Hi Osmonauts,
The TL;DR is that I write about Osmocon highlights, new Osmosis features coming to the platform, and introduce ACS Power Plays. Carry on below…
Osmocon 0 Highlights
Osmosis Fun Facts
Below are the following I learned from watching Osmocon footage that I didn’t already know about Osmosis, even after using it almost daily for the past year, and following frequently.
The Osmocon event center was supposed to be used for the TerraDapp Expo (for obvious reasons that didn’t happen)
With the chain halted during the convention, the timing of Osmocon is comparable to Devcon2 in 2016 when the infamous “Shangai Attacks” on Ethereum caused the chain to be unusable for days on end, and people thought “Ethereum was dead”
Unlike other chains that are not on-chain carbon neutral, Osmosis is fully carbon neutral via onchain carbon credits through the partnership with Regen Crypto.
Osmosis is pushing forward social good and the move from “degen” to “regen” otherwise known as Regenerative Finance.
Osmosis has a number of “sub-DAO’s” that fall under it:
Support DAO
Marketing DAO
Events DAO
Grants Program
The Nitrogen v9 upgrade bug was a simple bug that the Dev team took full responsibility for. Rather than clawback anyone who received a “bonus” as a result of unknowingly activating the bug, the team filled the gap by funding it from the dev pool and taking accountability for it.
This is a major win for Osmonauts, for Osmosis, and the Dev Team
Instant credibility, and a precedence for accountability are key
A Fundamental Focus on Security
Security is about process, and innovation for Osmosis will not come at the expense of security, per Sunny.
To help, Osmosis dev team is working with validators to make sure more people understand the codebase
Reason is, the more people that understand the code, the more brainpower and eyeballs the team can get on testing updates
Superfluid Staking - this was possibly the biggest innovation to PoS since slashing was invented. Initial data show that Superfluid staking actually makes the chain much more secure than it would be without it and would likely prevent a 2/3 attack if there was a similar scenario as the Terra UST-style meltdown onchain
The concern around an imploding token price and massive inflation that 2/3 majority could be achieved
Superfluid staking makes this less likely by improving chain security, turning an inactive “asset” (LP shares) into a security and marketing feature.
Going forward from the Cosmos Hub side, in the future there will be interchain staking and therefore interchain security. Other Cosmos-based chains will be able to “lease” security from the main Cosmos blockchain, secured by staked ATOM tokens.
Osmosis Product Feature Roadmap
Safety Features
Volatility-aware AMMs: Pools will be able to automatically and dynamically respond to extreme volatile events. This feature will be modeled after market makers on the NYSE, who in times of extreme price shock, thin the order book or the exchange halts trading temporarily via “circuit breakers” to protect investors and AMMs.
“Aware” Bridges: while Sunny didn’t explicitly call this by name, he made a point that no significant amount of liquidity (>25%) should be leaving your bridge within a few hours. Like if that’s happening, there’s probably something wrong.
Downtime MEV* Protection: This one is a little complicated, but it basically means protection against front-running by miners and validators when the chain restarts, benefitting consumers.
Custody and Wallet Features
Flexible Key Management: described as “the security of a Ledger with the convenience of a hot wallet.”
Rate-limited Hot Wallets: choose to enable a setting where only a certain amount of your funds are eligible to be transferred in any given timeframe. This would prevent total wallet drain in the event of a hack.
Session Keys: You can generate a hot key in your browser that will allow you to trade X amount or % of your assets on Osmosis. Then if you needed to trade more, you can sign using your Ledger (for example).
Social Recovery Systems: This wasn’t explained, but it sounds like you’ll be able to allow a group of others to help you recover your wallet. I’m guessing each person will have a piece of your key so there’s no single point of failure.
Apollo Safe: implementation of a packaged MultiSig wallet.
For more on Miner Extractable Value, see here.
Trading Engine Features
Stable Swap: Osmosis is working on a stable swap feature with minimal or even no slippage. For example, 1 DAI = 1 USDC always.
Scaling Factor Governors (for highly correlated assets): For example, ATOM paired with Staked ATOM where the staked ATOM (or stATOM) ratio is aware of it’s value as it grows over time. 1 stATOM starts off as 1 ATOM but then will increase to 1.01 stATOM : 1 ATOM, 1.02 stATOM : 1 ATOM, and so on. You may have seen this with other cryptos (E.g. BOO and xBOO via SpookySwap).
Order Books: Implement order books to enable limit orders and allow for conditional AMM joins and exits. For example, request your liquidity be deployed only up to a certain price or range of prices than allow automatic pool exits when those conditions are triggered.
Stop Orders: In addition to limit orders that would be fulfilled by the order books, the team is also working on stop orders. Stop orders are great because they follow pre-set conditions that you decide, as to when to exit a trade in the event of a loss.
As a quick example, let’s assume you bought 1 ION at $1,000.
