This article is a guideline for bootstrapping high-volume markets on Osmosis and will be referenced by future spend proposals. The aim is to lay out a rough framework for how these bootstrapping proposals should be proposed, evaluated, and monitored.
Osmosis’ long-term sustainability and revenue growth are directly tied to taker fee generation, which depends on consistent, high-volume trading activity. Osmosis must prioritize liquidity bootstrapping for the most in-demand assets across the broader crypto market to stimulate this.
Why Asset Availability Matters
- Direct Impact: Available assets on-chain facilitate actual trading, generating taker fees for Osmosis.
- Network Effect: The more relevant and demanded assets Osmosis offers, the more likely it becomes a destination for traders and LPs.
Hypothesis: Creating a robust, diverse asset environment fosters user stickiness and organic liquidity growth.
Volume as the Best Proxy for Asset Demand
- Volume is the most objective, continuous, and reliable metric to gauge market interest.
- High-volume assets have proven user interest, active market-making, and broad CEX arbitrage opportunities.
- While volume can be faked, this is hard to sustain for long periods due to trading fees incurred on a variety of platforms. Therefore, it is essential to look at sustained volume on various platforms.
- Osmosis as a DEX should not bias against an asset due to a lack of utility, beyond verifying that an asset is correctly registered and has a social presence; volume trumps narrative for chain revenue.
- By utilizing medium-term market volume statistics such as CoinMarketCap’s Monthly Volume Rankings, we can identify assets with sustained volume by normalizing compared to the weekly trading volume.
Differentiating DAO Holdings vs Trading Availability
While Osmosis as a trading venue can remain asset-agnostic and favour volume over ideology, the community pool must exercise caution around the long-term volatility of assets it holds.
Deployments should be proportionate to the potential volume acquisition and, therefore, the fee generation resulting from bringing this volume to Osmosis. i.e. DOGE was allocated 150k USDC as a top 15 volume asset, while BTC is effectively uncapped.
Deployments should have equal values of the targeted and pairing assets, as with the original BTC deployment in Proposal 860. While subsequent spend proposals such as BTC and DOGE skewed towards the purchasing asset, this has proven to lead to unused liquidity due to the rapid repositioning of the Margined vaults in use, and, in the case of BTC, the protocol taking a valuation stance on the deployment of the market.
Asset Criteria
Assets considered must:
- Rank among the top 50 crypto assets by 30-day global volume.
- Not have an inflated short-term volume compared to the 30-day volume.
- Be bridged or bridgeable to Osmosis, preferably as an Alloy for position permanence as further bridges develop, as these can be added by governance without requiring redeployment of the liquidity.
- Currently not have sufficient liquidity to support active trading (e.g., < $50k depth or poor spread).
Deployment Format
- Each asset will have a dedicated spend proposal.
- The asset purchase should be via Osmosis Limit Orders, at up to a 10% discount to incentivize bridging if required.
- Purchase of the asset should be a rebalancing of the Osmosis Community Pool holdings. Selling volatile assets is preferred if these are not candidates for this methodology to minimize volatility exposure.
- Deployment will be via a specified vault provider with symmetrical adaptive range strategies based on previous volatility, enabling improved liquidity efficiency for the spend.
- Deployment will be at an initial 1:1 ratio as an unopinionated purchase.
- Spread factor for vault deployment should be based on trading fees in alternative trading locations for the asset.
- Temporary taker fee reductions for 90 days, or until the liquidity of the asset doubles, of either 0%, 0.02%, or 0.05%, depending on the selected spread factor to catalyze LP engagement.
- The Osmosis community pool should hold receipt tokens for the liquidity.
Performance Indicators
After the 90 day fee reduction period, each asset proposal will report on 7d Volume Growth in the new market.
After 180 days, with taker fees normalized, each asset proposal will report on Taker Fees Generated.
If a market has either failed to gain volume after 90 days or failed to generate fees after 180 days, the sunsetting of the position should be proposed.
Conversely, if the position is no longer required to maintain the market due to organic liquidity after 180 days, the assets should be redeployed to a new market or returned to stable tokens to minimize risk to Community Pool holdings.