its safe to say that USDT/USDC do not present the same risks on paper, but the reality is that economic modeling has always failed because of the human factor.
I would also note that we have IBC caps today that would help preventing terra like exodus. We could also explore the more recent circuit breaker features from the SDK.
All i’m saying is that playing with stable in the next few months will be a tricky thing to do. This could help creating the demand that we all want, but this would be a double hedged sword for sure. My advice would be to go ahead, but be very careful on minimizing incentives towards these concentrated stable pairs in order to avoid too many opportunistic yield farming.
The last thing we want, is to see the Kava’s degens moving to osmosis because the incentive is higher ! So the overall reward level must be set below the available level in Kava; That’s my best advice !
The interesting play here is that with supercharged liquidity it is harder to depeg, but when it goes, it also goes faster.
It is indeed a risk we must surely manage, but that kinda counts for all counts out there I guess? Since concentrated liquidity has the same effect on all pools (not only stables).
Should we to counter some of the effects also link it with SuperFluid Staking? Since that requires a full-range position it will balance “a bit” of the effects of pure concentrated liquidity.
@Govmos and @JohnnyWyles
You both might find this paper interesting.
Stablecoin Runs and the Centralization of Arbitrage
"We analyze the run risk of USD-backed stablecoins and uncover a dilemma between stablecoins’ price stability and financial stability. Stablecoin runs bear important financial stability implications
through the fire sale of US dollar assets like bank deposits, Treasuries, and corporate bonds. We show that panic runs exist even though general investors only trade stablecoins in secondary markets with
flexible prices. Run incentives are reinstated by stablecoin issuers’ liquidity transformation and the fixed $1 at which arbitrageurs redeem stablecoins for cash in the primary market. We discover that more efficient arbitrage amplifies run risk. This explains why stablecoin issuers only authorize a small set of arbitragers even though it comes at the expense of maintaining a stable secondary price. In other
words, the centralization of arbitrage embeds an inherent tradeoff between run risk and price stability. Our findings are based on a model and a novel dataset on stablecoin redemptions, trading, and reserve
assets. Calibrating our model, we find a higher run risk for USDT, the largest stablecoin, compared to USDC, the second-largest stablecoin. However, even USDC bears significant run risk due to its less concentrated arbitrage and more concentrated deposit holdings."
Intending to go to chain 2nd August.
USDT appears as a 6 exponent on Osmosis and so the USDC/USDT pool is possible via the use of USDC as the Quote asset.
OSMO and ATOM pools are 6 exponent on both sides.