Osmosis Grants Program v3 Renewal

Proposal Discussion
21

Hey @luisqa! Maybe I can share my thoughts on why Osmosis needs market making. The idea is to improve the OSMO liquidity on CEXs and DEXs. If you check the volumes in OSMO over the past 24 hours, you can see:

  • Osmo volume on Osmosis: $35.6M (source: info.osmosis.zone)
  • Osmo volume on Binance: $15M (source: CoinGecko)
  • Osmo volume on Coinbase: $680K (source: CoinGecko)

As you can see the volume on CEXs, and especially for a Tier 1 CEX like Coinbase is low and spread can be high. Recently, many newcomers have started to onboard in crypto again, and Osmo will definitely be one of their first choices if they want to get exposure to Cosmos.

The main access to crypto for newcomers or institutions is still Centralized Exchanges, and market makers are needed on exchanges like Coinbase to bring liquidity, reduce the spread and avoid having one whale or many investors buying Osmo on a CEX with low liquidity. We have already seen this year some investors that market-bought Osmo on Coinbase where liquidity is low, and increased the Osmo price on Coinbase to +200% or even more. As a result, these investors suffered from a huge price impact, and their experience of buying Osmo on Coinbase was probably not great.

Now imagine in 2024, many newcomers want exposure to Cosmos decide to buy Osmo on Coinbase, and they also suffer from a high price impact due to low liquidity. Their experience of buying Osmo won’t be great either, and this is not good for Osmosis.

By working with market makers you:

  • Improve and maintain liquidity
  • Reduce slippage
  • Reduce the spread
  • Mitigate volatility
  • Make the market more efficient
  • Increase adoption and improve user experience

This is in anticipation that 2024 will be a great year for the industry. That’s why there is a need to work with market makers.

These are just my thoughts, but I hope this helps in explaining why market making

2 Likes
22

Literally made a forum account just to agree with this post. If this is true, why are we centralizing the chain around institutions? We’re giving up a lot of leverage. They’re only gonna be here to extract value. If anything, make the MM offer decentralized and let competition sort itself out.

1 Like
23

I don’t like the sound of this idea. I’ll be selling all my Osmos if they go forward with this.

24

June 8, 2022: Wintermute sends 15m OP tokens to wrong address
Sept 20, 2022: Wintermute gets hacked for 160m defi tokens

I’m sure there are plenty more examples. Assuming these tokens won’t be dumped one way or another is optimistic. This is Defi, we should stop trying to be Cefi.

25

Mainly “no” on the combination, since it doesn’t allow the community to decide whether to:

  • only support the OGP for the current form of grants
  • or to also support the search for MM

As you can see from the posts of @luisqa @Captain_Obvious @7m_giveaway @Chickenfox the community is cautious on the MM part. I would like to see a proper research first for the need of additional MM (if the data from @Captain_Obvious is correct that we already have market makers active) and what the scope is of such a tender. Because it is in fact a tender we will be putting out.

26

What/Who are all these “new” accounts like @7m_giveaway @Captain_Obvious or @Chickenfox

Especially because of these names, they make it look even weirder.

Cpt Obvious points out to smth “ovious” in his eyes. And 7M_giveaway in this context is pretty clear what is meant by it.

And chickenfox, well, that would also leave some room for interpretation.

3 Likes
27

A thought I had, which is not directly addressing this proposal but more the OGPs approach in general.

Wouldn’t it make sense to give out loans instead as grant? So if someone gets money the OGP (and by that the Osmo community) gets either a share on the project or the recipient agrees to pay back the amount. I am aware that this doesn’t work in every case. For instance, the Metamask Snap isn’t a service this would’ve worked with.

That way the Osmo community could benefit directly from a projects success. Furthermore, this would incentivise projects to actually become profitable. Because right now there are projects that go from grant to grant without actually trying to generate own revenue.

I went through the grant recipients and I have to admit, there aren’t that many where I think a loan would’ve worked. But wouldn’t this approach allow a wider diversity in projects being able to get money. Because a profitable project could also apply?

I have no clue if this would work. Jus throwing this idea into the void.

I also have some questions regarding ongoing grants:

Pending:

  • Phase => Seems discontinued to me. Github link is dead, project website not existing.
  • Dexmos => Seems discontinued either
  • Landscape => Osmo is integrated, is this completed? They offer pricing plans though. This might have been a possibility for a loan imo.
  • REGEN network => Says it will take 2 months but has been approved ages ago. What is the status here?
  • Zodiac => Last tweet was one year ago. Seems discontinued to me
  • SDK for Trading Strategies => last commit 4 montsha ago. Seems discontinued to me
  • PR for Osmosis => What exactly are we funding here?
1 Like
28

I will say, the market maker grant seems somewhat (purposefully?) vague.

“Thus, only a portion of the $7M will actually be spent as compensation to market-makers.”

If this is the text that’s going into proposal, it would be nice to set an actual cap for this rather than leaving it up to whatever it turns out to be. Also, I would like more information about what the program is actually trying to achieve.

For example (from a previous post in this thread):

  • Osmo volume on Osmosis: $35.6M (source: info.osmosis.zone)
  • Osmo volume on Binance: $15M (source: CoinGecko)
  • Osmo volume on Coinbase: $680K (source: CoinGecko)

What this says to me is that there is organic trading volume on osmosis, some of which is used to keep Binance price in peg, and then Coinbase has very unfriendly fees for market makers. I would expect that there are already big players that will keep prices in peg between different exchanges, no? Coinbase just generally seems to have less volume, not specifically on osmo, likely due to higher fees making fewer opportunities available. For example, take BTC pairs on CB. The major pairs are BTC/USD and BTC/USDT, with a combined 10,774 24h vol at time of writing. In comparison, Binance has BTC/FDUSD and BTC/USDT as the top pairs, with a combined volume of 96,220 BTC. Binance BTC/CB BTC ratio is 9.6.

