Osmosis 2023: Retrospective


2023 was a year of evolution and development within the Osmosis Ecosystem, a culmination of tireless effort, and a transition into new focus areas while improving the core of Osmosis. It was also the year that market sentiment began to shift, and one in which governance-led action played a significant role in the future of Osmosis, unlocking a myriad of opportunities for ecosystem participants and developers.

Cosmos DeFi showcased the deep diversity it offers participants who are not only looking to experiment and push the boundaries of decentralized financial systems but also via the security and scalability offered by many of the ecosystems built on top of Osmosis. This was a record year for the number of protocols calling Osmosis their home, expanding the product suite to offer lending, borrowing, perpetuals, concentrated liquidity vaults, and much more.

As we reflect on the year’s events and accomplishments, several themes stand out:

  • Growth of the Osmosis Ecosystem: Cementing Osmosis as the Cosmos DeFi Hub
  • The Introduction of Supercharged Liquidity
  • Governance-led protocol improvements
  • Upgrading Osmosis Tokenomics
  • Expanding Beyond the Cosmos Ecosystem

But first, let’s see how Osmosis has been performing in terms of various important metrics.

‍I. Osmosis 2023: By the Numbers

DEX Volume

Osmosis remains the go-to place to access the Cosmos DeFi ecosystem, as it offers the widest array and the deepest liquidity of most IBC-enabled tokens. As the liquidity hub for the Cosmos, Osmosis facilitated $4.5 billion of trading volume across 100+ tokens and liquidity pools. This was a significant increase from the prior year, as many of our developments and initiatives began to pay off (more on this).

DEX Revenue

The Osmosis DEX generated over $8 million in swap fees for liquidity providers in 2023. As impressive as this year over year increase is, it does not account for governance-led initiatives such as ProtoRev and Taker fees, which have generated significant real yield revenue for stakers and the community pool since their implementation earlier this year.

‍Unique Users

During the last quarter of 2023, the number of unique wallets transacting on Osmosis saw a significant increase as Osmosis expanded into serving as the liquidity hub for the emerging ecosystem of Celestia and modular chains, as well as being essential to the deployment of dYdX v4 in the Cosmos, and the rise native USDC liquidity via Noble chain.

IBC Volume

According to data from Map of Zones, roughly 38% of IBC send volume – currently $1.4 billion per month in total across some 50 chains – runs through Osmosis, which is an increase of 5% year over year. This continues to be a key metric in demonstrating Osmosis’s dominant position within the Cosmos Ecosystem and why it continues to expand as the Cosmos and appchain visions unfold.

Overall, Osmosis experienced a significant recovery from the year prior, which saw liquidity outflows due to the Terra collapse and the general market sentiment. Nevertheless, Osmosis has reignited its growth phase by expanding within the Cosmos and extending its liquidity offerings into other ecosystems such as Avalanche, Polkadot, and Solana.

This year, Osmosis benefited from key developments within its suite of apps, upgrades to its AMM model, and the deployment of smart contract tools and infrastructure solutions on Osmosis. This, alongside other ongoing efforts, aims to enhance the user experience and establish a solid foundation for future innovation. The consistency has begun to pay off as the market sentiment and volume have returned.

‍II. DEX Ecosystem Growth

2023 was a historic year for applications deploying on Osmosis. This year, we had over ten new protocols call Osmosis their home, taking advantage of the the deepest liquidity and the largest number of users within the Cosmos, making it the de facto launch point for any application looking to capture the most attention and user activity.

Mars Protocol

The year began with the first application to deploy on Osmosis, Mars Protocol, which chose Osmosis as the platform to launch their first ever “Red Bank Outpost” after its resurgence following the collapse of the Terra ecosystem. Mars became the first application to leverage Osmosis liquidity, thus enabling lending and borrowing for Osmosis users who wished to deposit assets as collateral or simply earn yield.

The implementation of a money market on Osmosis was one of the most significant developments since the launch of Superfluid Staking in June 2021, as money markets are some of the most prominent and most widely adopted protocols in DeFi today, presenting a massive opportunity for Osmosis to capitalize on as the Liquidity Hub for the Cosmos.

