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.
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.
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.
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