nBTC Revenue Share Proposal

Proposal Discussion
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This proposal outlines a Protocol Revenue sharing agreement, which entails waiving Bitcoin bridging fees when a transaction originates or terminates on Osmosis. In return, a proportion of taker fees generated by trading nBTC or its derivatives on Osmosis will be shared with Nomic.

About Nomic

Nomic offers a decentralized, non-custodial Bitcoin bridge to IBC-enabled chains like Osmosis. nBTC, the Bitcoin-backed asset provided by Nomic, is live on Osmosis today, along with Interchain Deposits. This feature allows Osmosis users to deposit BTC directly within the Osmosis app to receive nBTC.

Nomic aims to provide a seamless on-ramp for Bitcoin liquidity and, to ensure controlled growth during the early stages of adoption, currently has a capacity limit of 21 BTC, a deposit fee of 1%, and an IBC transfer fee of 0.5%.

Proposal

This proposal signals the addition of a protocol revenue share system that will replace these bridging costs with a share on taker fees gathered from trading activity on Osmosis, resulting in Nomic benefiting from increased adoption of nBTC across applications on Osmosis rather than just arbitrage against the value of native Bitcoin.

Osmosis users benefit by gaining a low-cost decentralized bridge to Bitcoin, onboarding an initial route for Bitcoin liquidity and allowing BTC liquidity to interact directly with the Osmosis Ecosystem. There is currently no other route to bring Bitcoin to Osmosis in a decentralized way.

Osmosis and Nomic Governance will directly control the proportion of nBTC taker fees allocated to the split. This proposal is for an initial term of six (6) months from the activation on both chains, or until superseded by mutual governance action.

Source of Revenue on Osmosis

When a trade is performed on Osmosis, the protocol levies a taker fee on the token that enters the trade, which is currently set at 10 bips by default.

When a swap route involves nBTC on Osmosis, Nomic will receive 10% of the total taker fees on the swap charged by Osmosis.

For swaps not involving nBTC, but involving alloyed BTC (of which nBTC is a component), Nomic will receive a cut of the 10% rev share in proportion to nBTC’s composition of the alloy. For example, if nBTC makes up 40% of the allBTC alloy, Nomic will receive 4% of the Osmosis taker fee on that swap.

nBTC Swap Route Nomic cut of taker fee
nBTC > OSMO 10%
OSMO > nBTC 10%
nBTC > allBTC > OSMO 10%
allBTC > OSMO 4%
OSMO > allBTC 4%

The accrued rev share fees will periodically be transferred to Nomic as nBTC and paid out according to Nomic’s regular protocol revenue distribution mechanism.

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Osmosis Bridging Fee Exemptions

In return for this revenue, Osmosis users will no longer be charged a bridging fee for depositing BTC via Nomic to Osmosis or a transfer fee for moving nBTC between Nomic and Osmosis.

This exemption from bridging fees is applicable when Osmosis is the terminating chain and a transaction is performed through Nomic. In such a scenario, there will be no IBC transfer fee for transferring to Osmosis from Nomic. Also, there will be no IBC transfer or percentage bridging fee for depositing to Osmosis directly from Bitcoin. A fee will still be charged for depositing from Nomic to other chains unless similar agreements are approved by Nomic governance.

A flat Bitcoin miner fee may still be charged on withdrawals to Bitcoin to cover gas fees on the Bitcoin chain.

IBC middleware will be used to prevent the transfer of nBTC from Osmosis to any other chain except Nomic. This will prevent Osmosis from becoming a new routing chain for nBTC due to the comparative lack of IBC routing charges and retain Nomic as the routing hub for nBTC across the Cosmos Ecosystem.

nBTC Transfer Path Nomic Deposit Fee IBC Transfer Fee
Bitcoin > Nomic > Osmosis Waived Waived
Bitcoin > Nomic 1% n/a
Bitcoin > Nomic > Foochain 1% 0.5%
Foochain > Nomic > Osmosis n/a Waived
Foochain > Nomic 0% 0%
Nomic > Bitcoin 0% n/a
Nomic > Osmosis n/a Waived
Nomic > Foochain n/a 0.5%
Osmosis > Nomic > Bitcoin 0% 0%
Osmosis > Nomic n/a 0%
Osmosis > Foochain n/a 0.5%

Implementation

This mechanism would be implemented during a future software upgrade if approved by both Nomic and Osmosis governance.

