As Osmosis enters its next phase of development, the ecosystem is proud to unveil an updated tokenomics model that aims to strengthen its sustainability further, align incentives, and establish its position as the home of premium Cosmos DeFi apps. Building upon the initial tokenomics model, this evolution reflects the Osmosis community’s strong engagement with its governance systems and commitment to remaining at the forefront of DeFi innovation. In this blog post, we will explore the key changes to Osmosis’ tokenomics model and how they pave the way for a more robust, sustainable, and dynamic ecosystem.
Transitioning from the early distribution phase of its tokenomics, Osmosis governance has voted to reduce the inflation rate by 50% and lengthen the emission timeline from mid-June, on top of its regular “Thirdening” inflation reduction event.
Token Release Schedule
While still maintaining the goal of reaching a maximum supply of 1 billion tokens, this adjustment allows for a more sustainable emission model where high inflation is no longer an issue by making Osmosis one of the lowest inflation-established chains in the Cosmos ecosystem. By extending this timeline, Osmosis can seek to strike a balance between growth and stability, enabling a smoother distribution of tokens over an extended period of time.
In order to reward some of the long-term stakers in the Protocol, Osmosis is taking a significant shift to emission allocation. Since the introduction of Osmosis incentives, the protocol has prioritized incentivizing liquidity providers in order to foster the growth of liquidity. Since then, Osmosis has successfully bootstrapped liquidity Cosmos native tokens such as ATOM, as well as external tokens such as Axelar wrapped BTC, ETH, and USDC.
However, in an effort to align our emissions model more closely with the long-term vision of Osmosis, upgrades are needed. The Osmosis community has decided it is in the best interest of the protocol to redirect emissions from liquidity providers and the community pool to stakers. This update aligns with Osmosis’ focus on becoming a DeFi-centric blockchain and leverages the advantages offered by the Supercharged Liquidity feature.
Supercharged Liquidity will improve upon the Concentrated Liquidity mechanisms available on other DeFi platforms to offer an easy-to-use, highly efficient liquidity provision solution for all users. As liquidity becomes more self-sustaining through this increased efficiency, this should result in emissions being further reduced or redirected to help fund other initiatives.
By incentivizing stakers, Osmosis rewards users who actively participate in securing and governing the network. This change underscores Osmosis’ commitment to creating a sustainable and user-centric ecosystem.
Staking growth since launch by Smart Stake
In January, Osmosis introduced an automated internal liquidity arbitrage mechanism performed by the chain itself. The module developed by the Skip team, was a first for the Cosmos ecosystem. This allows a sovereign app chain such as Osmosis to benefit from MEV revenue generated at the protocol level, exemplifying one of the many benefits app chains in the Cosmos have versus their counterpart applications on Ethereum.
Satellite by Skip Protocol
The revenue that has been collected since the launch of this module has been held in a monitoring wallet, and Osmosis governance is [currently being discussed (Commonwealth) how best to utilize this. Popular options include diversifying the holdings of the Community Pool, incentivizing further staking, or serving as a burn mechanism. Combined with the reduced emissions, a burn mechanism will begin to offset a portion of what inflation remains further, potentially leading to a net deflationary model. This innovative approach ensures that emissions are balanced and that the protocol benefits from increased spending power for future community initiatives.
In its current form, Osmosis allocates 45% of incentives to liquidity providers; this has served the protocol in its ability to bootstrap liquidity, offering the deepest liquidity within the Cosmos ecosystem. This, however, has also meant stakers received a lower allocation of incentives, currently earning 25% of the emissions.
In addition to changing these allocations as above, Osmosis governance is now actively discussing the implementation of a fee switch for liquidity pools. This feature empowers OSMO stakers by allowing them to directly share in the swap fees generated by activity in Osmosis liquidity pools. This alignment of incentives will ensure that stakeholders benefit from the platform’s increased activity, fostering a vibrant and participatory community.
The revamped Osmosis tokenomics heralds a new era for Osmosis, promoting sustainability, activity alignment, and community engagement. With reduced inflation–as a result of the Thirdening and governance action–emissions directed towards stakers and automated internal liquidity arbitrage, Osmosis solidifies its position as a leading DeFi-focused blockchain. Furthermore, the proposed uses for Protocol Revenue and the implementation of a fee switch setting strengthen the bond between Osmosis and its stakers, offering them a direct stake in the platform’s success. As Osmosis continues to evolve, it remains committed to adaptability and governance, empowering the community to shape the platform’s token model for years to come.
Disclaimer: The information provided in this blog post is subject to change as Osmosis continues to iterate and evolve its tokenomics. Please refer to the official Osmosis channels and documentation for the latest updates.