Reposition and Reallocate stOSMO Support Liquidity

Proposal Discussion
1

This proposal aims to re-deploy the stOSMO/OSMO static liquidity position as the position is now out of bounds.

Background

The goal of Liquid Staking Token (LST) support initiatives is to allow OSMO to become a more flexible token for use across DeFi while holding to the principles of:

  1. Minimal OSMO staked using Protocol Liquidity.
  2. Diversity of OSMO LSTs.
  3. Resilient Pegs for OSMO LSTs.

Current Deployment

stOSMO support is currently deployed as follows:

  • Static position
    • 1.24 - 1.31 of ~12m OSMO
  • Locust Vault - 900k
    • 200k OSMO from Proposal 798
    • 700k OSMO + 2.643 stOSMO from Proposal 843
    • This position is almost entirely composed of OSMO, with a small buy side of stOSMO present.

Proposed Deployment

Margined Vault - 3m OSMO (+2.1m)

  • As seen on the Concentrated liquidity display, the Margined Locust vault provides a depth of around 3x compared to the existing static pool while utilizing only 900k OSMO Liquidity.
  • Increasing this deployment to 3m OSMO should provide a similar depth as the previously in-range liquidity position, which moves along with the market rate.
  • Any stOSMO will also be added to this position to allow disposal for OSMO and provide buy side inventory.

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Static position - 9.9m (-2.1m)

  • To be redeployed as a backstop for the stOSMO peg
  • This position will no longer contain any stOSMO and the community pool should not stake more OSMO in line with the first principle above.
  • This position will be redeployed into a narrower banding of 1.3 - 1.32, or market price at deployment, to act as a backstop for stOSMO liquidity.
  • This proposal does not ask for this to be downsized, as the sizing is required to maintain the current Mars stOSMO caps until the implementation of CL pool depth into the Mars model is completed.

Implementation

This proposal transfers the community pool liquidity position and accumulated stOSMO to the Osmosis Liquidity subDAO, which will execute the proposed adjustments to the liquidity.

Execution will be performed in several stages to ensure that sufficient liquidity remains in the pool during migration.

  • Withdrawal of 2.1m OSMO from the position and collection of accumulated fees.
  • Deposit of all stOSMO (~1.8k) and 2.1m OSMO into the Margined vault, establishing similar depth.
  • Withdrawal of half the remaining OSMO from the position.
  • Deposit into the new range.
  • Withdrawal of the remaining OSMO from the position.
  • Deposit into the new range.
  • Return of the liquidity position and the vault receipt tokens to the community pool.

Target Onchain Date: 9th January 2025