Deploy 2M OSMO to the ampOSMO/OSMO Pool

Proposal Discussion
1

Edits
2023-09-25: based on the feedback the size of the proposal has been reduced to 2 M OSMO
2023-10-05: added multisig
2023-10-05: changed to concentrated liquidity

Proposal posted on chain: https://wallet.keplr.app/chains/osmosis/proposals/650

Proposal Summary

This proposal seeks the support of the Osmosis community to allocate 2 million OSMO tokens to the ampOSMO/OSMO concentrated liquidity.

ERIS protocol is the second-largest liquid staking provider within the Cosmos ecosystem, measured by Total Value Locked (TVL). ERIS offers a comprehensive suite of products aimed at fostering a stable liquid staking economy.

Providing community owned liquidity is the most capital efficient way to incubate growth and integrations for an ecosystem.

Outlined below are the advantages of allocating 2 million OSMO for liquidity:

  1. Supporting the Local Economy

    ampOSMO represents the only Osmosis-native liquid staking option, devoid of reliance on external chains. It is entirely self-sufficient on the Osmosis network, eliminating external chain-related risks. Notably, no OSMO tokens from this grant will exit the Osmosis chain, and contributing directly to an increase in Osmosis’ Total Value Locked (TVL).

  2. Additional Product Offerings

    The deployment of a deeper ampOSMO-OSMO liquidity will enable ERIS protocol to introduce their Arb Vaults for LST stabilization. Since the launch on Terra and Migaloo, the exchange rate between LSTs and underlying token has been consistently held between 1-2% of the redemption rate. This addition will improve the usage of liquid staked OSMO as collateral for lending and money markets.

  3. Airdrop Participation

    By providing community-owned liquidity to the ampOSMO-OSMO pool, the Osmosis community becomes eligible for the $ERIS token airdrop upon its launch. For detailed information regarding the airdrop, please refer to this link.

  4. Incentivizing Validator Self-Stake

    ERIS Amp Governance introduces a unique curve-style gauge mechanism, empowering users to participate in protocol delegations and governance decisions. This mechanism enables validators to leverage their self-stake by locking up ampOSMO tokens for increased voting power and received delegations, thereby demonstrating their commitment to the network’s growth. ERIS maintains an open validator set across all chains, with the possibility for any validator to apply.

  5. Diversification

    Liquid staking should not rely solely on a single monopolistic provider. To promote DeFi growth within an ecosystem and facilitate capital-efficient markets, multiple providers with diverse strengths and technologies are necessary to avoid a single point of failure.

  6. Growth Potential

    Expanding the liquidity of ampOSMO-OSMO on Osmosis will enable ERIS to extend ampOSMO’s presence to lending and money markets on platforms such as Mars, Umee, Capapult, Cavern, Ginkou, and Ghost, thereby enhancing the utility of OSMO.

Risk Mitigation Measures

a. Smart Contract Risks

ERIS protocol has undergone rigorous auditing by multiple reputable audit firms to ensure adherence to the highest smart contract security standards. Prior to deploying any capital, the associated smart contracts are transferred to an Osmosis builders multi-sig, which will oversee contract migration.

b. Stableswap Scaling Factor Risks

The scaling factor of stableswap pools represents a critical parameter. If set incorrectly, liquidity providers may incur losses, as witnessed during the stOSMO-OSMO pool migration, where depositors suffered approximately a 7% capital loss due to an erroneous value. ERIS Amplifier’s local deployment will enable regular scaling factor updates during compounding, aligned with the exact exchange rate from the contract.

