Native stablecoin liquidity is making its way to the Interchain DEX
Since the successful launch of IBC (Inter-Blockchain Communication Protocol) in April 2021, the Cosmos ecosystem has witnessed tremendous growth. Growing to support over fifty sovereign blockchains, the Cosmos ecosystem rivals in size to that of Ethereum. However, this growth has not come without its own challenges, as complex user interfaces, security risks around bridged liquidity, and the collapse of Terra’s UST have stunted the growth within Cosmos.
As such, Osmosis has gone through the revolving door of Cosmos native stablecoins, beginning with the rise of Terra’s UST, which at its peak surged to over 90% of Osmosis’s stablecoin liquidity. This shift in the vanguard of stablecoins paved the way for bank and bond-backed stablecoins such as eEUR, which failed to gain the adoption curve and liquidity of its predecessor. Both of these stablecoins provided us with a glimpse of what native liquidity could achieve for users and builders on Osmosis and throughout the rest of Cosmos.
Why is stablecoin liquidity so crucial for a crypto ecosystem?
Simply stated, native stablecoin liquidity is crucial for the growth and adoption of any ecosystem. Stablecoins are digital assets designed to maintain a stable value relative to a specific asset or a basket of assets. Oftentimes these assets have value beyond the crypto ecosystem, such as fiat currency or commodities like gold and silver. This feature makes them ideal for use in the majority of transactions, as they offer a reliable store of value and eliminate the volatility associated with cryptocurrencies such as Bitcoin or Ethereum. Stablecoins enable easy and cost-effective token transfers between different blockchain networks, which is critical for interoperability.
The importance of native stablecoin liquidity, particularly USDC, coming to the Cosmos thanks to native issuance by Noble cannot be overstated. Currently, in the Cosmos Ecosystem, major stablecoins can only be accessed through bespoke bridge protocols such as Gravity and Axelar.
Osmosis Stablecoin Growth over time
Why USDC?
USDC is among the most popular ( $32B in value) and widely used stablecoins today. It is a dollar-backed stablecoin, which means that each USDC token is backed by cash and short-dated U.S. Treasuries.
As the largest IBC-enabled Decentralized Exchange, Osmosis expanded the use of USDC via Axelar to become the largest stablecoin in use across the Cosmos. This showed an appetite for a natively issued stablecoin in the ecosystem. Through conference networking, Circle was encouraged to explore issuing directly on IBC-enabled chains. Initially, they explored a variety of issuance models, such as issuing via a CW-20 token directly on Osmosis, the Cosmos equivalent to an ERC-20 token on Ethereum utilizing the CosmWasm language. To obtain greater control over the issuance and security of the token as well as being a more neutral path to issuance in the ecosystem, they decided to issue on the newly founded Noble - a Generic Asset Issuance chain.
The Benefits of Integrating Native USDC into the Cosmos Ecosystem
The integration of USDC into the Cosmos ecosystem, through its native issuance by Noble, is a significant development that offers several benefits:
First, it will provide millions of dollars in liquidity to the Cosmos ecosystem, making it easier for users to transact and transfer value between 50+ different networks, and rectifying the challenges users face when facing bridged assets
Secondly, by injecting liquidity into the Cosmos, users will be able to transact and transfer value between different blockchain networks more efficiently.
“Noble is excited to support the already existent demand for DeFi on Osmosis. Osmosis has historically seen tremendous growth and volume as a result of having access to a native stablecoin to the IBC ecosystem. We expect for native USDC to bring a similar level of traction and excitement for DeFi on Osmosis,” - Jelena Djuric, Co-Founder & CEO of Noble.
Liquidity also enables the creation of new financial products and services. Osmosis could leverage this native stablecoin liquidity to create new stableswap pairs where users could safely and seamlessly benefit from transaction fees generated.
Looking Ahead
The launch of natively issued stablecoin liquidity comes right on time for the migration of dYdX, which will launch as its own sovereign Cosmos app chain in Q3 of 2023. A significant amount of stablecoin liquidity will be necessary for dYdX to execute liquidations efficiently.
We have seen the growth of ecosystems like Arbitrum and Optimism, both of which have greatly benefited from native stablecoin liquidity to the tune of $2.6 billion dollars of liquidity. Natively issued USDC brings deep liquidity, seamless functionality, and regulatory compliance. It is a significant development that highlights the potential of Osmosis to become a key player in the decentralized finance landscape.
“We are delighted to support Noble’s mission to facilitate native stablecoin issuance on Cosmos. In the past, native stablecoin liquidity within the Cosmos ecosystem has driven significant growth for Osmosis. By introducing native USDC, we hope to onboard more users to Cosmos DeFi,” - Sunny Aggarwal, Co-Founder of Osmosis.
In order to enable an efficient transition from Axelar bridged USDC into the newly minted Noble USDC, Osmosis developed a Cosmwasm contract aptly named “Transmuter ‘’ which would allow a 1:1 conversion of any one asset to another.
The Transmuter contract is designed to function as a fixed pool with a 1:1 ratio of denominational value, regardless of the assets’ ratio in the pool. This allows you to add your desired asset (for example, Noble USDC) to the pool by exchanging it for a representative token that represents your ownership share, just like other pools on Osmosis.
Additionally, Noble drew inspiration from “Token Factory,” which is a tool originally developed by Osmosis that allows dApps to mint new tokens on Osmosis. Noble’s module allows an issuer to mint and reedem their asset on the Noble chain, with full IBC capability, that allows Noble-issued tokens to be fully utilized within the Osmosis ecosystem.
The integration of native stablecoin liquidity into the Cosmos ecosystem through the issuance of USDC on Noble is a significant milestone in the growth and development of Cosmos DeFi. With the launch of natively issued stablecoin liquidity, Osmosis is well-positioned to continue growing as a prominent player in the DeFi landscape, and we can expect to see more exciting developments, such as the onboarding of new natively issued assets in the future.
About Osmosis
Osmosis is the premier cross-chain DeFi hub. As the liquidity center and primary trading venue of Cosmos – the 50+ sovereign Layer 1s connected with the Inter-Blockchain Communication protocol (IBC) – it is the gateway to the interchain.
And with the impending arrival of dYdX to Cosmos, and the forging of IBC connections to Avalanche, Polkadot, NEAR, and even Ethereum, access to appchains is only growing in importance.
With its suite of DAO-gated dApps – including the just-launched Mars lending and credit protocol, as well as upcoming features like Levana perps, Quasar strategy vaults, and the Ion Cosmos Index – the Osmosis Ecosystem provides UX-optimized DeFi for the cross-chain future.