If solely approved by either governance, the mechanism may be implemented on the approving chain in case further agreements are reached with different parameters or alternative parties.

The first chain to integrate the software upgrade with the enabling mechanics should activate the benefits in a further proposal after the upgrade proposal to ensure that the start date of both mechanisms is synchronized.

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The adoption of decentralized bridges to Bitcoin is an important part of moving Osmosis towards being the primary trading DEX for BTC and the growing Bitcoin layer 2 ecosystem.

Nomic is currently the main decentralized bridge in the Cosmos but has struggled with adoption, partially due to the fee charged for revenue generation. I fully support adopting a protocol revenue share based on the actual usage of nBTC in the Osmosis ecosystem, as both sides would benefit from this agreement.

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I thought the fee was only high for nomic because they are in beta phase and being intentional about not a lot of people using it for now. Is this not the case?

It makes no sense to come to an agreement before they are out of beta. I highly doubt they will keep these fees forever. We don’t even have a baseline for these types of negotiations and this would open up Pandora’s box for other chains requesting taker fee revenue otherwise threaten to charge IBC fees.

If you do go down this dangerous path then I think only the portion allocated to the community pool should be considered for negiotations. The portion being returned to stakers should be unchanged.

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This proposal argues that any fee over 0 is not an acceptable onboarding UX for BTC holders. If you think about it, BTC holders have a pretty strong incentive already to not bridge BTC over to Osmosis (bridge risk, uncertain yield opportunities, etc). Adding a hefty bridge fee to this feels like the final nail in the coffin.

Bitcoin staking will add a financial incentive to bridge BTC to Osmosis, but a bridge fee serves as a huge offset for that. If we assume that BTC staking APR will be ~5% (just pulling a number out of thin air here), you’d need to be willing to keep your BTC on Osmosis for over 4 months just to break even on the bridge fees. A 0 fee option removes that impediment entirely.

Additionally, given the pairs subject to fee rev are limited to those with nomic BTC, fee sharing is directly proportionate to the performance of those pairs. There’s no / minimal existing taker fee loss incurred here, and taker fee increases to Nomic are directly correlated to upside in volume (which increases fee revenues to everyone anyway). Nomic is incentivized to drive as much liquidity and volume to Osmosis as possible under this proposal.

This is a fair criticism. I do think Osmosis should be extremely careful with revenue sharing, and not offer them out to just anyone. When we do, these agreements should be very narrowly tailored and highly favorable to Osmosis (as this one is, imo).

Interestingly, this is one of the few areas of gov I don’t think we should systematize (probably many people would disagree with me here though). The rationale in my eyes is that we don’t want a hard-set set of criteria that requires us to share fees if met. We should have the discretion as a governing body to reject any and all fee share agreements, for any reason or no reason at all. Each revshare proposal should be evaluated on its own merits.

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I think the current business model of bridges (especially Bitcoin bridges) is very awkward with regards to a DEX like Osmosis.

A Bitcoin bridge normally really only has a one main opportunity to charge fees, on the outbound transfer of BTC of mainnet Bitcoin (the BTC mostly leaves one time, and doesn’t go back to mainnet). Thus, they need to charge high fees on the bridging from Bitcoin to Osmosis.

However, this is the opposite of what Osmosis wants! We want the onboarding of BTC into Osmosis to be as cheap and frictionless as possible! Although, at the same time, we want to make sure our bridging partners are profitable; after all, we want them to keep investing in security and new features.

This proposal threads this needle, because it aligns incentives between Osmosis and its bridge partner. Instead of gouging users on entering Osmosis, both Osmosis and Nomic have the same goal now: maximize trading volume of BTC on Osmosis!

