Renew the OGP Market Making Initiative for One Year

Proposal Discussion
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This is a signaling proposal to renew the Osmosis Grants Program (OGP) Market Maker Initiative for one year. This proposal suggests using the existing 7,000,000 OSMO previously allocated to the OGP’s multisig to execute new agreements.

This proposal also seeks to allocate the MILK tokens given to the Osmosis community pool as part of the OGP’s grant with Milkyway to bolster depth for MILK on Osmosis and increase the depth of paired assets using this allocation.

The OSMO Market Maker Initiative

In January 2024, Osmosis governance passed the OGP market making initiative, allocating 7,000,000 OSMO to the OGP Multisig. Over the course of the year, the OGP deployed liquidity across multiple market makers to help bolster liquidity for OSMO on centralized exchanges andt strategic markets support strategic markets on the Osmosis DEX (more on this below).

Now that the agreements have ended, OGP plans to narrow the program’s scope slightly to focus on deepening Osmosis DEX liquidity.

All 7M OSMO is currently either held in the OGP multisig or on deployment with market makers. This proposal seeks governance approval to extend the Market Maker Initiative under the new scope rather than requesting additional funding.

The Milkyway Grant

In December 2023, the OGP executed a grant agreement with Milkyway for $120,000. As part of the grant agreement, Milkyway was required to grant the Osmosis community pool $120,000 worth of MILK tokens (at seed price). Now that Milkyway’s TGE has occurred, MilkyWay is prepared to deliver the MILK tokens to Osmosis. If this proposal passes, Milkyway will send the MILK tokens to the OGP instead of the Osmosis community pool, for use within the wider liquidity deployment Initiative.

Current State of Funding Deployments

In the last year, the 7M OSMO allocated to the OGP for the initiative was deployed across three market makers. The amount and status of each deployment are outlined below:

Amber

  • Loan Amount: 3,000,000 OSMO
  • Term: 12 months
  • Current Status: Funds still deployed

Wintermute

  • Loan Amount: 2,000,000 OSMO
  • Term: 12 months
  • Current Status: Closed. Funds returned to OGP multisig. Return Transaction

Pulsar

  • Loan Amount: 500,000 OSMO
  • Term: 12 months
  • Current Status: Closed. Funds returned to OGP multisig. Return Transaction

1.5m OSMO were undeployed for the duration of the initiative and remained in the OGP multisig untouched.

Proposed Disposition of OSMO

In lieu of allocating smaller OSMO amounts to multiple market makers as was done in the last iteration of the market maker initiative, OGP will initially allocate to just one market maker, Amber Group. The loan amount will be 5,000,000 OSMO

As Amber already possesses 3,000,000 OSMO, OGP will execute the proposal by sending them an additional 2,000,000 OSMO. Additionally, OGP will retain the remaining 2,000,000 OSMO for other potential engagements if necessary, or remain untouched with the OGP. None of the OSMO allocated to these initiatives will be used for grants or OGP compensation.

Proposed Disposition of MILK

The OGP will negotiate with market makers to provide depth for MILK on the Osmosis DEX, paired with strategic assets like USDC and BTC, further increasing those pairing token depths on Osmosis. OSMO inventory will not be used as a pairing asset. The market maker has not been selected yet. Once selected, the OGP will release a blog update to the community, outlining the loan amount and term.

Multisig Composition

The OGP multisig will retain custody of the OSMO and MILK, and facilitate transfers of these assets to and from any market makers. As a reminder, OGP v3’s Reviewer Committee includes:

  • Lemma Solutions
  • Cosmostation
  • Figment Capital
  • Brandon Curtis
  • Polkachu
  • Schultzie
  • Juri Maibaum
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Good to see things consolidating and getting more streamlined here! Supportive of this effort.

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There are sooo many questions popping up on this one;

  • can we see the performance of the market making somewhere?
  • what is the payment for Amber in return for market making in the first place?
  • why do we want to go back to one market maker instead of multiple?
  • what markets will the funds be deployed?
  • what is the current price of $MILK? In other words, it is nice that is seed price, but in current markets a lot goes down… how will that affect deployment?
  • why is the MILK send to the OGP and not after that to the CP?
  • why do we want the MILK to be deployed via the OGP in the first place? What is the special place MILK has compared to other assets?
  • why would we want a market maker for MILK and not for other assets? It will most surely also involve some kind of payment, meaning we will have costs on one of our not-core-focus asset?

There might be more, but this is my first batch which pops into my mind ^^

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  • can we see the performance of the market making somewhere?

While we can’t get you access to the MM performance reports, the MMs were held to specific KPIs related to liquidity spread within a given dollar value, and were responsible for ensuring minimum depths on various centralized exchanges. We know this isn’t very specific, but as was the case in the previous proposal, we’re required to keep this info confidential.