Multisig Details

The funds will be placed in a 4-out-of-5 Apollo Safe multi-sig, comprising trusted community members. To minimize multi-sig risks, the LP tokens resulting from this proposal will be transferred to the community pool.

https://safe.apollo.farm/osmosis-1/osmo1r58szve5snn2694dqe8wv2qvazvuuh9fxg7mw3za7daxv98hsqmqn4n5zy

Nemus | Stakecito
Golden Ratio
Moonz
Vini | SCV Security
Philipp | ERIS

Execution

The multisig will execute the following actions upon receiving the 2 million OSMO tokens:

  • Create concentrated liquidity pool for ampOSMO-OSMO (cost ~1000 OSMO, paid back to the community pool)
  • Approximately 4/5 of the proposal will be deposited in the ERIS OSMO Amplifier.
  • All ampOSMO and OSMO tokens will be deposited into the created pool. Providing a liquidity position between [current redemption rate - 5%; current redemption rate + 20%]
  • LP position will be transferred from the multisig to the community pool, when they are transferrable (requires osmosis update)

Concentrated Position Reasoning

By selecting the range [current redemption rate - 5%; current redemption rate + 20%] we allow for a narrow range of concentrated liquidity that will be valid for up to two years.

Lower bound: By allowing the range to go until current redemption rate -5%, max draw downs up to 5% are covered by the position. By passing this proposal we will also launch our arb vaults, which will counteract depegs and trade the peg back to the redemption rate. Based on our experience on other chains, the arb vault is covering draw downs higher than 5% and usually keeps the peg close to 1-2% of the redemption rate. The closer the peg goes to 5%, the more users are incentivized to deposit into the Arb vault, as 5% trades with a 21 day unbonding period result in 130% real yield APY for Arb Vault users.

Upper bound: By allowing the upper bound to go until current redemption rate +20%, the position will cover the position up to 2 years due to an expected staking APY of around 10%.

Over the time of 2 years the position is expected to rebalance from 1/5 OSMO + 4/5 ampOSMO to 5/5 OSMO + 0/5 ampOSMO.

At the current redemption rate of 1.0251, the deployed range will be [0.9738;1.2301]

Next steps

The liquidity provision will be reevaluated after 3 months.

2

Thank you Philipp for putting this proposal up for discussion! Given that there is also a proposal live on the forum now to allocate 20m OSMO to the stOSMO / OSMO pool on Osmosis I think it’s worth examining the differences between the two and deciding on whether we should be allocating OSMO to both, only one, or neither LST asset.

While I love the concept behind a protocol-native LST like ampOSMO (generating some tx fees from on-chain LST activity is always a good thing, right?) I worry that the ask here far outweighs the utility that the Osmosis community would get and the level of protocol alignment that Eris Protocol has had with Osmosis historically. Let’s do a deeper dive on this.

Protocols Should Pick Winners

Eris protocol is primarily a Terra ecosystem project, which is where it has the bulk of its TVL and devotes the bulk of its resources and attention. As @0xPhilipp himself has noted in a proposal on Terra, it’s acceptable for protocol chain governance to not treat all LSTs as equal and pick winners. I think that this logic is sound. Protocols should devote the bulk of their attention and financial support to the liquidity partners that will help them grow and with closely aligned incentives.

image
image712Ă—140 18.6 KB

In alignment with your statements above, Eris Protocol has not devoted any time and attention to Osmosis, and should show improvements on contributing to Osmosis before asking for nearly $3.5 million in community pool funding. The ampOSMO / OSMO pool on Osmosis currently only has just over $2,000 in liquidity in it, despite the protocol having already been live on Osmosis for 3 months. Eris Protocol has devoted no liquidity or incentives to Osmosis at all to help bolster the growth of ampAssets in the ecosystem.

In fact, when Eris had the opportunity in a recent proposal to build out liquidity for ampLUNA on Osmosis (where LUNA liquidity is sorely lacking), they didn’t do so, and instead sent those funds to competitors. IMO this is totally fine, I think it makes sense to devote resources like this to protocols that are best suited to support your goals, but Osmosis should be taking the same approach in choosing its partnerships. Even stkOSMO and qOSMO are devoting liquidity incentives to Osmosis.