I think this proposal, if passed, is a significant milestone in DAO-to-DAO deals. It provides a new “rev share” business model for bridges, one that is uniquely possible with appchains (its hard to replicate this in generalized blockchains).

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As someone who’s been providing liquidity for nBTC pairs on osmosis I’m very much in favor for this proposal.

One of my main crunches in this the last couple of months has been the bridging of liquidity from BTC to osmosis. Currently, native wBTC currently has no way to onboard/offboard and axl.wBTC has to deal with eth’s high bridge fees and (ideally) I try to stay away from eth whenever possible.

Having to move BTC on osmosis via nBTC with any “size” (I’m talking even .1 BTC here) has been a pain so anything to alleviate this is more than welcome.

I was also under the assumption that this was true as well. I (think?) remember recently hearing from the nomic team that this audit was currently under way and they were no longer looking for funding? I’d feel better about this proposal moving forward if we could get some solid timeframes or project status from the Nomic team as to the status of their bridge outside of “soon” before moving forward and putting this proposal on chain. I don’t know how comfortable it’d be waving these fees for a bridge that’d potentially still be in it’s beta when it goes live.

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I find this a very difficult proposal.

Yes, when they run out of beta and after the audits it is intended to lower the bridge fees to promote more flows through the bridge.

The difficulty is that we don’t have a clue when the beta and audits will end. So we can spend a lot of time on this, but not knowing if it will be an added value for Osmosis on the short term. Is there any indication given @RoboMcGobo @sunnya97 ?

That is what worries me as well. This is a novelty done for Nomic, but there will be other chains with pleas as well.
Why would Stride as first-LST-provider not want to get a separate position as well?
Or Quasar for vault-management by being operating on Osmosis a different position for lower fees as well?
And we can go on. There will always be reasons why a project would deem themselves to be special and should get a special treatment. Saying “Yes” once opens up floodgates.

If Nomic would be completely integrated in Osmosis as an own tool, then I would understand, because then it is part of a single protocol. Now it is a strategic partnership between protocols, but that is also the main weakness at the same time.

On the other hand, it also opens up a path where Osmosis might prove a very interesting partner for other protocols to work with, because they can be offered an exemption position. So playing-hard-to-get with the option to give a special position for special protocols can also be a good move to stimulate development on Osmosis. Difficult choice.

How much dev-work would be required to create such a position?

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Thank you for this proposal @RoboMcGobo! I’ve been following Nomic since they launched as it seems like they are the only sufficiently-decentralized bridging protocol for $BTC to enter the interchain, and I take Sunny’s 2024 resolution of having Osmosis be the biggest $BTC DEX seriously!

For awhile after Nomic launched and bridging began, I couldn’t figure out why it wasn’t taking off, until Sunny pointed out the astronomically high bridging fees! Obviously, Nomic needs a business model here, but as Sunny points out in his comment here, it needs to be a structure that incentivizes, not disincentives bridging (especially in crypto’s largest assets, where institutional investors will be extremely sensitive to price discrepancies and inefficiencies).

I will refrain from commenting on the specific numbers you’ve proposed here—they seem to make sense. That said, I don’t see this as a reason not to move forward; once they’re implemented, data can be collected and presented back to the community to see if any adjustments are needed up or down.

Have you been in communication with the Nomic team in developing this proposal? Do we have a sense of their reception, and whether or not it addresses the business model issues they’re looking at?

In conclusion, I feel like working out a superhighway for $BTC into the interchain should be a top priority for the Osmosis community, so I’m strongly in favor of any efforts towards that end!

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Pretty sure I am the biggest Nomic hater out there but this initially sounds like a good idea to me - with one major concern/comment. I like how it takes advantage of the taker fee flexibility & osmosis’ current position as the “default” place to swap for most users & integration partners like Squid & Skip API instead of just throwing out OSMO incentives. It seems this is a more sustainable & impactful way to encourage onboarding BTC to Osmosis through Nomic. It also leaves the door open for an eventual short term LP incentive spend for bootstrapping & eventual addition into the internal incentives if nBTC gains traction. The limited 6 month term makes it a solid way of betting on the success & proliferation of Nomic / nBTC without too much downside risk.