Because you know ION can have large drawdowns, let’s assume you only want to risk about $200 on the trade. You can set your stop order for any price <$800, so if ION trends down to $500, at $799.99, your trade is automatically closed, saving you $300.
Another example - Let’s assume that ION trends up to $1,500, you have $500 profit and you want to lock in 80% of that profit at a minimum.
You can set what’s called a trailing stop order at any drawdown of 6 & 2/3rd %. So if ION trades down to $1,399.99 (-20.01%, your trade will automatically be closed, converting 80% of your paper profit to cold hard stable coins.
If on the other hand, ION continues to $2,000, and the trailing stop will still apply, the only difference is now your profit is bigger, and the order will get you out with more than twice the profit ($866 vs. $400), all without taking on any additional risk.
TradFi Products
Margin trading
Leverage
The ability to “short” cryptos, so you can make money in a bull or a bear
Derivatives
This could include almost a limitless menu of stocks, bonds, and other crypto products such as ETFs or even volatility tokens
Custody
Streamswap (billed as LBP 2.0)
Possible token ICO’s
Enhanced Liquidity Bootstrapping Pools and Events
Built-in Dollar Cost Averaging protocol built on Osmosis
Enhanced Bridge Engine
Native deposits from any bridge
Native-to-native swaps with Metamask
Imagine being able to trade Bitcoin directly for Osmosis with a single click
Shapeshift-style one-click cross chain sends
Other Features
Mars Protocol Integration - lending service to let you borrow against your assets, as well as presenting users an additional option to earn APR from your holdings (by lending your assets)
Kado Money - Direct fiat onramp into Osmosis. The goal is to be able to buy OSMO directly with your credit or debit card, or from your bank account.
Enhanced privacy and composability
Cross-chain smart contracts via interchain accounts
Front-running protection using threshold accounts
Introducing Robust, Decentralized Collateral - ZeroAuth
One of the talks at Osmocon was about creating collateral in DeFi, and what are some of the best practices to do that. Well I think initially no one knew. But a lot has come to light…
Characteristics of Good Collateral
Low volatility
Low trust (meaning, you don’t have to trust a single authority like Circle/USDC)
High scalability (can increase or decrease easily)
Easy process for minting and burning
Four Frameworks of Collateral
Centralized stables
Collateralized Debt Position (CDP) stables
Volatile assets
Dampened Assets
Merits of Each Framework
Not trustless, doesn’t encourage composability
CDP systems are like glass, they are very strong and stable but they can be shattered, breaking completely. Includes a vault of assets like BTC, ETC, or USDC to create a stable peg. But the peg can break and liquidations can cause a viscous negative death spiral.
Volatility doesn’t inspire confidence of longevity
Dampened assets are like rubber, they can move or a bend a little and take a high-impact hit, but they should retain their shape
RAI is one example, has stayed within a 6% range since inception
Crypto should drop the idea of remaining stable, it has caused much harm already
Prices can move, but the goal is to tamp down volatility as much as possible
Stay tuned for Membrane dampened asset collateral on Osmosis, they plan to come out with collateral that can be used for derivates stack and psuedo-lending protocols, will be similar to RAI.
In the future, you may be able to collateralize your LP tokens this way, enhancing your ability to earn. It’s a great use-case to increase the options available for Osmosis users to achieve yield.
Osmocon Full Summary
For a full summary of Osmocon and detailed write-up, please check the following Notion link: https://whimsical-lightning-304.notion.site/Osmocon-Notes-Master-Page-b7a930a9747a4865b7e39320431f6f7b (Shoutout to moonzॐ from Discord Mod team for sharing this, thanks!)
Introducing Angel City Power Plays
All DEX AMM platforms are not created equal (clearly we are partial to Osmosis here at StakeSchool.com)
All pools are not created equal
Each pool has its own pros and cons and risk profile
Pools are usually correlated to some degree, but some pools are more or less correlated with others
All pools together in a portfolio constitute that portfolio’s entire risk profile
The less correlation between your pools, the more diversified and protected you will be against adverse events
Less correlation doesn’t necessarily equate to “more profitable”
Less correlation will minimize portfolio volatility and could preserve more of your capital in the face of an adverse event, thereby decreasing your chances of a poorly timed decision
Pools may also have a fixed “maximum viable lifetime” for mining, after which point conditions adjust and mining becomes temporarily unprofitable until price or APR adjusts to a degree which profitability is again restored. And this cycle can repeat again and again due to price action, trading volume, and rewards APR.
Depending on your mining strategy, you may search for pools that can remain profitable for extended periods of time.
An alternate strategy would be to seek to mine pools with the highest APR/shorter periods of profitability and frequently change pools before the gravy train stops.
Introducing Power Plays
Power plays are pools or stakes designated as such by StakeSchool.com, exclusive and independent of any designation or standing on Osmosis. We have selected these pools because of the strength of the underlying token and project, recent price action, Osmosis platform incentives strategy, and current market conditions. As with all things, these are subject to change, but are selected with (relative) longevity in mind.