In contrast, Stride devotes well over $100,000 per month in liquidity incentives to bolster liquidity on Osmosis, not just for stOSMO, but for non-Osmosis native assets like stATOM, stSTARS, and stJUNO as well. In aggregate, stAsset pools make up 20% of Osmosis liquidity. They are the largest liquidity partner for Osmosis behind Axelar. The mutual relationship between Stride and Osmosis is extremely important to Osmosis’s ongoing success. Stride is even considering putting up a gov proposal to ask for Cosmos Hub community pool stATOM as protocol-owned liquidity on Osmosis. While I’m pretty skeptical that this would pass Cosmos Hub governance, it still demonstrates the level of strategic alignment that Stride has with Osmosis

Stride has worked with Mars Protocol to help ensure that stOSMO gets listed as a collateral asset on Mars should their proposal pass. This is an important usecase for LST OSMO as Mars transitions into Mars v2. If Eris’s proposal were to pass and Stride’s does not, the ampOSMO pool would have neither a the liquidity nor the necessary redemption rate scaling factor adjustment contract to satisfy Mars’s risk frameworks and get ampOSMO listed as collateral on Mars. This liquidity investment thus buys us far less than Stride’s proposal does.

We Probably Should Not Pass Both Proposals Together

Passing Stride’s proposal does not necessarily mean that we should not devote any protocol owned liquidity to ampOSMO. I think it’s fine to help bootstrap adoption of other LSTs on Osmosis and help diversify LST OSMO liquidity. The community pool is underutilized as I’ve mentioned several times, and with a possible removal of incentives coming up soon, I feel that POL is the only way that we’ll be able to support liquidity for certain assets, especially those that don’t use Supercharged Pools.

However, collectively the Stride and Eris proposals will comprise 30% of the community pool. While Eris’s proposal is smaller, the investment returns are far smaller for what is being asked as well.

I would suggest revising this proposal down to a more reasonable ask like 500k or 1m OSMO (which should be enough to get it listed as collateral on UMEE). When Eris has demonstrated its commitment to Osmosis, we should revisit this proposal and think about increasing the size of the ask at that time.

Disclaimer

While I don’t receive any compensation from Stride, I administer their host chain delegation program (for free) and am a Stride governor. Feel it’s important to disclose these potential conflicts of interest even though I will always consider the best interests of Osmosis first when discussing Osmosis proposals.

4 Likes
3

lmao the pool you linked:

image
image880Ă—114 15.2 KB

Honestly this post just seems like a sad way to take a jab at Stride (more specifically, John) and is extremely yikes. Feels personal or something.

Eris has some cool things over on Terra, the rest of your deployments are on either ghost chains / have no liquidity, volume or anything close to a “comprehensive suite of products”.

Either way stop trolling and maybe focus on the 16 other chains you plan to drop your shit coin to.

This seems beneath you and is cringe.

ampOSMO’s blue logo is way cooler looking then the stOSMO’S pink tbf. Wasted opportunity.

4

I am seriously worried about the amount of proposals popping up trying to utilize the Osmosis Community Pool for their own protocol-benefits.

For me there is a lack of a strategy for the CP, which makes me on the side of downvoting almost all proposals for movements with these funds. We need to treat everyone equal, and without a strategy it becomes more like “I like you more, so you get a go.”

1 Like
5

Against this mainly for the reasons outlined by Robo.

1 Like
6

Hi @RoboMcGobo

thank you for taking the time to respond to the proposal. I always believed your opinion on Osmosis would be Osmosis first, but I might have misjudged your involvement in Stride.

I do believe protocols should pick winners. However they should not depend on a single protocol, due to systematic / single point of failure risks.

The proposal that you are referencing btw. is where Stride asked the Terra community to deploy liquidity to Astroport on Terra. Similar how they deployed their ICS liquidity to Astroport on Neutron. So wondering where this question is on the Stride proposal if you want to go down that rabbit hole.

That statement is not correct.

Also incorrect.

The ampOSMO proposal is costing the community 10M OSMO * 0.5 (half deployed to Amplifier) * 10% APY * 5% reward fee = 25000 OSMO (7500$ per year) which will get distributed to $ERIS holders after the token launch. In return Osmosis stakers get a share of $ERIS, an additional product stabilizing liquid staking tokens that are natively redeemable and all benefits listed in the proposal.

The recent depegs on many stAssets is worrying and clearly shows the need for more options and stabilized alternatives. stATOM depeg 10%, stJUNO, stLUNA, stUMEE depeg 5%

It’s not an either-or-question, and both projects provide value in different ways to Osmosis.

