Since this proposal by the quicksilver team is likely going on chain tomorrow, I figured it was a good time to weigh in.
Disclosures:
- I’m a contributor to Stride, who this proposal would negatively impact
- The proposer is a contributor to Quicksilver, A Stride competitor who would benefit greatly from this proposal (not sure why this disclosure was not made by the proposer)
- I’m an OSMO holder, who would be significantly negatively impacted by this proposal’s likely impact on the OSMO price
Economic Concerns
The first thing that I want to address about this proposal is what’s not included in the proposal text anywhere. Specifically, no mention is made about the economic impact that this extremely aggressive measure would have on Osmosis and the OSMO token. As a TLDR, this proposal would:
- Immediately reduce Osmosis’s TVL by nearly 20%
- Force all lending / CDP protocols supporting OSMO LSTs to drastically reduce deposit caps on OSMO LSTs, further reducing TVL and causing a supply glut of OSMO to enter the market
- Hamstring the growth of the OSMO liquid staking market, making OSMO a less attractive asset overall.
As an example of the second and third points, lets look at the impact of the POL currently liquid staked with Stride. Because of this POL:
- stOSMO is the third largest collateral asset in the Cosmos ecosystem, behind USDC and stATOM.
- stOSMO represents over $6.5 million in locked OSMO across Mars, Umee, Shade, Kujira, Inter-protocol, and Membrane.
The depth of liquidity created by this POL has already returned an immense amount of value to Osmosis, and that value continues to grow every day. This proposal would not only hamstring the growth of OSMO’s economic influence as collateral in the Cosmos Ecosystem, but would actively be a step back.
If liquidity is pulled like this, All of the above protocols would need to significantly reduce deposit caps for stOSMO, which would reduce the number of liqudity sinks available for OSMO and cause an influx of OSMO supply (which I assume would likely be sold given those lack of sinks).
I personally believe that the proposers have chosen to ignore the economic impacts that this proposal would have on Osmosis because it doesn’t suit their narrative, a narrative which I’d like to address now.
Governance Impact
This is false for so many reasons, not the least of which being that the number of tokens currently staked by the community pool is roughly 10m, not 20m. I think Jacob / Quicksilver may have forgotten that LPs on Osmosis are 2-sided, meaning 10m OSMO max would have been liquid staked under the proposal referenced here.
Additionally, this assumes that 100% of delegators vote, which as most of us know by now is pretty much the opposite of what happens. Delegators simply do not vote. The overwhelming majority choose to delegate that responsibility to their validators, and “vote with their feet” by changing validators that do not align with their interests. Jacob himself admits this.
This is the main reason why copy-staking does, in fact, fix this.
Delegators can continue to vote with their feet under a copy-staking model, and this actually gives delegators more power, because for every vote a delegator redelegates from a validator, more than 1 vote leaves that validator. This increases validator / delegator alignment.
Since Copy-staking is on the way for Stride at least, this proposal is completely unnecessary.
Additionally, the passage of proposal 769, while not doing a perfect job of addressing the potential economic impact I describe above, does work to shift LST allocations by the community pool to 100% OSMO positions, which addresses Jacob’s concerns without nuking Osmosis’s TVL (and that of the builders on Osmosis like Mars and Umee) and while maintaining LST liquidity depth to ensure that non-community pool liquid staked OSMO remains viable.
Again, all facts are pointing to this proposal being overly aggressive and completely unnecessary, which leads me to seriously question the motivations for putting it up in the first place.
I’m not one to often attribute to malice what can equally be attributed to incompetence, but given the motivations at play here by the Quicksilver team, the fact that the concerns raised in this proposal have already been addressed, and the extreme negative impact this proposal will have on Osmosis’s TVL I’m inclined to vote NoWithVeto on this proposal if it goes live, and would encourage others to do the same.