Nomic DAO Foundation requests ~$800k worth of OSMO in the form of a loan to help bring Cosmos-native Bitcoin to Osmosis. The loan will be repaid in NOM with a 20% discount at the rate of the next private token sale or the rate one month after NOM becomes transferable.
By voting Yes on this proposal, Osmosis stakers voice their support for a loan of OSMO to Nomic.
Nomic offers a decentralized, non-custodial Bitcoin bridge to IBC-enabled chains like Osmosis. nBTC, the Bitcoin-backed asset provided by Nomic, is live on Osmosis today along with Interchain Deposits, a feature that allows Osmosis users to deposit BTC directly within the Osmosis app to receive nBTC.
Osmosis and Nomic are deeply aligned protocols, with the majority of existing nBTC currently escrowed in Osmosis, and Osmosis moving toward increased usage of Bitcoin as collateral in the form of an eventual Bitcoin alloy asset. Nomic’s native staking token, NOM, was airdropped to OSMO holders, and the two communities share an affinity for Bitcoin.
Nomic aims to provide the seamless on-ramp for native Bitcoin liquidity that Osmosis desires. However, Nomic has yet to complete auditing by third-party security firms. Until the software has been audited, Nomic implements a capacity limit of 21 BTC, a deposit fee of 1%, and an IBC transfer fee of 0.5%, to disincentivize a premature inflow of liquidity.
Nomic DAO Foundation is proposing a loan of ~$800k worth of OSMO, to be paid back in NOM with a discount, to accelerate the completion of auditing. Upon successful completion of auditing, the Nomic Governance Upgrade can allow Nomic’s governance to select appropriate deposit and transfer fees (estimated to be closer to market rates, e.g. at or below 0.3%), remove the nBTC capacity limit and allow the transferability of the NOM token. These steps will lead to the flourishing of a more native form of Bitcoin within Osmosis, and help Cosmos to truly become the application layer for Bitcoin.
NOM/OSMO will be a concentrated liquidity pool on Osmosis, with a 0.2% swap fee and no exit fee. Nomic DAO Foundation is requesting ~$800k worth of OSMO at the time of this proposal’s passing to be delivered to an address controlled by Nomic DAO Foundation. These loaned funds will be used primarily to fund security auditing of the Nomic codebase and dependencies and for other engineering work associated with the integration of nBTC into Osmosis, such as enabling direct Bitcoin deposits and withdrawals via the Osmosis frontend. Nomic DAO Foundation will work to minimize price impact with OTC sales and selling only as needed.
Osmosis is not the only project to benefit from this work, which is why this proposal is structured as a loan, not a grant. As mentioned previously, however, the majority of existing nBTC is in fact escrowed within Osmosis. For this reason, a proposal which enhances the safety of BTC within Osmosis, lowers deposit fees, and increases Osmosis’s BTC liquidity seems well-aligned with the interests of the Osmosis DAO – especially in the form of a loan to be paid back with a premium.
Upon approval of this proposal, the OSMO tokens will be sent to the Nomic DAO Foundation address.
In the event of a private token sale of NOM from Nomic DAO Foundation prior to NOM becoming fully transferable, the loan will be repaid in NOM at a 20% discount of the sale price upon the close of the sale and once NOM is enabled to be transferred over IBC.
In the event no private token sale occurs, 30 days after the creation of the NOM/USDC pool, NOM tokens will be sent to the Osmosis community address. The price of the NOM token will be calculated using the trailing 24h TWAP of this pool at the time of repayment, and the loan will be repaid in NOM at a 20% discount of this price.
No restrictions or lockups will be imposed on the NOM repayment tokens, unless repaid prior to governance making NOM fully transferable. The Osmosis community is free to decide how to best utilize the funds. For example, the funds may be used to provide protocol owned liquidity on NOM/OSMO, LP incentives, or be distributed to the Osmosis community.
Nomic DAO Foundation reserves the right to pay back the loan with a flat 5.25 million NOM, which is half of the network’s initial Strategic Reserve allocation, and more than half of Nomic DAO Foundation’s current holdings.
The OSMO funds loaned in this proposal will be distributed as needed to cover expenses and used to provide liquidity in nBTC-related pools in the interim. In the event that the event of an OSMO surplus in Nomic DAO Foundation’s custody after the NOM-based loan repayment, Nomic DAO Foundation will continue to provide liquidity in nBTC pools.
Additionally, to bootstrap nBTC liquidity, the Nomic DAO Foundation requests the Osmosis Foundation deposit $100k worth of Bitcoin via Nomic at the time of this proposal’s acceptance, incurring the current 1% deposit and 0.5% transfer fee, a ~$1,500 total cost, and provide $98.5k of nBTC and $98.5k of WBTC to the nBTC/WBTC concentrated liquidity pool. The discount upon loan repayment should be considered to reflect compensation for the provided WBTC liquidity, as well as the post-fee nBTC liquidity. This additional step will help Osmosis move toward a more native Bitcoin collateralization profile, immediately sowing the seeds for a less custodial Bitcoin alloy asset in the protocol’s future.