Closing Thoughts

As you outlined, Stride is spending a lot of funds on Osmosis compared to Terra, so the Osmosis community providing community owned liquidity is totally fine and this proposal is not a “jab at stride” @yoggsaron. Protocols providing value to an ecosystem should be supported, especially if the internal cost of it is low - like providing liquidity using the CP.

We at ERIS are not Chain maxis, but Cosmos ecosystem maxis and just want to provide the best value for users of Cosmos chains. We don’t have the deep VC bags of Stride to bribe people, neither have a token launched yet, nor do we believe in bribing liquidity (similar way Osmosis is shifting right now). Product first, token later.

Commitment goes both ways and this proposal will be our question if Osmosis is also commited to us. If the Osmosis community thinks that the investment of $ 7500 per year (while creating $ 150k for the community pool) is a bad spend to bring more of our “cool things” over and allows us to get things started around ampOSMO, we can accept it.

But, in my honest opinion the proposal has a lot more positive outcomes for almost no cost. So I hope I was able to change your mind and for you to see the benefits for the Osmosis community.

7

@0xPhilipp thank you so much for posting this and providing the community with another option!

In my opinion (for whatever that is worth), you have provide the community with an invaluable service, as this (hopefully) forces people to think more deeply about Strides proposal.

1 Like
8

I pretty much second what Robo said - I’d support an ask that provided initial liquidity to begin being listed on lending protocols and create an alternative OSMO LST market.

Creating 5M of ampOSMO when there have only been a few thousand in existence for several months seems excessive.

Rather than saying this is a spend of $7500 a year, the question is more if we want to entrust the Eris protocol with $3 million in liquidity, which is nearly the combined TVL of all existing ampAsset tokens + paired TVL

ampKuji: $944k ampKuji + $250k paired Kuji
ampLUNA: $970k ampLUNA + $260k paired LUNA
ampWHALE: $800k ampWHALE + $75k paired WHALE

These protocols are managing to have ampAssets being their major liquid-staked tokens with a fifth of the liquidity proposed here.

9

To be frank Philipp, if Eris requires a $3.5 million commitment from Osmosis to show support when you’ve only provided $2000 in value to us, we’ll pass, thanks :joy:

Don’t question my intentions. I was being kind before but the reality is that Eris is an unproven protocol on Osmosis that has shown no active commitment to Osmosis. On the contrary, Eris contributors and their friends from Terra have shown active hostility to Osmosis in the past, and are now asking us to double your entire protocol’s TVL. The fact that this proposal is an easy no has nothing to do with Stride, as all of the other comments on this ridiculous post clearly point out. It’s a horrible idea for Osmosis.

While we’re on the topic of questioning intentions, I don’t actually believe you ever planned on this proposal passing at all. The timing of this proposal is rather suspicious. As @RedRabbit33 noted this proposal seems more meant to get people to question the Stride proposal. Doesn’t much matter if Eris’s prop passes so long as Stride’s does not.

I’d ask that you kindly leave Osmosis’s treasury out of this feud you’re handily losing against stride, thanks.

1 Like
10

I do not believe that 500k - 1M OSMO will make an impact and is not enough to getting listed on our partner protocols, so the minimum liquidity required would be around 2-5 M OSMO. It is certainly possible to make it milestone based. Start with 2 M and review after 3 months if integrations are successful.

11

@RoboMcGobo please reference me where you have taken something we have published as active hostility against Osmosis. I question your intentions based on your wrong statements like the ones I quoted here and before.

While you are spinning your narrative about a feud, we have announced to the Osmosis team some time ago, that we will be posting a proposal like this. Both proposals should be evaluated based on their own merits and this allows Osmosis to make the best decision. It is very clear that you have a strong conflict of interest.

There will certainly be a proposal going on chain from ERIS protocol, but we see these governance forums as an open way to communicate and discuss things and do not only post proposals that have been agreed upon behind closed doors. So we take your feedback in, that the grant size is outweighted for our past contribution and will be reducing the ask size to 2 M OSMO liquidity to be reevaluated after 3 months.

1 Like