This proposal is to have 25% of the Osmosis protocol’s non-OSMO taker fees go into purchasing Bitcoin. This BTC should then primarily be used to increase the liquidity on BTC/USDC, in greater concentration.
In range liquidity in BTC/USDC helps increase the price depth on Osmosis, and notably helps increase volume. To recap, the prior BTC/USDC community pool LP position was effectively 2.27 BTC LP’d from 90.8k to 108k. ( x.com ) To date, it has generated $12.6k in fees, half in taker fees, half in LP fees. The pool was at a .1% spread factor. This is effectively 6% yield independent of the BTC price action. There was $6_300_000 of volume swapped against this position to date.
Some retrospectives on the community pool LP position, is that:
It is great to have liquidity from the community pool on positions, especially in supporting demand at all time high breaks
The community pool’s positions need to be tighter (and ideally with some solution for rebalancing that doesn’t risk too much in bleeding)
250k of the USDC was below the market price, and never got tapped into. Obviously we can’t predict tops, but we can be more concentrated, especially using vaults
We need to have the community pool LP positions be at lower spread factors, e.g. .05% to .01%. At the chosen .1%, on top of the .1% pool taker fee, it is too high spread for traders.
Lowering the chain taker fee on BTC, to capture more volatility, and give more accurate pricing to traders may be beneficial. The protocol fee controller subDAO is working on experiments in this regard right now.
The position would have facilitated better pricing and more volume given some of the above.
In general the community pool’s assets should be used for:
Investing in growth of the protocol:
Using lending markets, liquidity on-chain, positions in various vaults
Potentially taking leveraged bets for growth
Acting as an insurance fund in event of hack. (In which case, BTC better tracks the potential debt)
We’ve started putting community pool funds into growth and already seeing success.
Increasing the community pool’s ownership of BTC, particularly Alloyed BTC, supports all of these purposes.
The increased bet on growth gathering more volume helps us more. We can keep using the taker fees to improve growth, creating a flywheel. Funds to stakers helps create buy pressure through OSMO purchases, but compounding growth of BTC liquidity is higher impact and will grow the raw amount of staker OSMO distribution in the long term.
If agreed, this proposal should execute as:
Immediately change the non-OSMO taker fee distribution to 45% staker, 55% community pool
Until theres a code update, swap 25% of revenue to BTC via a gov prop once a month
Upon code update, make the distribution, 45%, 30%, 25% as listed above, with the BTC buys happening once a day at epoch.
Details of how to re-invest this BTC into liquidity provisioning should be left for another governance proposal / forum thread.
Building out Bitcoin on osmosis is in my opinion the defining feature of Osmosis as it is today.
I support btc for the osmosis community pool / treasury.
I support having Osmosis build greater depth of liquidity for btc.
It is my opinion that this is simply the correct move, and that doing this will boost osmo value.
I made a little video about osmosis as the apex predator Dex. The reason that I think that osmosis is the apex predator decks is the simple Bitcoin integration that has been built out. I’m not aware of any other decentralized exchange that allows for such fluid use of native BTC.
Could toss thor a bone here, but unfortunately their concept of on chain btc involves some kind of synthetics, which as a btc holder, I simply never want to interact with under any circumstances.
The only thing that I think we are missing, is easier onboarding of assets from other chains.
I would also like to Shell the idea of unruggable liquidity for new assets. I believe that instead of charging a pool creation fee, we should require pool creators to permanently lock at least 694.20 of liquidity. This makes pools less rug prone and will serve as a permanent liquidity anchor, even for unusual assets.
Unruggable liquidity for new assets is pretty interesting, though I wonder about the sizing. ($700 does seem pretty low) A similar idea would be to have something similar to baseline, where some % of taker fee goes into LP’ing automatically. That feels like something pretty appropriate for memecoins tbh
I think compounding growth on BTC liquidity will help alot with depth and better ability to swap in larger sizes. It also simplifies a lot of the LP’ing for other coins, since the community pool itself could LP against BTC pairings and rely on deeper BTC/USDC liquidity. This is already how half of the SOL trades are happening.
Thanks for adding that this involves the non-OSMO taker fees.
If this would have included the OSMO-taker fees it would result in sell-pressure, since a substantial amount of taker fees is harvested via OSMO-pairings. Converting into BTC would result in selling that OSMO for BTC, resulting in sell-pressure on the price of OSMO. Which is something we shouldn’t want in this market.
Seeing what the other deployments have done, I would say this is a good step forwards. It will boost BTC-volume on the DEX (a bit, meaning it will be higher up in the rankings of pages like CMC and Coingecko) and it will boost liquidity which means arbitrage becomes easier (boosting volume in turn as well).
How do you know better pricing/slippage/liquidity would have increased trading volume on that pair in that period? Do you have some data to support it? How many wallets did swap to/from BTC on Osmosis till now!?
Until you can show the benefits of, not only this, but holding BTC, which can be a risk that single investors are more prepared to take on their own and might not want to mix with holding OSMO, I’m strongly against this proposal. We are not an investment fund, we are a DEX. I suggest we keep buying & burning OSMO and use only trading fees collected in-kind to provide liquidity back on the same pool when needed (we might want to define some transparent parameters here), otherwise back to OSMO burning, as that clearly rewards investors & contributors.