Create Volume Splitting Group for LSTs of Quote Assets

Proposal Discussion Liquidity Incentives
1

This proposal would create a new Volume Splitting Gauge for a collection of Liquid Staked Token representatives of Quote assets as well as approve the incentivization of this grouping.

Background

Liquid staking tokens are becoming increasingly popular in the Cosmos ecosystem.

These were previously incentivized by automatic external incentive matching on the category incentive system by Proposal 522 but have not been incentivized since the migration to the slippage optimization Incentive algorithm removed the existing external matching mechanics.

This proposal would include incentives for Liquid Staked Tokens of Quote assets, declaring that Liquid Staked Tokens are also key strategic assets for a decentralized exchange operating within the predominantly proof of stake Cosmos ecosystem where two week plus bonding periods are typical.

All Liquid Staked Tokens will share a single Volume Splitting Group so the most popular Liquid Staked Tokens will receive the most incentives, while newer entrants that are still gaining in popularity may receive a higher proportion compared to liquidity to encourage the growth of liquidity. As this incentive share reallocates each daily epoch based on volume, Osmosis will facilitate the movement of liquidity toward the most widely liquid LST and further encourage the active arbitration of LST prices against redemption rate by liquidity providers.

This group would be onboarded to the incentives system in the next routine proposal, replacing the current stATOM only grouping. Incentive quantity will remain constant during this transfer rather than being impacted by the algorithmic changes.

OSMO LSTs are excluded due to previous liquidity provision arrangements resulting in the Osmosis community pool already owning the majority of liquidity.
The expansion and diversification of these assets is not addressed in this proposal.

Assets to be included

While this proposal is not a comparison of LST protocols, a brief description of each currently trading on Osmosis is included.

ATOM

qATOM by Quicksilver

Quicksilver focuses on the freedom of choice for liquid staking delegation while incentivising choosing active validators with lower voting power. Read More

rATOM by Stafi

StaFi provides a wide range of Liquid Staked assets across multiple Cosmos and non-Cosmos chains. Read More

stATOM by Stride

Currently incentivized by Osmosis, stATOM is the prevalent Liquid Staked ATOM in use across the Cosmos. Read More

stkATOM by Persistence

Persistance initially operated stkATOM as an Ethereum-based token, stkATOM since has launched natively on in the Cosmos. Read More

Celestia

milkTIA by MilkyWay

Established as a native token on Osmosis, Milkyway was the first LST for Celestia to be launched and saw rapid adoption. Read More

stTIA by Stride

Stride have expanded their offerings of stAssets to include TIA and have quickly established a thriving competition between the two liquid staked representations of TIA. Read More

Ethereum

wstETH by Lido

wstETH via Neutron was recognized as the Canonical version of wstETH on Osmosis by Proposal 626. wstETH is widely in use in the Ethereum ecosystem but has yet to gain widespread usage on Osmosis. Read More

Target on-Chain Date: 1st March 2024

4 Likes
2

Very supportive of this direction, if LST’s are inevitable, then lets do whatever we can to encourage diversity of LST protocols and this is a non-coercive means of doing so while still letting market forces dictate where incentives get routed.

1 Like
3

Especially excited to see the wstETH incentives going live.

3 Likes
4

YES!

Will all LSTs be grouped in 1 VSG?
Or will all ATOM-variants be 1 group, all TIA-variants 1 group, etc? So that the leading ATOM-LST competes with other ATOM-LSTs?

5

Everything grouped in a single group by this proposal.
Having target liquidity for LSTs is kinda irrelevant since the liquidity isn’t used consistently but in spikes. See the large single day spikes in stATOM volume vs the more consistent ATOM volume for example.

It may be that breaking everything down into individual pairings works better if any one part of this becomes too dominant.
At the moment this proposal would cause a large swing away from stATOM and towards the two TIA derivatives, however, with wstETH incentives I expect that to also muscle in and take a large share.

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stATOM has been aiming for more liquidity in general so this incentive group will also potentially increase in what is allocated. The Incentives Working Group will be keeping an eye on this grouping in the background and potentially tweaking the efficiency rating that LST pools are given to ensure that suitable amounts of incentives are allocated overall.

1 Like