OSMO Incentives and Superfluid for stIBCX Pool

Original Thread: Commonwealth

Summary

stIBCX was launched just a few days ago. It’s an index token composed of a diversified basket of Stride liquid staked Cosmos tokens sourced from the Osmosis DEX. stIBCX is issued on the Osmosis blockchain, and its governance token is ION.

This proposal aims to support the roll-out of stIBCX by:

  • Adding the stIBCX/OSMO pool (#1039) to the minor incentive category
  • And enabling superfluid staking

As a matter of custom, Osmosis governance does not consider bundled onchain proposals. Therefore, this forum post will result in two separate onchain proposals.

About stIBCX

So what’s the point of stIBCX?

Primarily, stIBCX offers convenience. By simply holding stIBCX, users get exposure to most significant Cosmos tokens. The tokens underlying stIBCX do not forfeit their staking rewards, as the majority of them are liquid staked. The tokens underlying stIBCX are automatically rebalanced periodically, to reflect the changing Cosmos landscape. And stIBCX is of course completely liquid, so users can trade it whenever they want. So it’s a great token for casual or beginner Cosmonauts to hold.

Beyond convenience, stIBCX could become a very popular collateral token. The great thing about stIBCX as collateral is that it contains many large and small tokens, but they all have the same liquidation point. This can be a life-saver! For example, starting with $100, a user could buy $98 worth of ATOM and $2 of Token X, and then set up one leverage position using each token. If Token X suddenly goes to zero, then the Token X leverage position will be liquidated. Now let’s take a few steps back. What if instead the user bought an index token composed of 98% ATOM and 2% Token X, and then set up a single leverage position using the index token. Then if Token X suddenly went to zero the leverage position would be intact, since the collateral would only be down 2%. This is the main benefit of using an index token as collateral as opposed to separate tokens. Given the strengths of stIBCX, it could easily become a standard collateral token across Cosmos DeFi leverage applications.

So if stIBCX is such a great product, how does it benefit Osmosis?

Mainly, stIBCX creates trade volume for the Osmosis DEX, because all tokens in the stIBCX basket are sourced from the DEX. Whenever stIBCX is minted or rebalanced, it creates trade volume. So the bigger stIBCX becomes and the more integrations it gains, the more trade volume generated on Osmosis DEX. And the fact that stIBCX is issued on the Osmosis blockchain furthers the status of Osmosis as the hub of Cosmos DeFi. Imagine a future where stIBCX replaces stATOM as the most common Cosmos collateral, used in leverage applications across the Cosmos. Such a future would be very positive for Osmosis.

Details about incentives

stIBCX is the latest token in the Osmosis family, the others being OSMO, ION, and IBCX. All these tokens are native to the Osmosis blockchain, and as such Osmosis governance has an interest in ensuring they all have adequate trading liquidity.

So in order to ensure a smooth roll-out for stIBCX, it would make sense to include the stIBCX/OSMO pool in the minor incentives category. This would allow the pool to receive OSMO incentives proportional to the amount of trade volume it generates.

But Osmosis governance won’t be the only DAO incentivizing the stIBCX pool. The Stride DAO has indicated its intention to add STRD incentives to this pool. Starting on Tuesday, June 20th, the stIBCX pool will be incentivized with 300 STRD per day, in order to bootstrap liquidity. And in the near future, it’s likely that the Ion DAO will also contribute incentives, in the form of ION. After all, stIBCX will likely become the flagship product of Ion DAO.

Details about superfluid staking

Superfluid proposals ask whether governance trusts the stability and security of another chain enough to allow a token issued by that chain to have an influence on Osmosis governance. In this case, since stIBCX is issued on the Osmosis blockchain, the question is: does Osmosis governance trust the Osmosis blockchain? Hopefully it does!

But the Osmosis blockchain itself is only one point of failure. stIBCX is backed by tokens from the Stride blockchain, and it is issued on the Osmosis chain by Ion DAO’s CosmWasm smart contracts. Osmosis governance has already demonstrated trust in the security of the Stride blockchain by approving the STRD/OSMO pool for superfluid staking, and indeed Stride is widely regarded as a highly secure chain. Turning to the Ion DAO’s contracts, they have been thoroughly audited by Oak Security. The stIBCX contracts are the same used for IBCX, and IBCX has been live without incident for more than a month now.

Given these factors, there would be minimal risk in enabling superfluid staking for the stIBCX/OSMO pool.

Final thoughts

The liquid staked index token is a powerful product. It simultaneously makes it easy for new users to get exposure to a wide array of tokens and gives sophisticated users advantages when it comes to collateralization for leverage applications. stIBCX is the first liquid staked index token in the Cosmos; it has the first-mover advantage. With the help of Osmosis governance, stIBCX has the potential to become the dominant Cosmos liquid staked index token for the foreseeable future.

The two separate requests in this forum post would enable a smooth and successful roll-out of stIBCX, giving it a strong start on its mission to proliferate across the Cosmos. Ultimately, it’s in Osmosis’ interest to support stIBCX, because wide-spread adoption of stIBCX would further establish Osmosis as the center of Cosmos DeFi.

Pending community discussion, the two proposals in this forum will go on chain as two separate votes in one week. In the meantime, please provide any comments or questions you may have!

Target on-chain date: The two separate proposals will be live for voting starting June 21st, 2023.

ION DAO dev contributors
osmo14n3a

6/22/2023

Updated on June 22nd

We’ve decided to push back to upload the Superfluid proposal (Enable Superfluid Staking on stIBCX/OSMO Pool #1039). The single proposal to add the stIBCX/OSMO pool (#1039) to the minor incentive category will be uploaded today.