My concern is that Nomic’s plan is to make similar agreements with every remotely relevant trading venue in the Cosmos & see an outsized return from activity on Osmosis vs. what was offered other chains. Although the revenue share scaling w/ nBTC’s proportion of the composition of allBTC may be adequete incentive for Nomic to prioritize Omosis as its primary venue for liquidity/trading & also encourage the exportation/widespread adoption of Osmosis’ alloyed assets throughout the interchain. IMO alloyed assets must eventually be the most widely used & considered as “pristine” collateral throughout the interchain to be successful long term. If not I fear that they may just end up adding to the current liquidity fragmentation problem. Or at least throughout the Osmosis Economic Zone (OEZ :sweat_smile: ) if it continues to grow in dominance v. other app chains that offer similar or identical products/outposts (but this seems antithetical to the traditional vision for the interchain & IBC - Fat OSMO thesis?).

If alloyed assets are the endgame, we should remove the part of this prop that suggests using IBC middleware to block the transfer of nBTC from Osmosis to chains other than Nomic so that its chain can remain the nBTC routing hub. I don’t think the incentives align / are favorable for Osmosis if this is the case. Nomic should lean into Osmosis as the “canonical” routing hub for nBTC & allBTC as the primary source of liquidity, well integrated with UX/flow of bridging BTC with Nomic. If users or another chain prefers nBTC over allBTC, they should still be required to go through Osmosis. I think this would be more beneficial for Osmosis, increase the use of Nomic’s infra as a BTC bridge and improve overall UX (Nomic will offer the cheapest & easiest method to bridge between native BTC & allBTC, increasing nBTC’s proportion of the alloy composition/fees/usage etc). I agree with Sunny that this style of rev share agreement helps bridge teams with sustainability, motivates them to remain competitive, dedicated to security etc., I just think alloyed assets need to have more of a focus here instead of nBTC. If the high fees are unsunstainable & prohibitive for users, we shouldn’t expect nBTC to start thriving or even be remotely relevant on other chains without first establishing a similar deal. This will end up hurting allBTC’s adoption and the success of alloyed assets long term.

Now that I think about it, I guess details on how the x/bridge process will work for BTC deposits/withdrawals directly from Osmosis would also help here. Is the plan to never charge fees or attempt to directly monetize & instead rely on other forms of revenue which a feeless native Osmosis bridge supercharges? I would be in favor of this, since it enables Osmosis to remain bridge agnostic & gives opportunities for other providers to work with. However, this would make it even more important that Osmosis becomes the “routing hub” of nBTC in the context of providing no fee deposits for Nomic to Osmosis.

I am also a bit curious how internal / external incentive spends for individual assets will work once alloys are live but tired of typing so will prob come back to this.

I also agree with Marlin/Leanoor’s comments voicing concern over this opening the door for other projects to suggest ways to get around the taker fee, but I think it can be very well worth it for both parties if done correctly. There is already a taker fee sub-DAO, so maybe this will be in their scope, but there is definitely a chance stuff gets through that ends up being net negative for Osmosis revenue in hindsight. However, I believe the upside of situations that end up being worth it outweighs the inevitability of some cases failing.

Just to stay true as a Nomic bear, this team hasn’t given us a reason to do anything but be doubtful of their competence and remain extremely skeptical of their ability to deliver. This proposal should receive increased scrutiny and be easily clawed back due to Nomic’s unproven track record and questionable competency.

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As mentioned from the post Nomi is still in the early stages of adoption, even in beta and the the high tax is due to this.

You have no authority to make this proposal, the chain is in beta and there is no governance yet, at most it should be Nomic to decide whether to charge (also) a fee from osmo (btc fee apart) for every IBC transaction to and from osmo, as a permission fee, to take advantage of nBTC.

IBC middleware is a scandal, IBC is the symbol of interoperability and you want to block it in a mafia way.

