This proposal outlines a plan to support Pryzm’s OSMO Yield pool token on Osmosis, similar to the support provided for other OSMO-based Liquid Staking Tokens. This support aims to enhance the utility and adoption of Pryzm’s unique approach to yield tokenization within the Osmosis ecosystem.
Background
Osmosis has a history of supporting OSMO LSTs by providing liquidity from the community pool.
The goal of these initiatives is to allow OSMO to become a more flexible token for use across DeFi while holding to the principles of:
- Minimal OSMO staked using Protocol Liquidity.
- Diversity of OSMO LSTs.
- Resilient Pegs for OSMO LSTs.
About Pryzm
Through its concept of refraction, Pryzm offers a unique approach to LSTs. Pryzm liquid stakes OSMO as cOSMO and splits it into pOSMO (principal) and yOSMO (yield) tokens. This mechanism allows users to trade or hedge the upcoming yield of their staked token, opening up new strategies for experimentation.
The Pryzm OSMO Yield pool token combines cOSMO and pOSMO. It allows users to manage their exposure to yield and principal by converting pOSMO or cOSMO back to OSMO. This support differs from other LST markets, where the equivalent of cOSMO would be the supported pairing. The non-underlying portion of this liquidity support would be a mix of staked OSMO and staked OSMO without rewards, aligning more closely with the first principle than existing LST support mechanisms.
yOSMO trades separately as a representation of potential yield from a maturity length. As this also directly represents the staking emissions, this proposal does not ask that the community pool support it directly. However, this deployment would indirectly support liquidity by increasing demand for a yOSMO market.
Currently, liquidity for all refracted tokens is mainly on the Pryzm chain itself in the form of Boost pools, a less efficient liquidity model than concentrated liquidity, which have 90% Yield pool tokens and 10% underlying. The liquidity proposed here will form a position with approximately the opposite percentage, i.e., a minor OSMO Yield holding with a dominant OSMO holding to support the peg.
Pryzm Website: https://pryzm.zone/
Pryzm Academy: https://academy.pryzm.zone/docs
Pryzm Introductory Blog: https://pryzm.medium.com/pryzm-a-layer-1-blockchain-for-yield-tokenization-trading-3ba98c88592e
Proposed Support for Pryzm
A Margined strategy will manage the liquidity for the Pryzm OSMO Yield pool token against OSMO on Osmosis. Margined vaults already support the previous OSMO LST bootstrapping initiatives by ensuring that liquidity is efficiently deployed in the concentrated liquidity pool, maintaining a resilient peg for the Pryzm OSMO Yield pool token compared to its underlying value.
This proposal requests 1,000,000 OSMO to be allocated to this initiative, the same amount previously allocated to qOSMO, ampOSMO, and bOSMO Margined strategies as bootstrapping liquidity. This reinforces the 360k OSMO currently deployed by users on Pryzm’s Yield token and increases the total value locked of non-native assets within the Pryzm protocol by around 20%.
Supporting Pryzm on Osmosis supports the second and third principles by:
- Increasing Diversity of OSMO LSTs: Introduce a novel LST mechanism based on yield tokenization and refraction to the Osmosis ecosystem.
- Enhance Liquidity and Peg Stability: Provide robust liquidity support, ensuring a resilient peg for Pryzm strategies involving OSMO.
About Locust
Locust is an Interchain liquidity management framework developed by Margined Protocol.
Locust LST strategies are explicitly for Concentrated Liquidity (CL) pools. The strategy tracks the LST’s redemption rate and creates positions based on the current market rate, the target price of the asset, and the expected price at which redemption arbitrage reaches equilibrium with staking. This pricing range ensures that liquidity is always used to buy at a pre-defined discount to the target price and sell back at a discount.
The Locust Vault in use will have the initial strategy:
- Spread: 2%
- Discount 0.25%
The buy side, consisting of OSMO, is from market price to market price - spread.
The sell side, consisting of the LST, is from redemption rate to optimal rate - discount, where the optimal rate is based on the profitability of redemption arbitrage vs staking.
This Locust strategy will initially target Pool 2285, which is a 0.3% Spread factor pool
The fee schedule would be:
- Withdrawal Fee: 0%
- Performance Fee: 15%
Implementation
This proposal would transfer 1,000,000 OSMO from the community pool to the Osmosis Liquidity subDAO. The subDAO would deposit the OSMO in a Locust vault as above and return the representative tokens to the community pool.
Target Onchain Date: 2nd April 2025