RedRabbit33
osmo1hxfd

6/18/2023

The question of whether SFS should be enabled should be delayed till at least the pool has been incentivized for 4 weeks in my opinion. No other pool has had SFS enabled so soon after it has been created.

It also seems very odd to me that governance is being asked to provide incentives and enabled SFS on an stICBX/OSMO pool that would be classified as a minor category pool rather than a LST category pool. I also find it odd that governance isn’t being asked to incentivize or enabled SFS on a ICBX/OSMO pool and there is no ICBX/stICBX pool.

If both Stride and the ION DAO will be providing incentives for the pool, I don’t see why there needs to be OSMO incentives and SFS as well.

The fact that there is an stICBX/OSMO pool, but no ICBX/OSMO or ICBX/stICBX pool has very much made things more complicated for me to understand just how risky incentivizing and enabling SFS may be. Following the rule of thumb that more complicated a financial instrument are risker than less complicated financial instruments, at a minimum, SFS is off the table for me.

ION DAO dev contributors
osmo14n3a

6/19/2023

Hi, there! Thanks for giving your thoughts :slight_smile:

  1. Superfluid
  2. Having several weeks (maybe 4 weeks or less or even more) to observe before enabling SFS makes sense, given that the stIBCX/OSMO pool is quite a new one. We can push back the Superfluid one.
  3. IBCX/OSMO pool
  4. We are going to make another proposal to add IBCX/OSMO pool to the minor category to be incentivized. There is IBCX/OSMO pool on Osmosis, with low liquidity provided.
  5. stIBCX/IBCX pool
  6. Currently, we don’t have a plan to create IBCX/stIBCX pool. Having IBCX/stIBCX LP would be unnecessary given the existence of the IBCX/OSMO, stIBCX/OSMO LPs, as you know. To expand IBCX and stIBCX’s use cases, we thought that the OSMO pair pools, which are eligible for SFS, would be more helpful in attracting more liquidity.
  7. Re: I don’t see why there needs to be OSMO incentives and SFS as well.
  8. The Stride Foundation will directly provide STRD incentives to the stIBCX/OSMO pool. On the other hand, ION incentives can only be provided upon the ION governance gets passed. Let us remove the sentence "And in the near future, it’s likely that the Ion DAO will also contribute incentives, in the form of ION. After all, stIBCX will likely become the flagship product of Ion DAO. ", since the ION incentives has to be discussed in the ION DAO first.
  9. But we’re still not sure why stIBCX/OSMO should be excluded for incentives and enabling SFS.

John_Galt
osmo10ls0

6/19/2023

You raise some compelling points! Let me try to address them.

stIBCX is part of Osmosis. It is issued on the Osmosis chain, governed by ION, and it strongly benefits the Osmosis ecosystem by increasing DEX volume. For this reason, it seems to me that Osmosis governance should support stIBCX as much as possible, including with superfluid staking.

This pool is probably best served in the minor incentive category, since it is not eligible for the LST category. See eligibility requirements here.

Regarding multiple incentives, to function as an oracle for the price of stIBCX, the pool needs liquidity to be as deep as possible. Plus, many hands make light work!

I agree that the relationship between IBCX and stIBCX is a little confusing. Given that stIBCX gives users the staking rewards from their tokens, it will probably prove more popular to hold and to collateralize than IBCX. And so, IBCX may become simply a gateway to stIBCX, since IBCX is needed to mint stIBCX. This is why I think the liquidity focus should be on stIBCX.


Leonoor’s Cryptoman
osmo14amd

6/19/2023

This part is not fair:

This pool is probably best served in the minor incentive category, since it is not eligible for the LST category. See eligibility requirements here .

This part is caused because there are no plans for an stIBCX/IBCX token. So this is purely caused by the DAO itself and the illogical choice made for this one. We have a stAsset/Asset pairing for everything, so we also need one here, although I am aware that it is a different type of token. But making it illegible for a category which is due to own made choices is not according to the rulebook. If we are going to add this pool, it needs to be in the LST-category which was exactly created for this purpose. Please do not try to find different routes in the rulebook; since we already created this special category in the incentive program for a reason.

I do have to agree with @RedRabbit33. We have never ever added a pool to SFS this fast, regardless of potential (and unproven ) importance to Osmosis. I will be a very focal protester against this proposal if it gets near getting on-chain, because it is very dangerous to set precedents like this (and time and time has shown that you’ll find me opposed of every well-meant ill-resulting precedent).

So I do understand your enthusiasm, but just stick to the processes. Wait until the pool has matured more, shows what the liquidity is doing, shows what the token itself is doing, shows what the volume is doing and reopen this discussion afterwards.

ION DAO dev contributors
osmo14n3a

6/22/2023

Having both osmo-paired LPs (IBCX/OSMO, stIBCX/OSMO) means the IBCX and stIBCX holders have more flexible options to exit.

  • IBCX holders: They don’t need to “Burn” IBCX to exit. That is, there could be a lower cost to exit, given the 0.15% of burn fee that the IBCX protocol charges. The pools’ swap fee is 0.1%.
  • stIBCX holders: They are able to exit instantly instead of redeeming stIBCX and burning IBCX.


Leonoor’s Cryptoman
osmo14amd

6/22/2023

I understand the reason behind the pools :wink:

Since that also applies to any stAsset. I was more referring to the missing stIBCX/IBCX pool being a reason why you can’t be in the liquid staked assets category.


sasa nasef
cosmos1w6

6/17/2023

interest to support stIBCX