Osmosis to Become a Bitcoin Secured Network

Proposal Discussion
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This proposal signals that Osmosis should become a Bitcoin Secured Network (BSN) by integrating Babylon as part of a future upgrade. This will allow Osmosis to leverage the security of Bitcoin while becoming the preferred trading venue for Babylon assets, which by their nature are related to Bitcoin. This chain adjustment aligns with the Bitmosis initiative, making Osmosis a superior location to trade Bitcoin and related assets through increased security and liquidity.

This proposal preapproves parameter changes to allocate 50% of taker fees for Babylon assets as BSN finality provider rewards.

This proposal approves accepting 25 million BABY tokens via the Osmosis Grants Program.

Background

Osmosis governance previously approved an initial integration with Babylon in Proposal 437. This proposal takes this accepted integration further by signalling that Osmosis should become compatible with Babylon at the chain level to become a BSN.

Bitcoin secured networks use Babylon’s services to timestamp Osmosis blocks against Bitcoin using Finality Providers on Babylon. These finality providers can be delegated Bitcoin to increase the security provided and earn staking rewards paid by the BSNs they secure.

Key Benefits of Becoming a BSN

Enhanced Security

Osmosis will leverage Bitcoin timestamps to secure consensus data against long-range attacks.

By periodically confirming Osmosis blocks against the Bitcoin blockchain, the chain becomes far more resistant to attacks requiring forks by requiring that Bitcoin security also be compromised.

These timestamps may also result in a shorter unbonding period for OSMO staking being required, as this is a current preventative measure for this kind of attack. This proposal does not signal a reduction; any reduction would be subject to future governance votes.

Token Allocation

By integrating with Babylon, Osmosis gains access to the Babylon ecosystem and the opportunities it will provide within Bitcoin DeFi.

The Osmosis Grants Program will receive 25 million BABY tokens over four tranches, with the first tranche delivered at the Babylon mainnet launch. These funds are received on behalf of the Osmosis DAO to be used at the sole discretion of the Osmosis DAO and the Osmosis Grants Program. These funds are contingent on Osmosis becoming a BSN.

Cost of becoming a BSN

This proposal signals that 50% of trading fees from Babylon ecosystem assets on Osmosis will be allocated to Babylon to reward Finality Providers for providing the BSN service.

Babylon assets are defined as any assets that arrive on Osmosis via Babylon or primarily utilize Babylon’s staking mechanism for yield.

These fees will be activated through future governance proposals as parameter changes as each taker fee share agreement can only be activated once an asset begins trading on Osmosis.

No inflationary rewards or other Osmosis community pool assets or revenue will be directed to BSN payments by this proposal.

Implementation Plan

Babylon mainnet is expected to go live soon.

On launch, the Osmosis Grants Program will receive the first allocation of BABY tokens.

Osmosis commits to become a Bitcoin Secured Network in a future software upgrade.

Synchronous with this software upgrade proposal, taker fee share agreement parameter change proposals will be passed to reward finality providers.

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Bitmosis, Bitmosis, and more Bitmosis.

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This is exciting it finally happens. However, I have one question. Are those 25M BABY tokens part of the supposed token swap that was mentioned in prop437?

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What are Babylon assets and why would one mint them there instead of Osmosis?
What are the benefits?

Is the future 50% of fees the only cost for Osmosis or are we sustaining other costs, like development cost? How much is it estimated to be?

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I believe becoming a BSN will be an important way for osmosis to attract Bitcoin liquidity and remain relevant. However, it would be great to get a few things cleared up. What are the tokenomics of $BABY? without this information the 25 million number is useless. What are the intentions of the Osmosis Grants Program regarding the $BABY tokens? Will the $BABY tokens be used to provide liquidity for “Babylon assets”? If they will be used for this purpose do they intend on using the tokens in a Loan Swap arrangement?

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I like the questions of @Henf and @kopeboy. The current outline lacks clarity on certain fields.

On top of the already asked questions;

  • why do the funds go to the OGP? It completely doesn’t make sense, since the OGP is meant to bootstrap projects building on Osmosis and should not manage other funds.
  • will the integration happen close to the launch of the Babylon mainnet?
  • what does this mean for the proposal passed a long time ago with Nomic (which is sadly as I expected not yielding much fruit at the moment)?
  • will the fees need to be set through governance proposals on chain? Or will the Protocol Fee DAO take care of it?
  • If I understand correctly we will see 2 proposals being brought on chain? 1 for becoming the Bitcoin Secured Network and 1 for the taker fee share agreement? Can these pass separately? I guess they should surely belong together, since I can imagine passing the taker fee proposal without the intent is quite senseless.
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Are those 25M BABY tokens part of the supposed token swap that was mentioned in prop437?

@tonyler Prop 437’s flow has changed. I only included this for those who wanted to read a bit more about the timestamping mechanism here and potential expansions and to show that Osmosis has previously signalled that this is a direction they wanted to take. There won’t be a token swap here, Babylon is granting these tokens conditional on BSN integration and is not receiving OSMO.

What are Babylon assets and why would one mint them there instead of Osmosis?
What are the benefits?

@kopeboy Babylon has a Bitcoin staking mechanism that allows Bitcoin holders to stake to provide security to BSNs. They have around 52,769 BTC staked currently. Babylon LSTs will be liquid staked variants of these, making sense to mint on the same network where Babylon staking occurs. It doesn’t matter which network they are minted on, as the transaction fees for this will likely be minimal compared to the trading fees generated. Assuming that LSTs will be a significant, if minority, proportion of this stake, the market should be substantial for users moving in and out.

Is the future 50% of fees the only cost for Osmosis or are we sustaining other costs, like development cost? How much is it estimated to be?

