Osmosis Updates from the Lab occurs on alternating Wednesdays at 1 PM EST (5 PM UTC) on the Osmosis Zone Twitter Space. Replays are available on the Osmosis YouTube channel or the podcast.

Welcome back from the holidays! Here’s a recap of what happened in before and during the break. For a more intensive year-in-review, check out the Osmosis End-of-Year recap.

With the recent v13 upgrade, stableswap pools are live! A number of stables (BUSD, DAI) have not yet been added to the main site: until they are, you can trade them on Frontier with low fees and price impact. You can tell a pool uses the stableswap AMM if it has this picture on the pool page:

While there is no current Commonwealth discussion about stableswap incentives, I would expect to see a proposal soon to add native incentives to a tri-pool of the top stables: perhaps USDT, USDC, and BUSD?  

Other notable v13 upgrades include:

  • IBC rate limits: These are governance-controlled parameters that automatically stop inflows or outflows of a given token past a certain threshold, measured as a percentage of the asset available on Osmosis. A proposal is in the works that starts these limits at 30% daily in/out (measured separately) for most major Osmosis assets, and a 60% weekly backup. The idea is that these limits will discourage potential exploiters from either targeting Osmosis or using it to offload stolen funds from another chain. At the same time, these limits should be high enough that they never affect liveness during normal trading, even in volatile market conditions.
  • Multi-hop fee discounts: When swapping 2 nonOSMO assets through OSMO pools, users now pay only one pool fee (the higher one). For example, there is no ATOM/WETH pool, so traders wanting to trade ATOM for WETH would first buy OSMO with ATOM in ATOM/OSMO (hop 1), then buy WETH in WETH/OSMO (hop 2). Previously, each pool would have charged 0.2% (other pool fee prices vary), but now only one 0.2% fee is split between the two pools. This will cause individual pool fees to go down, but the increased trade volume should make up for it. This will likely include a greater number of arbitrage transactions, since previously unaffordable arbs will now more easily turn a profit with the reduced fees. Further, as discussed below in the Governance Corner, the multi-hop discounts allow native incentives to non-OSMO pools to be eliminated. Since multi-hop OSMO routes now have competitive fees, they can now outperform direct pools.

Interchain Name Service

The InterChain Name Service is live, bringing social identity to the interchain. Like DNS and ENS, ICNS allows hard-to-read account IDs to become identifiable names and brands. This makes Osmosis and Cosmos more legible, more useful, more fun to hang out in.

Chainapsis (the Keplr team) and some developers from Osmosis Labs have been heads-down completing ICNS since the middle of November, with the design period having started much earlier. 

The contracts are live on Osmosis (uploaded in Props 381–83), where they will likely remain during the bootstrapping phase of the project, after which they will be put on their own appchain. ICNS is an interchain-wide name service, and as such, it has been integrated into the major interchain wallets Keplr and Cosmostation, as well as Skiff (private, encrypted email) and Commonwealth governance.

In addition to these integrations, ICNS differs from other naming services in its stance towards discouraging speculation and domain-name squatting. For the first year, ICNS names will be bootstrapped from Twitter names, i.e. from the crypto industry’s public square. Users can claim their Twitter names now, and their name will appear on their account in Keplr, Cosmostation, Skiff, and Commonwealth.

Connecting a wallet to a doxxed Twitter account will de-anonymize it, so users should carefully consider their strategy for on-chain interactions before claiming. Once the NFT name is created, it will forever be traceable on-chain to the creating wallet (just like any on-chain transaction), even when name-trading becomes available. The time-tested approach of pseudonyms is likely best for those who prefer maximal privacy.

On-chain identity is powerful, and we are just at the beginning of learning how to harness it. Once we do, our online systems will become ever more robust and fun, even as we work to maintain privacy in immutable, data-rich environments. We will have legible on-chain reputations, increased sybil-resistance, personal finance NFTs, gaming — the entire world of things we do in the real world, plus everything we can imagine in the digital.

 — On a related on-chain identity note: check out the Quests now available on the Osmosis Crew3 community page! Similar to the RabbitHole learn-and-earn platform on Ethereum, you can compete for points and prizes!

