Osmosis Liquidity Mining Update April 8th, 2022
US tax filing deadline approaching, picking pools, & more Superfluid pools...
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Hello dear readers and intrepid pioneers,
This week we will be talking about taxes, covering some strategies for pool and token selection, as well as providing commentary on the changing nature of pools. But first, an important warning…
This is critically important. Security and financial stability are paramount, and scams are on the rise, like this one involving BAYC NFT’s, and many others.
Sadly, at the present time scams are rampant in the cryptocurrency industry. Many scams are so sophisticated it is impossible to know whether or not a source (website, person, project, etc.) can be trusted. If someone or something is asking for your private keys, it is likely a scam, even if they seem legit, even if it looks professional.
This is a reminder to NEVER SHARE YOUR PRIVATE KEYS. Your private keys should ONLY EVER be used to access a lost wallet after all other methods have failed. If you have a Ledger hardware wallet, you should never have to enter your private keys except to restore to a new Ledger wallet if your current wallet is lost or no longer working. This is because, as long as you are in physical possession of your wallet, you can import your account through the device itself to connect with applications, and your private keys never leave the device (they’re not exposed to the internet). Keep in mind that the physical Ledger is not required to access your funds, if someone else gets access to your private key. The private key itself is comparable to a master/primary key, and the Ledger is comparable to a copy of the key held inside the device. Your private key can take any of the following forms:
Recovery phrase aka “seed phrase,” which is your randomly generated 12-24 words password (following the BIP39 security protocol, in the case of the Ledger wallet).
Your alphanumeric key. Cryptography uses what’s called public/private key pairs to secure the network, with many possible public key (wallet) addresses (E.g. Bitcoin, Ethereum, etc.) but only one private key. Your public key is used to generate your wallet addresses. You can share your wallet addresses with others to receive funds without any risk of loss to the account, however, if shared, someone can use block explorers online to see the amount in your wallet. Your private key is the password that allows a user to control the contents and funds of the public wallet address(es). It would like something like this, which I just made up: aZ679dBG5r7t3eE940ssPr0.
A file export such as .JSON, RPC, or other type that contains a copy of your alphanumeric private key (from #2 above) saved to a file.
Again, NEVER SHARE THESE unless you absolutely trust the entity you’re handing your keys over to. A hardware wallet prevents your funds from being hacked online (assuming you never save a local copy to your computer), but it cannot protect you if your key has been compromised. Ideally, you never have to share them. In future updates, we will cover ways to increase security and minimize single points-of-failure.
As a general rule of thumb in crypto, if you are not sure about something or you smell even the faintest whiff of “something is not right here” DO NOT proceed. Be skeptical of everything and everyone until you’ve vetted and done your research.
US Tax Deadline is April 18th, 2022
We’re about 10 days away from filing deadline for calendar 2021. In order to report crypto transactions, most crypto platforms and apps have reports you can use to export your transactions. There are also platforms that calculate your cost basis and amount of taxes owed. We’ve also noticed several major self-reporting tax companies that have crypto integrated into the reporting process.
What you will likely need to import Osmosis and crypto app transactions:
Report export from your crypto app(s) transactions. Read help/instructions on your chosen platform for how to generate a report for 2021. For the Crypto.com app, you can generate your output directly from the app and email it to yourself. You may have also received a 1099 from your crypto brokerage as well, so check your email or account.
Your app transactions are only a record of the actions you took. To calculate your basis and amount owed you need to import your transactions through a site like Cointracking.info which allows you to import reports from several major providers and exchanges to generate an output, based on criteria you supply (E.g. accounting method, LIFO/FIFO, etc.).
If you run on liquidity mining platforms, you will need a stake report. With platforms like Stake.tax that can help with calculating your profit/loss and amount you will report. With Stake.tax you can simply enter your wallet address(es), and the site will do the rest.
A tax preparer. If you collect and generate items 1, 2, and 3, you can share them with your tax preparer. If you are self-reporting, you can import them to the various platforms such as TurboTax and TaxAct.com.
Angel City Stakes does not consult on matters of tax advisory but has provided these references only so far as they may help you in determining the amount you owe. Please consult with a professional tax advisory firm and/or CPA to determine how you should report your cryptocurrency activity.
Analyzing Projects and Crypto Tokens
This section deserves its own chapter within the course on liquidity mining. However there are some simple checks you can do to help determine what pool is right for you. In order to invest in a pool, you must also invest in the underlying tokens.
Analyze the Project/Token
Price Action. One of the best way to assess viability for investment in a pool is to check the underlying tokens’ price action historically. This can be done from reading simple charts on CoinGecko.com or CoinMarketCap.com. If you notice a steadily decreasing price, massive changes in price over short periods, high volatility (large range of price lows and highs in a given timeframe), or if the token is new (< 6-12 months) these are usually be red flags. New tokens don’t necessarily have to be avoided entirely, as large gains can be made on new tokens, however understand that the risk is greater and you should allocate your capital accordingly.