Levana Protocol

The success of dYdX demonstrated the clear product market fit that perpetual exchanges have found within crypto. This year, Osmosis welcomed its first perpetual offering into its ecosystem of applications. Levana was initially deployed on Terra before later finding a new home on Osmosis. Through its innovative design, it has been one of the most successful applications to launch on Osmosis to date.

Quasar Vaults

Quasar launched Cosmos’s first decentralized asset management protocol by introducing vaults leveraging Osmosis liquidity pools, through which users can earn outsized yield through various automated strategies. This is a similar concept that has been wildly successful in Ethereum via Yearn, which Quasar has worked diligently to improve on by:

  • Providing access to yield across the interchain leveraging Interchain accounts.
  • Allowing for users to maintain self-custody.
  • Leveraging the sovereignty of the Osmosis appchain to offer users control over vault creation and various parameters, including fees.

In addition to these applications offering users innovative ways to utilize Osmosis liquidity, we also had some key deployments in the later part of the year.

  • Membrane Protocol: Membrane became Osmosis’s first CDT (Composable Debt Token) protocol, allowing users to collateralize popular Cosmos assets such as OSMO, ATOM, and TIA into “CDT,” a floating peg stablecoin.
  • Margined Protocol: Margined introduced Power Perpetuals and Traditional Perpetuals by leveraging Osmosis’s supercharged liquidity. This exposed traders to “squared assets” without strikes or expiry, consolidating much of the options market liquidity into a single token.
  • Milkyway: Celestia’s first liquid staking solution launched their liquid staking derivative MilkTia on Osmosis. To date, Milkyway has brought over $6 million dollars to Osmosis Super Charged pools.
  • Calculated Finance: Calc Finance introduced DCA strategies for the Osmosis DEX; allowing users to select from a variety of buying and selling strategies over any timeframe. Calc Finance’s algorithm introduced a new level of automation to users who prefer a more hands-off approach to increasing or decreasing their holdings.
  • TFM Pro Trading: Created by TFM, a team that has been instrumental in facilitating the transfer of assets within the Cosmos with their aggregator. The TFM Pro Trading terminal allows Osmosis users to enjoy a CEX-like experience by introducing an order book alongside smart routing so users can enjoy a more efficient trading experience.

III. Innovation

This year, Osmosis prioritized enhancing the user experience. Their roadmap included several significant feature launches, such as implementing Supercharged Liquidity, the Token Asset page, and the latest upgrade to the Staking Page. The Osmosis team continued to improve the wider ecosystem and Cosmos SDK.

Supercharged Liquidity

When Osmosis was first introduced, it was built with Balancer-style pools. These Balancer-style pools expedited Osmosis’s ability to attract liquidity due to its simplicity; however, it was capital-inefficient as liquidity providers (LPs) were often compelled to adopt a simplistic strategy that forced them to provide liquidity across infinite ranges.

As a result, less than 1% of the provided liquidity was used for trades with significant volume. This ultimately led to suboptimal fee generation for liquidity providers and price execution for traders. Token incentives were introduced to resolve this inefficiency, though this was an unsustainable way to subsidize sustainable growth within the ecosystem.

Supercharged Liquidity was the solution to sustainability and capital efficiency, allowing users to concentrate their liquidity around specific price ranges.

  • This is far more efficient than the previous full-range model of liquidity provisioning, as LPs could capture more fees generated.
  • This meant that as more fees could be generated while requiring far less liquidity than before, fewer incentives needed to be distributed to compensate for the trading volume.
  • Supercharged liquidity is estimated to be 100x-300x more capital efficient than prior iterations.

This was revolutionary for the Osmosis ecosystem as traders had access to different market-making strategies, allowing them to “long" an asset and use strategies to hedge against volatility, or DCA, in or out of an asset. Ultimately, this gave users complete control over how to deploy their Liquidity.

Token Asset Page

Osmosis is quickly becoming the DeFi Hub for the Cosmos by hosting a myriad of foundational applications such as borrowing, lending, and perpetual futures markets. This year, Osmosis underwent a series of major revamps to elevate the user experience within the Osmosis DEX application.

The Token Asset Page was introduced in order to provide users with everything they need to succeed on their quest to leverage Cosmos DeFi to the fullest extent.

By offering users deeper insights into the tokens hosted within the Osmosis DEX, users are able to make better and more informed decisions without ever having to rely on other data providers or external applications.

