Match LUNA Liquidity Deployment with OSMO

Proposal Discussion
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Overview

This proposal aims to provide a single-sided liquidity match of OSMO from the Community Pool with $1M of LUNA provided by Terraform Labs (TFL). This liquidity would establish Osmosis as the gateway between Terra and the broader Cosmos ecosystem, increasing Osmosis trading activity and fees accrued to OSMO stakers.

Liquidity

Osmosis currently has a minimal amount of LUNA liquidity spread over two pools: a standard LUNA/OSMO pool, and a Supercharged LUNA/USDT pool. At present, the combined liquidity within the pools is insufficient to support interchain swaps between LUNA and other Cosmos assets, standing at around just $23K.

To solve this problem and connect the Terra ecosystem with the wider Cosmos markets through a direct transfer route of Cosmos-native assets, TFL will match 1.4M LUNA with an equivalent 575K OSMO from the Osmosis Community Pool to establish a ~$2M LUNA/OSMO pool.

By performing this liquidity match, Osmosis will have sufficient liquidity to become a central trading platform for LUNA and an outlet for Terra community members to transact between other Cosmos assets, increasing Osmosis trading activity and fees earned by OSMO stakers.

Reinforcing the liquidity bridge between Terra and the broader Cosmos community by enabling routing through Osmosis will also allow users to freely explore the range of apps available on both Osmosis and Terra.

LUNA and Terra

LUNA serves as the native governance, staking, and transaction fee token of the Terra blockchain, currently holding a market capitalization of ~$460M and an average daily global trading volume of ~$50M. Terra is an open-source, public blockchain that hosts a vibrant and expanding ecosystem of applications. On Terra, you can build applications and organizations using the available suite of cutting-edge developer tools or try out existing apps simply by connecting a wallet.

This proposal follows closely after the release and integration of Station v3, TFL’s user-friendly multi-chain wallet, into Osmosis, providing Station users with instant access to the Osmosis ecosystem.

Mechanism

This Community Pool spend would allocate OSMO to a multisig consisting of Osmosis and Terra contributors and community members. The OSMO would be matched in this location with LUNA from the TFL multisig and provided as liquidity on Osmosis in the LUNA/OSMO pool.

Liquidity provided by both parties will remain in this wallet for at least one year, after which the multisig may be dissolved or downsized. Upon dissolution, the total liquidity value, including any swap fees generated, will be returned to the Osmosis Community Pool and the TFL multisig, each receiving 50%. Fluctuations in the price ratio between LUNA and OSMO will mean that this value will be denominated in a different quantity of tokens than the initial allocations. For example, if LUNA rises against OSMO, TFL will be refunded in a mixture of LUNA and OSMO, while the Osmosis Community pool will receive OSMO.

Terra Resources

To learn more about Terra, check out these resources:

Website

Twitter/X

Discord

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My primary concern with this proposal is that I’m not sure it will generate sufficient volume to justify the liquidity outlay.

The Terra community is extremely loyal to Terra and Terra native apps. It’s my impression that they have very little interest in interacting with apps outside of the Terra ecosystem (as indicated by the low demand to provide liquidity on the existing pools so far despite them being in place for well over a year)

I’d be very happy to be proven wrong though. My suggestion for this proposal would be to have a smaller ask ($250k each / $500k total?) with a much shorter LP provisioning period (3-6 months) after which liquidity is automatically to be returned to its respective owners according to the parameters laid out in this proposal already if a given volume SLA is not met during that time.

A few other questions:

  • Would the liquidity be provided in a concentrated liquidity pool (imo it absolutely should be)? If so, what range do you think would be optimal?

What do you mean by interchain swaps? Would this integration unlock any form of cross-chain swap aggregation using Osmosis as the liquidity layer? If so, this might be an additional point in favor of passing this proposal.

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I like the time-limited aspect on this proposal, where after a set amount of time the funding can be returned. I would like to see the reverse scenario for OSMO outpacing LUNA in the prop as well btw. Because it is now assuming the ratio will be equal OR LUNA outpacing OSMO… But (speaking for myself) I trust OSMO more than LUNA tbh.

Just as @RoboMcGobo rightfully asks, what are the benefits for Osmosis? Only deeper liquidity? Or are there potential hidden benefits which have not been mentioned yet? That would be something that could sway voting in a certain direction.

Can you elaborate on the size of the request? Why this amount and wish to go to $2 million? Is there a direct need for it? Or would it be possible to do a simulation on the desired / target volume and the liquidity needed to support that volume levels with a good trading experience for the users?

What are the thoughts on multi-sig members? What kind of multi-sig will it be? What kind of members are sought for?

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Hey OSMO and LUNA community members, earlier this week, TFL proactively filed for Chp. 11 protection, an action that enables TFL to continue its operations and work with the Terra community on infrastructure, innovative tools and products, and other ecosystem support while resolving outstanding legal proceedings. Please see our announcement on X for more information

Unfortunately, following this filing, TFL is currently unable to provide the LUNA previously earmarked for liquidity matching purposes. This decision was not made lightly, and we sincerely apologize to the Osmosis and Terra communities for any inconvenience this may have caused. If and when circumstances change, we will revisit this proposal and post an updated version.

2 Likes
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Thanks for the update!

This also means we can close the thread for now.