Original Thread: Commonwealth
(the information was pulled together in the beginning of May, sadly I did not have time to update them)
A review of the last 80 liquidity pools created (Pool #938 through Pool #1018, which are roughly all those that have been created since the beginning of March), found that 55 of them (or 80%) to be either scam, spam, or, predatory.
- Thirteen pools (or nearly 24%) were not OSMO paired;
- Two of these pools were ATOM paired
- Five were 3- or 4-token pools (OSMO not included); and
- Six were USDC paired.
Of the 6 USDC paired pools, which contained a total of nearly $12,400 in liquidity, all were scam pools offering millions of scam tokens as liquidity incentives. Three of them had APR’s that were greater than 200%, while the other three did not have APRs calculated. There were also 6 OSMO paired scam pools, each with more than $1,000 each in liquidity (and a sum greater than $33,700), offering APRs that ranged from between 300% and 3,700%. Liquidity in the remaining 43 pools totaled nearly $100,000.
The decline in OSMO’s price over the past few months has made it cheaper to create scam, spam, and predatory pools. With it costing 100 OSMO to create a pool, at OSMO’s March high of $0.95, it only cost $95 to create a liquidity pool. At April’s low of $0.76, it only cost $76. Only last June and December has the cost of creating a pool been so low. In the first five months of 2022, the cost generally ranged between $400 and $1,000. From July through November 2022, the cost generally ranged between $91 and $141. During the first two months of this year it has generally ranged between $83 and $114.
While the community pool has collected 5,500 OSMO in pool creation fees (worth $3,850 at $0.70 per OSMO), the economic cost of the negative externalities they have produced are significantly greater. In an attempt to reduce some of these costs, two weeks ago, warning icons were placed next to pools with high APRs equal to or greater than 100% to help prevent Osmosis users from becoming victims of financial fraud. As several scam and predatory pools have still been created, further action to address this costly issue is needed.
Raising the pool creation fee from 100 OSMO to 200 OSMO would increase the cost to create a pool from $68–$75 to $136-$176 if OSMO remains in its current two month price range of $0.68-$0.88. This would be a 19-54% increase from this year’s current high cost of $114 back in February when OSMO reached $1.14. If OSMO reached $1.14, it would cost $228 to create a pool.
If increasing the pool creation fee is able to effectively reduce the number of scam, spam, and predatory pools being currently created by 45%, (assuming the price of OSMO stays within its current 2 month price range) a conservative estimate is that a minimum of $5,000 (or 7,200 OSMO) in economic savings could be achieved. A 45% reduction equates to approximately 72 fewer scam, spam, and predatory pools being created. The $5,000 (or 7,200 OSMO) in savings is calculated using the following formula: 72 Pools x the current 100 OSMO pool creation fee x by $0.70 per OSMO. The actual economic savings are likely to be substantially greater than $5,000.
Increasing the fee would also generate an additional 2,100 OSMO over the course of six months if the current two month pool creation rate is sustained, minus the 45% reduction in spam, scam, and predatory pools. In total, a conservative estimate is that a 9,300 OSMO net economic benefit can be achieved by increasing the pool creation fee over a six month period.
One of the primary activities of the Osmosis Support Lab (OSL) is to serve and protect users from the ongoing and increasing number of scams. To ensure the OSL has the resources to conduct this activity effectively, a total of 14,800 OSMO shall be appropriated from the Community Pool to a separate OSL multisig wallet that shall hereby be known as the Fraud Protection Special Use Fund .
The 14,800 OSMO to be appropriated from the Community Pool includes:
- 5,500 OSMO that the Community Pool has recently collected in fees from the creation of scam, spam, and predatory pools; and
- 9,300 OSMO in economic savings and benefits achieved from raising the pool creation fee and reducing the number of scam, spam, and predatory pools.
The OSL is entrusted with budget authority to utilize available funds in the Fraud Protection Special Use Fund to establish community partnerships and the co-develop of effective tools and/or resources that will enhance its current capabilities to protect users from fraud. It shall provide Governance with a report on how funds were, or are being spent, in its next funding request (est. August).
To ensure the OSL is able to maintain the community partnerships and programming it establishes, half of the pool creation creation fee shall be collected by and deposited into the Fraud Protection Special Use Fund .
The OSL shall provide Governance with a projection of how much OSMO will be collected from the pool creation fee and a budget for how funds collected and deposited into the Fraud Protection Special Use Fund will be spent as part of its next funding request. It shall also be responsible to provide Governance with recommendations if adjustments need to be made to the pool creation fee, or to the share that the Fraud Protection Special Use Fund receives.
In the event that the OSL is to be disbanded or dissolved, the OSL will ensure that any remaining uncommitted funds in the Fraud Protection Special Use Fund is returned to the Community Pool and that the entire pool creation fee will be collected by and deposited into the Community Pool.