The Staking Dashboard

Staking is a crucial value proposition for Osmosis, as holders can secure the network and earn rewards. Osmosis wanted to improve on the often fragmented user experience for stakers, as most appchains in the Cosmos require the use of disparate third-party wallet applications.

The Staking Dashboard was designed with the goal of unification in mind. Rather than having to visit other dashboards to stake OSMO tokens, users can now stake their OSMO tokens directly within the Staking Dashboard. With V1 of the Osmosis Staking dashboard, users can:

  • Stake assets
  • Collect rewards
  • Delegate or redelegate to their desired validators

The upcoming V2 upgrade to the Staking Dashboard is anticipated to include support for multichain assets, even further reducing the need to use other applications to stake your IBC-enabled assets.

IV. Community Led Initiatives

Osmosis has one of the most active governance bodies within the crypto space. Here are some statistics to demonstrate the significant level of governance activity in 2023:

  • 152 forum discussions
  • 305 proposals put forth for on-chain voting
  • 85,500 addresses voted on proposals
  • 288 proposals passed and implemented

As a result of this activity, fundamental changes were discussed, put forth to be voted on, and finally, implemented. Two governance decisions that will play a particularly significant role in the future of Osmosis are the tokenomics revamp (referred to as OSMO 2.0) and the implementation of Taker Fees.

OSMO 2.0

As Osmosis prepared for its next development phase, the Osmosis community voted to update the native token’s (OSMO) tokenomics model. This was done to promote increased sustainability, align incentives, and establish Osmosis’s position as the home for premium interchain DeFi apps.

By building upon the initial tokenomics model, this evolution reflected the Osmosis community’s robust engagement with its governance systems and its commitment to remaining at the forefront of DeFi innovation. Two significant changes came about as a result of this proposal:

  • Shifting Emissions to Stakers: Osmosis took a significant shift to emission allocation in order to more appropriately reward long-term stakers in the protocol. The Osmosis community decided it was in the interest of the protocol to redirect emissions from liquidity providers and the community pool toward stakers. This update aligns with Osmosis’s focus on becoming a DeFi-centric blockchain hub and leverages the advantages of the Supercharged Liquidity feature.
  • Protocol Revenue Burn Mechanism: In January, Osmosis introduced an automated internal liquidity arbitrage mechanism performed by the chain itself. This module was developed by the Skip team and was a first for the interchain ecosystem.
    • Allowing sovereign appchains such as Osmosis to benefit from MEV revenue generated at the protocol level exemplifies one of the many benefits that Cosmos appchains have over their counterpart applications on Ethereum.
    • Though the idea to burn the revenue collected through this module was under governance consideration, the revenue has continued to grow and now stands at over $600,000.

Taker Fee Module

As a result of the OSMO 2.0 Proposal, one of the community suggestions was the implementation of a taker fee module. Proposal 651 led the charge in creating this new source of revenue for stakeholders of the protocol.

This taker fee, which charged traders to execute orders, added a new layer to the transaction process. Proposal 651 resulted in a change that charged traders an extra 0.1% traders would be charged an extra 0.1% fee on their trades, over and above the existing swap fee.

This seemingly minor tweak has had significant implications for the entire Osmosis ecosystem:

  • Since its implementation in October 2023, Osmosis has generated $2.4 million in taker fees.
  • The fee is considered a real yield sourced directly from organic trading activity.
  • Since the implementation, trading activity continued to surge to highs for the year.
  • Staking ratios also reached all-time highs for the year.

V. Notable Media Highlights

The Osmosis story is constantly evolving, from its humble beginnings as the first major DEX to deploy in the Cosmos to the vibrant ecosystem that is exploding with user and governance activity; the spirit of experimentation and iteration continues to shine through every new feature and proposal. Osmosis has created a strong culture, which is evident to those who attended the second-ever OsmoCon event in Paris this year.

As we say goodbye to 2023 and reflect upon last year’s accomplishments, the Osmosis ecosystem is stronger than ever and prepared to welcome 2024 with many exciting new features slated to launch this year. We’ve seen Osmosis effectively leverage its liquidity to become the liquidity hub for Celestia and the Modular ecosystem, and this year will be marked by even more excitement as we set sail and expand Cosmos DeFi to other ecosystems — and expand Osmosis from the Cosmos DeFi Hub, to the DeFi Hub for the entire industry.

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