OGP Grantee Showcase: Laika & Chaos Labs

Grantees will be coming on UftL periodically as part of Reverie’s improved communications. See also their latest monthly transparency report.

Laika has built a developer tool that automates blockchain request writing. In the same way that Postman makes web2 API’s easy to build, Laika makes it easier to write CosmWasm code that interfaces with the Osmosis chain. They have already integrated Beaker, the Osmosis smart-contract developer interface, making development much easier for all Osmosis ecosystem builders. Developer UX is a huge need for Osmosis to recruit developers who could work on EVM chains instead.

Check out the Laika Ecosystem Spotlight for more details, as well as the tutorials available on their YouTube channel.

Chaos Labs is working with HathorNodes on recommendations to make OSMO incentives more efficient — complementary to the incentive reductions made by governance discussed below. The goal is to generate more volume/revenue with the same amount of incentives or less, without harming the trading experience.

Chaos Labs currently leads risk management for Aave, where they are focused on tuning liquidation thresholds and penalties based on the protocol’s risk appetite. That is, a lending protocol wants to attract liquidity with an LP-friendly liquidation engine, while not making the parameters so loose that the protocol accrues bad debt. Chaos Labs also helped dy/dx develop a new incentives system that stopped rewarding low-quality volume in favor of healthy volume and order flow.

HathorNodes is developing its LP incentive-spending model on the Chaos Labs platform. Once released (anticipated in 4–5 weeks, UX preview here), the data will be available there so that there is transparency into how and why any recommendations are being made. Without going into specifics, Omer from Chaos Labs said that the initial modeling suggested large improvements. If the grant is a success, Chaos Labs would like to build more infrastructure around helping LPers to decide how to manage their liquidity, data-rich trading tools, and analytics about how pools can continually be optimized to drive volume.

Governance Corner 

Props are passed or passing unless otherwise mentioned. Voting end date in parentheses.

While there were not many proposals since the last Governance Corner, a major incentives reform package passed, greatly reducing emissions to LPs.

Prop 394 — Enable Superfluid Staking on OSMO/HUAHUA (Jan. 03)

 —  Props 389 & 390 — Remove “Other” Category Native Incentives & Reduce “Major” and “Stable” Incentives (Dec. 26)

Continuing the recent trend of substantially reducing incentives (discussion in last month’s UftL), Prop 389 completely eliminates the “OTHER” (i.e. nonOSMO) category of native incentives, and 390 takes another large bite out of the MAJOR and STABLE categories and redirects it to the Osmosis Community Pool. With native LP incentives now reduced to 13.5% of daily OSMO emissions (i.e. roughly 74K out of 550K), and 31.5% (173K) going to the Community Pool. The proportions going to each category are now as follows:

  • 54% OSMO/MAJOR — 39,945 OSMO/day (-21,021, or -34%)
  • 17% OSMO/STABLE — 12,575 OSMO/day (-28,069 or -69%)
  • 25% OSMO/MINOR — 18,493 OSMO/day (-474 or -2.5%)
  • Up to 4% Stable/Stable (other categories normalized if < 4%)

A number of pools receive a minimum amount of their category’s incentives, regardless of pool activity/fees:

  • 9 OSMO/CRO: 2%.
  • 481 OSMO/EEUR: 0.5%
  • 674 OSMO/DAI: 3.5%
  • 704 OSMO/WETH: 10%
  • 712 OSMO/WBTC: 8.5%
  • 773 OSMO/DOT: 0.5%
  • 789 OSMO/MATIC: 0.5%

Only two pools are capped:

  • 1 OSMO/ATOM: 35%
  • 678 OSMO/USDC: 13%

It will be exciting to see how liquidity moves and changes as a result of the decreased incentives, how the trading experience is affected moving into a concentrated liquidity paradigm, and what the DAO is able to do with the burgeoning Community Pool.

On a final note, the channels to Terra (Classic) have been re-opened, thanks in large part to Notional, so users with stranded tokens on either side can now move them.

See you on January 11th for the next Updates from the Lab.

Enter the laboratory at Osmosis.zone, the first decentralized exchange powered by the Cosmos SDK and IBC. See our published lab reports at the Osmosis blog, our bench notes at Github and help plan future experiments in our Commonwealth

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