The fall of FTX reminded us that decentralized exchanges remain the best solution to keep control over our cryptos. Osmosis is currently one of the best DEX on the market thanks to its security and user experience. We come back in detail on this DEX, a real standard of the Cosmos ecosystem.
What is Osmosis?
Osmosis, a key channel of Cosmos
Osmosis is an AMM (Automated Market Maker) that allows developers to create their own liquidity pools. As you know, an AMM is a program in the form of a smart contract that provides liquidity and offers a price between two cryptocurrencies at any time for a user. Examples already exist with PancakeSwap (BNB Chain) or Uniswap (Ethereum).
Osmosis was launched in 2021 with the SDK (Software Development Kit), which is based on the Tendermint consensus (in Proof of Stake). This Layer 1 chain is therefore compatible with other chains in the Cosmos ecosystem, thanks to IBC (Inter Blockchain Communication).
The Cosmos SDK makes Osmosis more flexible and makes it a sovereign blockchain, unlike other protocols such as Uniswap that work through smart contracts.
The Team behind Osmosis
Osmosis was co-founded by two well-known figures in the Cosmos ecosystem: Sunny Aggarwa and Josh Lee. In 2021 they founded Osmosis Labs together, responsible for the development of Osmosis. They previously worked together on the development of Tendermint.
Sunny Aggarwa worked as a research scientist at Tendermint in 2017. In 2018, he founded Sikka, a blockchain infrastructure company focused on participation in decentralized internet protocols and networks.
Josh Lee, meanwhile, was Aggarwal‘s colleague at Tendermint in 2019. He went on to found Chainapsis, which built the Keplr portfolio.
So it’s also worth noting that the Osmosis team is also in charge of the Kepler wallet, which we’ll get to below.
Osmosis, the #1 DEX on COSMOS
Over the last 30 days, Osmosis has had a volume of $360 million, making it one of the most used Blockchains in the Cosmos ecosystem. It is connected via IBC to almost every other Blockchain using IBC functionality.
The OSMO token
A utility token
The OSMO token is an ICS20 token. These tokens are created by the IBC protocol and represent the native currencies of each sovereign Blockchain. It is thanks to this token standard that Blockchains can send tokens natively to each other, without having to go through bridges. This allows a much better security of the network.
The OSMO token has several uses:
- Voting for updates and important decisions;
- Obtaining airdrops by staking them at validators;
- Pay transaction fees;
- Get staking rewards.
A launch in fairdrop
It should be noted that the founders of Osmosis are in the same mindset as the cypherpunks of the early days of the Blockchain: they advocate decentralization to the maximum. This is why the tokens were not sold through an ICO. For the record, they categorically refuse to list OSMO on CEX, which is why you can’t find it on the marketplaces of centralized exchanges.
The sale of tokens was done for those who held ATOM in staking. This allowed the sale to be allocated to more people and reduced the gap between large and small wallets. The amount of OSMO received per address was proportional to the square root of the number of ATOMs in the address.
Mathematically, a person with twice as many ATOMs would only receive 1.4 times as much OSMO, thus reducing the advantage of large wallets. In total, 50 million OSMOs were distributed in this way.
An inflationary token
The OSMO token is inflationary for the simple reason that the token is used to pay validators and cash providers. However, the token issuance is reduced every year. The max supply is 1 billion tokens, and at the time of writing there are 492 million in circulation, or 49%.
The Kepler wallet
Kepler is certainly one of the wallet with the best UX on the market. The user experience is excellent. Everything is clear and intuitive. You will have to use it if you want to buy OSMOs, because as said above, you can’t buy them on CEX, you have to go through Osmosis directly (which is great for decentralization).
It was launched in 2020 by the Chainapsis development team based in Seoul (which Dogemos is part of). It is a web browser extension (Chrome or Brave). It is a non-custodial wallet, meaning you own the key yourself.
How to buy OSMO?
To buy OSMO, you need to follow these steps:
- Download the Keplr extension and create an account;
- Buy ATOM on a CEX;
- Transfer ATOM from CEX to your Kepler wallet;
- Go to Osmosis;
- Swap ATOM for OSMO.
Superfluid Staking is like having your cake and eating it too: rather than having to choose to link OSMOs either with a validator or in a liquidity pool, Superfluid Staking allows you to do both at the same time. This means you can earn both the transaction fees from the liquidity pool, but also the staking rewards for the blockchain you help secure.
Liquidity Bootstrapping Pools (LBP)
This feature allows you to go beyond the 50/50 ratio as on most DEX. Protocols looking to introduce their token via Osmosis can for example create a liquidity pool with an initial ratio of 90/10 in favor of the OSMO. Over time, the ratio gradually drops to 50/50, so the price automatically drops. As the price drops, buyers step in and the value of the tokens begins to stabilize around the equilibrium price. This method allows the tokens to be sold at a price chosen by the market.
“Not Your Keys, Not Your Coins”. The best way to keep control is therefore to keep the keys private yourself and therefore to use DEX like Osmosis. To conclude, we can say that Osmosis is a very interesting DEX, which has not yet revealed its full potential, as solutions such as liquid staking are being implemented within the Cosmos ecosystem.
Coming from a teaching background, I’ve become passionate about the world of Blockchain. I’m eager to learn more and share the fruit of my research through my articles.