Worth noting, though, that since these agreements have ended, traders are clearly feeling the impact of the loss in depth on various markets. That should give you a decent high-level idea of how much the initiative has been helping.

  • what is the payment for Amber in return for market making in the first place?

Apologies, we should’ve spelled this out a bit more clearly in the proposal. As with the last proposal, we’ll be carrying forward with the option model described here:

This also applies to your question about the MILK tokens

  • why do we want to go back to one market maker instead of multiple?

For the sake of simplicity, more reasonable costs, and to streamline KPI review.

  • what is the current price of $MILK? In other words, it is nice that is seed price, but in current markets a lot goes down… how will that affect deployment?
  • why is the MILK send to the OGP and not after that to the CP?

I don’t understand what you mean by these questions.

  • why do we want the MILK to be deployed via the OGP in the first place? What is the special place MILK has compared to other assets?

Primarily it’s because it’s the most efficient way to deploy that Osmosis-owned liquidity to make Osmosis the best DEX venue to trade MILK. We (Osmosis’s community) have a healthy supply of this particular token, and there isn’t a lot of DEX competition for it. If Osmosis deploys this liquidity via a market maker, it’s likely that we’ll win the bulk of the DEX orderflow for this asset.

  • why would we want a market maker for MILK and not for other assets? It will most surely also involve some kind of payment, meaning we will have costs on one of our not-core-focus asset?

See our note above re: the payment structure. This won’t involve any additional out of pocket payments to any market makers.

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That leaves quite a lot of room for another question; namely if the effect was good, why did it end in the first place? Was it not the OGP’s task to monitor and deploy the funds? A lot are now sitting idle, but could have been deployed to feel less pain in the token price as you mention. Does that mean that the task was not fulfilled to the full extent here?

Clear! Is there also a potential downside we should take into account?

The current allowance is for Osmosis, which is logical. For that one it does not really matter if some pain is taken in the amount of tokens, since it benefits Osmosis and the token.
However, I can’t say the same for MILK. We have to recognize that in general tokens trend down after being issued to the market, which means that we will run into the liquidity provided by the marketmakers. We as community will feel the pain, but will it outweigh potential benefits?
Furthermore, why is the MILK managed by the OGP? We have no clue what amounts we are talking about and I hate giving blank cheques to manage. Before being able to decide on it, we surely need more numbers here.

For other asset deployments we have used a DAODAO if I’m correct under the safeguard of amongst which @JohnnyWyles. Why would we deviate from that route whilst for me the added value is highly questionable.

Personally I think this is a weak argument. MILK is surely not our core-focus-asset, where BTC is. I rather spend a bit of funds to make our BTC-markets much much more attractive than just going for an asset which we “accidentaly” have.

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That leaves quite a lot of room for another question; namely if the effect was good, why did it end in the first place? Was it not the OGP’s task to monitor and deploy the funds?

The previous proposal’s term was for one year, which lapsed at the time the individual agreements ended. This proposal will ensure the funds continue to be deployed if it passes :saluting_face:

Is there also a potential downside we should take into account?

The main one is probably counterparty risk which is concentrated on one party vs multiple (i.e., the risk of Amber’s wallets being compromised).

However, I can’t say the same for MILK. We have to recognize that in general tokens trend down after being issued to the market, which means that we will run into the liquidity provided by the marketmakers. We as community will feel the pain, but will it outweigh potential benefits?
Furthermore, why is the MILK managed by the OGP? We have no clue what amounts we are talking about and I hate giving blank cheques to manage. Before being able to decide on it, we surely need more numbers here.

All this is doing is adding additional liquidity to MILK LPs on Osmosis, which will give Osmosis traders more depth to buy and sell MILK. Less price impact historically leads to more volume, which translates to more taker fees / treasury revenue for Osmosis. The community will see a benefit from the deployment rather than a major downside.

For other asset deployments we have used a DAODAO if I’m correct under the safeguard of amongst which @JohnnyWyles. Why would we deviate from that route whilst for me the added value is highly questionable.

The major downside in this approach is we either have to risk community pool USDC to pair with MILK, or sell the MILK on the open market to get that USDC.

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Update: The proposal is live for voting now!

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Thanks for all the answers!

Although I can understand the answers, it hasn’t convinced me of the need to do this with MILK as an asset. I rather see our assets being utilized for the major assets where we want to gain market share and exposure for Osmosis as a whole. However, I also do understand (correct me if I’m wrong) that except the MILK assets from the CP which are handed over by MilkyWay there is no burden on the CP?

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That’s correct! Only the MILK tokens are implicated here. Nothing about this proposal would preclude Osmosis from building liquidity in other assets.

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