The only thing Osmo should do, if it is smart, is to pay all IBC fees to and from Nomic with a portion of the earnings generated from that pool.

I think this proposal is a mafia proposal and you are taking advantage of a chain that is still weak and in beta without questioning the stakers, as well as creating huge conflicts with mesh security.

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Marty, this user, the biggest hater of nomic, is making proposals for its control and management, overriding the Nomic chain and its stakers. I think his own comment says it all

These rights only osmo and its community has them right ? it is a mafia behavior by osmo and their stakers.

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I believe this proposal would be mutually beneficial for both the Osmosis and Nomic protocols if implemented.

BTC has always been the main settlement asset of the crypto world and using it for onboarding has been key to the success of all the CEXes of the past - now it’s time for a proper DEX to do this in a native, decentralized way. Using BTC on any chain without sacrificing security is a core vision of Nomic and something I’ve personally been excited to see for a long time. This step would help bring this vision to reality.

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Sorry but I think there is confusion, how can a protocol be decentralized that forces btc to be constrained only on the Dex of interest without the ability to move on the other protocols? It makes no sense and is a farm&dump approach not useful at the expense of nomic’s stakers. I can also respond by adding: is a Dex so decentralized that it can decide how much the stakers of another “ideally decentralized” protocol should earn each day? I have never seen a company X deciding how much a company Y has to pay to use a service offered always by the latter Y, where is the menagement ?

I think the focus should be on the quality and source of rewards for its security. It is better to have true, low rewards with high first-class potential instead of momentary, useless, inflatable rewards controlled by others.

I also suggest doing a projection on how much the NOMIC protocol can gain from this approach. I have done this on Osmo and I can say that the rewards will probably be more than the actual rewards, but however negligible with current volumes, without considering the inverse fair value of the tokens that makes such revenues worthless.

All this should probably be a debate discussed on Nomic with Nomic stakers and not on osmoblog with Osmo stakers.

We can remove the 1% commission, see how it goes, if things don’t change this is simply a misleading proposal.

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It can move to other chains though, it just can’t do

Bitcoin → Nomic → Osmosis → Dex B

It would have to go

Bitcoin → Nomic → Dex B

or

Osmosis → Nomic → Dex B

without this restriction, nobody will pay the ibc transfer fee on Nomic but instead would use the free transfer to Osmosis and use this version of nBTC as the main version, making the Nomic chain obsolete.

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I agree that this opens the door for more protocol revenue agreements, however each would have to offer something to governance in exchange.
In your example, if Stride was to start charging an IBC transfer fee and say that they needed a share of revenue in exchange for this being removed they would rapidly lose market share until Osmosis agreed to this. In which case, why would Osmosis agree rather than use an alternative?

Variable protorev based on the asset involved? Less than you would think from initial scoping. It’s not a concern on the Osmosis side, at least.

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The aim is obviously to drug the IBC volume on osmo at the cost of nomic and its stakers, I repeat, this proposal is misleading and provocative.

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The most interesting question here remains the timeframe. How far is Nomic?
All we hear in the chats is “soon”, but we hear that for a long time already.

For this proposal to be successful there should also be some timeframing done regarding the beneficial effects Osmosis would feel. Note that this uncertainty when the beta phase would end is a central topic in this thread.

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I hope revenue sharing mechanisms such as this remain rare. However, in this case the upside for osmosis is massive, while the only downside i can foresee is other chains begging for special treatment.

With this system the only way osmosis pays is if nomic drives nBTC volume on the dex. We only pay if we get paid so I’m very much in favour of the payout structure. I would strongly support this proposal

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I hope Nomic will sell this service to all Dex protocols and others, willing to pay, starting a IBC-btc war between all blockchain users of IBC.

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I think the main obstacle is that the IBC relaying takes an extremely long time and it’s virtually impossible to actually see what is going on at that level, even by the relayers themselves. We really need ways to index events on Nomic before it gets integrated in a large way.

Yes @LeonoorsCryptoman it would be nice to get some communication from that end. I don’t even know what is going on there for at least 3 or 4 months now.