Token Distribution Schedule. A major influence on token price, if not possibly the biggest influence, is the token distribution schedule or also known as “tokenomics.” Alexandria defines tokenomics as “the topic of understanding the supply and demand characteristics of cryptocurrency.” I would expand that to say understanding of the distribution schedule. All legitimate projects with crypto tokens should make this information public. It includes things like total supply cap of tokens, current circulating supply, locked supply, and vesting schedule when tokens will become unlocked and/or distributed into the market. It will share what parties have received what amount of the tokens. Here is Osmosis’ OSMO distribution schedule, which follows a “thirdening” every year, where 1/3rd of the supply is cut annually for 8 years.
If there is too much supply coming on to the market and not enough demand, the distribution pace is too fast to sustain the price and this will lead to continued selling pressure on any given token. If there is not enough supply, this can lead to illiquidity and volatility with major price spikes and dumps.
Quantifiable Metrics. These include things like total market cap, fully diluted market cap, liquidity, total liquidity trend, volume, and more. Typically, the smaller the market cap the riskier the project, although not necessarily. That is because larger market cap tokens generally became large for a reason and have bigger followings, strong project teams, and are widely available across many markets. Small caps may be difficult to purchase (only trading on couple exchanges) or be outright scams (although all legitimate large caps generally started as small caps until they were proven by the market). These metrics are usually available from coinmarketcap.com or coingecko.com. Any missing metrics should be suspect. Here is information on Juno from CoinGecko:
As a general rule of thumb, the greater the distance between the fully diluted valuation and the current market cap, the more supply and possible sell pressure coming into the market. You generally want to see liquidity increasing or at least remaining stable on Osmosis or whatever platform you are mining/farming on. Any pools with $1 million or less liquidity could be riskier. If liquidity is trending down over time, this means the holders are selling down their assets, which could continue sell-pressure.
Psuedo-subjective Identifiers (for lack of a better term). These include things like number of Twitter followers, how engaged is the community, do they have an active Discord server, do the team members appear trustworthy/do any of them have criminal records, etc. It also includes things like the perceived value of the use case of the token - what problem is it solving and is there sufficient demand to solve that problem? Does it connect with other blockchains and if so is there net inflows? How easy is it to use? Can it be cashed out at exchanges? Use your imagination here as there are many possible variables.
This is by no means a comprehensive list, however, these are some of the ways that evaluating a Project/Token.
Analyze the Pool on Osmosis
In order to view pool metrics, visit the “Vote” section from the Osmosis page every Monday. Find the “Semi-automatic Incentive Adjustments for [CURRENT DATE]”. You will then see the “static copy of spreadsheet link.” You can click this link to see detail on current incentives, including “hidden APR’s” such as swap APR and external APR. There is also an “auto-updating” spreadsheet link available if you check after Monday, this can help you keep better tabs especially on newer pools.
For most users the first worksheet “Overview” is sufficient, going by total APR. The second worksheet “Incentives” can provide additional insight, which I will cover in my chapter on Osmosis with StakeSchool.com in the future.
You can also pull up the “Stats” link to get live pool and token metrics: https://info.osmosis.zone/
Lastly, you can confirm the number of remaining epochs for external incentives by going to the Pools page and clicking into any pool under “Externally Incentivized Pools.” Together with monitoring the total APR, you can get a sense for how the APRs will change based on 1) the spreadsheet each week, 2) the remaining external incentives, and 3) the price action covered in the previous section, as a rising price inevitably leads to a larger dollar payout, and vice versa.
Angel City Stakes Pool Changes
As a result of analyzing current pools per the above, ACS has unbonded Juno and Stars pools. The external incentives for Juno pools #497 and #498 will no longer be active after April 12th, and it does not appear that they will be renewed.
Juno staking currently offers an APR of 103.2%, and staking appears to be a suitable replacement for what to do with those unbonded JUNO tokens, should you wish to keep them. Be advised Juno staking requires a full 28 days to unlock, which is longer than the vast majority of other Cosmos project tokens that have 14 or 21 day periods.
Despite relatively high total APR offered, the STARS pools have performed poorly since inception due to delay with the launch of Stargaze NFT platform and a perceived over supply of STARS tokens, and for that reason ACS has unbonded STARS pools #604 & #611. The Stargaze launchpad is live for minting however the marketplace is still under development. If the marketplace is launched soon, it could lead itself to a price spike of STARS tokens, however, the oversupply of tokens will likely still be present unless the launch creates a sustained massive surge in demand, which we view as unlikely. However, with superfluid staking recently enabled on OSMO/STARS pool, this signals long-term support for Stargaze. If prices for STARS were to stabilize or start rising, we may reconsider pool #604 as viable.
More Superfluid Staking Enabled
Additional pools have been enabled with the Superfluid Staking element. The full list as of 4/8/22 now includes:
Pool #1 - ATOM/OSMO
Pool #9 - CRO/OSMO
Pool #560 - UST/OSMO
Pool #561 - LUNA/OSMO
Pool #584 - SCRT/OSMO
Pool #604 - OSMO/STARS
Angel City Stakes views these pools as long-term priorities of Osmosis (since they are being additionally “rewarded”) and with engaged communities for each of their respective crypto tokens. New capital that Angel City will be deploying will strongly consider these pools for new or additional investment.