Power Play 1 - Pool #712 - wBTC / OSMO or Pool #678 - OSMO / axlUSDC
The cool thing about the Axelar bridge is that it brings Bitcoin, Ethereum, and stable assets like USDC and DAI to Osmosis. This functionality via Axelar was recently added, and is the first time Bitcoin and Ethereum have been tradable on Osmosis.
But please note, with any bridged asset (non-native asset), there is increased risk due to the fact that any bridge needs to be ultra secure and locked down. Bridges are occasionally hacked, it is not uncommon. That being said, ACS has deployed a portion of its capital to these pools.
For the first power play, we like either Pool 712 (wBTC/OSMO) or Pool 678 (axlUSDC/OSMO). We say “or” because it is more conservative to minimize the number of assets you hold in bridge-paired pools. This is not financial advice, but simply our own preference for our own capital allocation.
Power Play 2 - Pool #9 - CRO / OSMO
CEX’s (and their tokens or securities) have taken a beating lately. Crypto.com is one of the biggest after Binance, and has millions of customers thanks to their early involvement in the space and metal cards that were first introduced circa 2017, when they were branded as Monaco. As an early hodler from those days, I have lived painfully through at least three major cycles. Each time there is a massive drawdown, and each time an even bigger recovery to new high that happens when you least expect it. If you can bet that crypto.com survives the fallout from Terra, 3AC, and the macro environment, their token (CRO) should be around for the next bull.
With the pool currently paying around 85% APR if you bond for 14 days and enable Superfluid Staking, it is our second Power Play. And it’s paired with OSMO, which Osmosis platform users should appreciate.
Power Play 3 - OSMO Stake
We learned on this week’s Osmosis community call that a private sale of OSMO was executed to the tune of about $21 million. The sale price was $1.60 per OSMO. With current OSMO trading about half of that ($0.81 at time of writing), we at ACS have increased our portion of capital allocated to staked OSMO. It would be more surprising than not that these guys are going to sell their newly purchased coins at a loss. So our Power Play #3 is direct OSMO stake, which will net you ~34% APR at present and potential price appreciation.
In addition to upping our OSMO stakes, we plan to keep stable funds around in order to buy on any potential large dips. It was highlighted in the Osmosis Discord that the Japanese JUNO whale has unbonded about $1 million worth of OSMO tokens to return funds to clients. These are currently undelegating and we think it is possible, if not likely, that about $1 mil worth of OSMO may be dumped on the market on or around July 10th starting @ 11:08 UTC.
You can view the remaining days until the coins become undelegated, as well as the amounts on any Cosmos block explorer (osmo1aeh8gqu9wr4u8ev6edlgfq03rcy6v5twh6levf).
Here is the link to MintScan: https://www.mintscan.io/osmosis/account/osmo1aeh8gqu9wr4u8ev6edlgfq03rcy6v5twh6levf and you can follow each undelegation by clicking into the transactions at the bottom.
Power Play 4 - ION hodl
We’ve talked about ION before. It is a volatile asset and as such, makes up a smaller portion of our portfolio. Also, because Pool #2 pays < 10% APR max at present, it is mostly a non-interest bearing asset. But you can choose to bond to pool #2. Either way, a long-term ION hodl is our fourth and final power play.
The thing about ION is that a lot of ION is locked in the ION DAO treasury (explaining much of its volatility), and additionally there is no ION inflation at all. All ~21K ION tokens are minted, and no new ION is coming into the market, other than what current holders decide to sell. This is an undefined project, and therefore speculative, but full of potential. ION is native to Osmosis, and I think that provides it at least a minimal amount or degree of credibility simply by association.
These power plays are presented for informational and educational purposes only and do not constitute financial advice nor recommendations. Angel City Stakes deploys its own capital and have presented the above information as an example of how we use the Osmosis platform and available cryptocurrency tokens, and how we think about investing and risk management.
Outro
This is the first installment of our bi-weekly newsletter. I had started writing weekly but with everything going on trying to set up the new business (StakeSchool.com) the frequency will decrease now to bi-weekly. Hopefully the quality increases too. I plan to send out some surveys in the future to get reader feedback and tailor the content to what users want to see.
As for what I’m looking at, I’m still trying to make sense of the Osmosis ecosystem, but I found this link recently that helps: https://osmosis.zone/ecosystem
I’ve mentioned it a while ago, but I’m excited that my OnJuno metal paycheck card has finally shipped. I can’t wait to open it up in the mail, especially now that I’ve got two paychecks deposited into it, and am DCA’ing into crypto automatically. If you’re interested, set up a paycheck of more than $250 and you’ll get a $100 bonus using my referral link.
Thank you for joining me on this journey. I’ve come to see the value and tenacity of the Osmosis community and am inspired by it all. I think this is a special team and I plan to hang around and contribute as long as I’m able.
Cheers,
Mike Broudy, ACS and StakeSchool.com founder