Currently, OSMO/USD CB is 670k daily volume and Binance OSMO/USDT is 7.446M, or a ratio of 11.13 Binance OSMO/CB OSMO. So, this volume actually does not seem out of line with the exchanges in general. Coinbase just has lower volume, again, likely due to fewer promotions and higher trading fees across the board.

And if the purpose of MMs is to be on chain and keep up the price, there are already many active wallets on osmosis doing this. You just have to click into any block and you will find transactions from them. I feel there is a more productive way to spend funds given most bases seem covered. At the very least, I’d like to see MANY more details about this section of the proposal specifically.

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You are funding OGP PR stuff

30

I don’t know the status of all of these but will give updates on the ones that I can. Nearly all of these are before my time at the grants program and this is one of the reasons why it’s so important to have Reverie remain on to manage the existing grants.

  • Dexmos: Very possible that this one has been discontinued. Many of the proposed features of the grant ended up in the info.osmosis.zone site.
  • Landscape: This is complete AFAIK
  • Regen: I think @JohnnyWyles was close to this, and might be able to give some extra context. I don’t recall what happened with this one.
  • Zodiac: As of a couple of months ago when I’d last heard from them they were still planning on launching
  • PR for Osmosis: Have you ever seen the Osmosis twitter account retweet some news story by the block or another news outlet? Here’s an example from today - https://x.com/TheBlock__/status/1736722026843263393?s=20. These types of articles and news exposure are part of what Serotonin helps to coordinate. This grant is actually quite impactful from a marketing standpoint.

As far as a loan mechanism, this is unlikely to work due to issues enforcing the loan. OGP doesn’t have the capital for legal fees that would go into enforcing those agreements. That being said, many of the grants that we negotiate try to give something back to Osmosis users, whether in the form of airdrops (e.g., membrane and an upcoming grant that hasn’t been announced yet) revenue share (fee abstraction / protorev) or in other ways.

1 Like
31

Not me, @RoboMcGobo. I worked with Regen a bit on the NCT launch and had some small contributions to their tokenomics review, but I haven’t been involved in this part.
Shouldn’t grants be touching base on at least a monthly basis to check progress?

1 Like
32

Ah oh, my mistake.

To clarify, there are two different types of roles on the existing OGP.

Grants leads do grant due diligence and follow up, ensuring that grants get completed after approval of funding.

The review committee is responsible for signing off on funding requests and does the final approval for grants that are submitted. The review committee doesn’t handle follow up on grants apart from asking questions related to payments that are put in front of them.

Up until now i’ve been in the latter role, so this is why i dont have context on all of these existing grants.

2 Likes
33

There have been some questions around why market-makers are needed for Osmosis, and why the OGP is suited to work on this initiative. Sharing some thoughts below:

A market maker deploys capital across exchanges with the goal of tightening up the spread (the difference between the best bid and ask prices) and adding liquidity to the orderbook (or depth). Market makers don’t have any impact on volume or price. Instead, we can look at orderbook spreads and depths to determine whether a market maker would be helpful. At the time of writing, we see the following spreads and ±2% depth respectively from Coingecko:

OSMO-USDT (Binance): 4 bps and $168k

OSMO-USD (Coinbase): 6 bps and $19k

OSMO-USDT (MEXC): 1 bps and $93k

By working with a market maker, Osmosis can improve these stats to increase orderbook depth and provide consistently tighter spreads. We expect this to reduce volatility in the market as orders are more easily absorbed into market maker liquidity. It also improves execution for any market participants.

Given the role of OSMO as a value of liquidity for pools, security for the protocol, and resource for community members, the protocol would benefit from lowering volatility and improving the overall health of OSMO orderbooks.

One question folks may have is - why does it make sense for the OGP to work with market-makers, as opposed to market-makers interacting directly with the DAO? The reason is - market makers are contracted through agreements that clearly define the loan structure, and hold them accountable to performance. The OGP is well suited to take on that counterparty role for the community, and can also hold any market maker accountable more efficiently.

5 Likes
34

WIll there be a specific focus for the Market Maker in regards to pools and assets?

I guess the Grants Program is indeed the best option we have at this moment to spearhead this if passed governance. I do want to see the requests in separate proposals though, to give the community the option as well to express their opinions on the separate subjects.

35

Hello Everyone,

Per Community Feedback, we’ve separated the market maker initiative into a separate proposal. This will be going on chain concurrently with the OGP renewal proposal.

You can find the separated proposal discussion here: Allocate $7m in OSMO to the OGP Multisig to Fund Market Making Operations for 12 Months

1 Like
36

This proposal still includes the $8,000 for Reverie, shouldn’t this be removed?

37

Hey Luis!

Apologies, when I told you that the increased pay was due to the Market Making initiative I misspoke. I didn’t have the full context.

Reverie’s pay is reflective of the work that they’re doing shepherding existing grantees and helping us with operations for the OGP, not the market making initiative.

38

Can we also add the overview of current payments from the last request in here?

And furthermore; with the change to closing the general incoming grant requests to only accepting input for RFPs, will the work for the committees and personnel change? Since I can imagine the amount of input will be greatly reduced and thus reducing the workload.

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39

Hey, maybe I missed this, but which request? Can you be a bit more specific on what you’re asking for here? Will try to grab something for you!

Oh definitely. We still anticipate quite a bit of work, but definitely less than the previous run of the OGP. This is why pay scales were able to be reduced to such an extent.

40

I mean from the Grants Program V2 :slight_smile:

Having the “old” data in here would surely help with getting a feeling about the current payments done for the work and the new request. That would also strengthen the argument that with the change in approach changes have been made to the requested amounts.

1 Like