There are no other costs to Osmosis here apart from the share of taker fees, we are not paying for Babylon’s development.

What are the tokenomics of $BABY? without this information the 25 million number is useless.

@Henf Tokenomics have not been announced so far. You’re quite right that without a total amount, it isn’t clear what value this 25m BABY is worth to voters. It should likely be valued low to decide which way to vote if this proposal goes to chain before tokenomics are announced. The question without this is whether BSN status is worth 50% of Babylon trading fees.

What are the intentions of the Osmosis Grants Program regarding the $BABY tokens? Will the $BABY tokens be used to provide liquidity for “Babylon assets”?

As I understand, the grants program will use tokens to support the trading of Babylon Assets on Osmosis. The exact nature is still unconfirmed since it will depend on what is needed at launch. I believe these assets will eventually make their way to the community pool for further use.

  • why do the funds go to the OGP? It completely doesn’t make sense, since the OGP is meant to bootstrap projects building on Osmosis and should not manage other funds.

Funds will be received on Babylon mainnet launch, on Babylon mainnet itself. The Osmosis DAO cannot receive funds in this way, and transferring them with the governance lead time would be very restrictive, so OGP is acting as a facilitator for this receipt and is granted the ability to use them to promote Osmosis as the main trading venue for BABY.

  • will the integration happen close to the launch of the Babylon mainnet?

We’re still evaluating how long it would take to implement, but this would be a priority to uphold Osmosis’ end of the agreement.

  • what does this mean for the proposal passed a long time ago with Nomic (which is sadly as I expected not yielding much fruit at the moment)?

Unrelated here - Babylon would be a source of BABY and Babylon LSTs, while Nomic is a source of BTC in the form of nBTC. There wouldn’t be an overlap since Babylon LSTs would change in value compared to BTC and so would not be part of the BTC alloy. Even if this was not the case, there could be multiple fee revenue shares on the same alloy since it depends on the underlying source’s share within the alloy.

  • will the fees need to be set through governance proposals on chain? Or will the Protocol Fee DAO take care of it?

All fee revenue shares are set by main Osmosis governance - the protocol fee DAO can only adjust the overall taker fee for a pairing itself. There would likely be a reduced fee for a BTC LST/BTC pairing, much like there are for other LST/Underlying pairings they would handle.

  • If I understand correctly we will see 2 proposals being brought on chain? 1 for becoming the Bitcoin Secured Network and 1 for the taker fee share agreement? Can these pass separately? I guess they should surely belong together, since I can imagine passing the taker fee proposal without the intent is quite senseless.

This signalling proposal will be followed by a minimum of two more proposals - one to perform the software upgrade to enable the BSN and one to simultaneously enable the taker fee share agreement. The idea behind signalling in advance is to ensure that both pass.
After this, there may be more proposals to add other Babylon assets to the fee share and to determine any significant uses of granted BABY.

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I believe that becoming a BSN has many benefits. However, I dont understand why a 50% revenue share agreement on babylon assets is necessary.

Is this the only way to gain btc security? Perhaps im incorrect, but i thought that babylon would also offer security as a service not exclusively through partnerships. Paying 50% of taker fees can potentially become extremely expensive if volume on these assets grow.

If Osmosis does not become a bsn, wont these assets still be tradeable on Osmosis? Being the day 1 source of baby trading is great, but how long will osmosis be the sole platform?

50% seems too high for what Osmosis receives. The service we recive is set, while the cost will scale.

I propose reducing the share of fees shared with babylon to 25%, even if we receive fewer BABY tokens, which are currently of unclear value.

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1. Osmosis becoming Bitcoin Secured Network (BSN)
Great idea as bitcoin is by far the safest network and tapping into its security makes sense.

Perhaps this will eventually help with Osmo inflation or even validator costs?

2) 50% taker fees seem appropriate.
I believe if Babylon is incentivized to have more assets on Osmosis, then there will be more Bitcoin assets/volume on Osmosis.

This is a huge win, because with 4.4 billion $ in Bitcoin staked could mean lots of money/trading fees. Hoping Babylon pushes for Osmosis dex as the go to for all trading.

3) $BABY tokens
Seems unclear how they will be used. My wish is drop to Osmo stakers (or perhaps even Osmosis NFT holders but I’m being greedy) :folded_hands:

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At Govmos, we believe that integrating Babylon’s timestamping feature is a strategic decision that will bring mutual benefits to both ecosystems. Given the intended alignment with the Bitcoin ecosystem, this approach appears highly logical. We fully endorse and support this proposal and are inclined to cast a YES vote through our reference PRO Delegators’ validator.

Thank you for reading,
Govmos
pro-delegators-sign

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@JohnnyWyles can you also check these?

This is also a good remark. Maybe we should even think about a potential cap related to the amount of BTC staked or so?

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Hey LC - I did address these above, do any need expansion?

A cap might work in some situations, but in the scenario where these assets are trading heavily, I would expect that the security provided would also scale since finality providers would also be increasing.

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Its not likely that these assets will reach a volume where the fees paid with a 50% split become inappropriate, but it is worth considering.

As long as Osmosis governance has the right to review fees paid in the future, im satisfied.

The thing is, the security doesnt scale with trading volume. Also, Babylon’s incremental costs are small or none, so additional security costs them very little while the benefit Osmosis gets from additional security experiences diminishing returns. Once economic security reaches a certain ratio to TVL, the marginal benefit is essentially 0.

Babylon also has very little ability to influence trading volumes.

With a service such as security, paying a set amount for a defined amount of security is more appropriate. But now that its passed all we can do is work with Babylon to leverage this new marketing opportunity and monitor the cost of the security we’re actually receiving.

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