osmosis

Prop 769: Re-evaluation of Liquid Staked OSMO held by the Community Pool: stOSMO concentration

This set of three proposals would diversify the OSMO currently used to support stOSMO liquidity in the community pool by:

  • Withdrawing 50% of liquidity from the stOSMO/OSMO Stableswap pool
  • Redeploying this into a more efficient stOSMO/OSMO Supercharged position
  • Using the OSMO saved from this capital efficiency improvement to establish Supercharged positions of qOSMO and stkOSMO.

This proposal approves the withdrawal and redeployment of stOSMO/OSMO liquidity as well as performing the community pool spend.

Due to proposal length, the full text can be found on the forum post, with relevant sections added to each proposal of this set of three.

Background

stOSMO deployment

20M OSMO was allocated to the stOSMO/OSMO Stableswap pool in Proposal 641. This liquidity was instrumental in the adoption of stOSMO across the Osmosis ecosystem by providing robust underlying OSMO backing for the redemption rate of stOSMO.

The efficiency of this liquidity can be vastly improved.

The Stableswap pool is approximately 32M USD and typically sees around 1M USD a week.

The Supercharged pool has approximately 680K USD of liquidity, mainly in a peg-supporting position. This pool typically sees around 200k USD weekly volume, demonstrating far higher capital efficiency than the Stableswap pool.

Volume per week in stOSMO/OSMO Stableswap Pool

Volume per week in stOSMO/OSMO Supercharged Pool

stOSMO/OSMO Supercharged pool liquidity distribution

Mechanism

This proposal makes 10M OSMO withdrawable from the stOSMO/OSMO Stableswap pool, split equally between OSMO and stOSMO.

To minimize the time without this liquidity in place, this will first be incrementally withdrawn from the stOSMO/OSMO Stableswap pool and re-deployed into the 0.05% stOSMO/OSMO supercharged liquidity pool to maintain the same level of effective capital.

stOSMO/OSMO will be placed at a range of 1.95 - 1.27 until all stOSMO is allocated to the pool. This position is approximately one-third OSMO to two-thirds stOSMO.

While this reduces the liquidity available for stOSMO depeg resilience by 50%, this concentrated liquidity position from 1.95 to the current redemption rate is approximately 5x more efficient than a stableswap pool, resulting in a net gain of 2.5x in liquidity efficiency for stOSMO resilience. This action also leaves 2.5M OSMO removed from the pairing for usage in further steps.

The upper limits are set to be the expected ratio of the LST to OSMO in approximately four months, meaning that this allocation to each LST is temporary and that the distribution of OSMO peg backing for all OSMO LSTs should be re-evaluated at that point based on a future governance proposal.

All positions will be returned to the Osmosis Community Pool for custody by the Osmosis DAO.

These tasks would be performed by the Osmosis Liquidity SubDAO, which is a 4/6 multisig comprised of

This multisig has previously been used in Proposal 715 to deploy liquidity to stSTARS/STARS and in Proposal 756 to deploy AXL/OSMO to Astroport. This subDAO acts as an intermediary to perform multi-stage or time-dependent transactions, such as adding liquidity to a pool with a ratio of assets that will vary before a five-day Osmosis governance proposal is completed.

Forum Post: https://forum.osmosis.zone/t/re-evaluation-of-liquid-staked-osmo-held-by-the-community-pool/2654