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: Proposal #650 | Osmosis | Keplr Dashboard
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:
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).
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.
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.
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.
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.
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.
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.
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.
Nemus | Stakecito
Vini | SCV Security
Philipp | ERIS
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)
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]
The liquidity provision will be reevaluated after 3 months.