Osmosis Protocol Data Analysis

1. Liquidity Data:

Since its launch in June 2021, the Total Value Locked (TVL) has been on the rise, reaching its peak at approximately $1.8 billion in March 2022. From mid-2022, the TVL has sharply declined to around $80 million to date.

Data Sources:https://defillama.com/protocol/osmosis-dex

Among them, UST peaked at more than 200 million US dollars:

Data Sources:https://info.osmosis.zone/token/USTC

LUNA peaked at approximately US$170 million:

Data Sources:https://info.osmosis.zone/token/LUNC

OSMO peaked at about $700 million:

Data source: https://info.osmosis.zone/token/OSMO

ATOM’s highest TVL is approximately US$400 million:

Data Sources:https://info.osmosis.zone/token/ATOM

Other key assets are approximately as follows:

• JUNO: $80 million

• STARS: $50 million

• AKT: $50 million

• SCRT: $20 million

Adding other assets, the total TVL is broadly consistent with the data provided by DefiLlama.

The total TVL of LUNA+UST is about $370 million, accounting for approximately 20%. Thus, despite the dramatic decline in Osmosis’s TVL due to the LUNA crash event, its proportion is not very high. The main reason for the decline is still due to the drop in the price of Cosmos ecosystem tokens (although there is also a reason caused by the LUNA crash that led to the public’s pessimism about the Cosmos ecosystem).

From $1.8 billion to $80 million, the decline reached 95.6%. Looking at the data from other mainstream DEXs,

Uniswap fell from $10 billion to $3.2 billion, a decline of about 68%.

Data Sources:https://defillama.com/protocol/uniswap

Curve fell from US$25 billion to US$2.3 billion, a drop of 90.8%:

Data source: https://defillama.com/protocol/curve-dex

Another reason is that the Cosmos ecosystem does not have native USDT and USDC stablecoins, causing its TVL to be more affected by currency price fluctuations.

2. Trading Data:

Osmosis reached its peak trading volume in early 2022, with about $3 billion in monthly transactions. This has since decreased, with recent months seeing around $200 million in trading volume. The protocol collects fees ranging from 0.2% to 0.3% on most pools, with recent monthly fee revenue averaging around $500,000.

Data Sources:https://defillama.com/protocol/osmosis-dex

Transactions on Osmosis will charge a certain handling fee. Most Pools charge 0.2% or 0.3%. The fees are currently allocated to liquidity providers. Since January 2023, the average monthly fee income has been approximately US$500,000.

Data Sources:https://defillama.com/protocol/osmosis-dex

3. Network data

Osmosis is a DEX application chain based on Cosmos SDK, so we need to analyze its network data.

According to MapOfZones data, there are currently a total of 62 chains connected to the Cosmos ecosystem through IBC, of ​​which the number of chains connected to Osmosis is the largest, reaching 59:

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Data source: https://mapofzones.com/home

This is higher than Cosmos Hub’s 54 and Axelar’s ​​46. Among them, Cosmos Hub is the first chain in the Cosmos ecosystem, and Axelar is the largest cross-chain bridge in the Cosmos ecosystem. A large number of Ethereum assets are transferred to the Cosmos ecosystem through this bridge.

Connectivity is what differentiates Osmosis from contract-based DEX projects. Only assets connected to Osmosis through IBC can be traded on it. In this regard, it is difficult for other DEXs in the Cosmos ecosystem to compete with Osmosis. This is one of its biggest advantages.

Its daily active users currently range from 10,000 to 20,000:

Data source: https://tokenterminal.com/terminal/projects/osmosis

Ranked 5th among mainstream DEX projects. Among them, PancakeSwap is 69,000 and Uniswap is 50,000:

Data source: https://tokenterminal.com/terminal?panel=user_dau

4. Ecosystem Data:

The Osmosis chain is mainly dominated by Osmosis DEX, and there are also some project parties building other types of DeFi projects on the chain.

For example, Mars Protocol is the main lending protocol, Levana Perps perpetual contract platform, and Quasar is the income protocol surrounding DEX.

Data source: https://defillama.com/chain/Osmosis

In terms of stablecoins, since Circle issued native USDC assets on the Noble chain, Osmosis has native stablecoin support, but the current adoption rate is still low.

The total amount of USDC currently issued on the Noble chain is about $4.5 million:

Data source: https://www.mintscan.io/noble/assets

However, only about 3.2 million US dollars have been cross-chained to Osmosis, and most of the rest are still axlUSDC cross-chain from Axelar. At the same time, the native USDT stablecoin from the Kava chain is only about 600,000 US dollars.

Data Sources:https://www.mintscan.io/osmosis/assets

5. Token data

The OSMO token is a governance token that allows stakers to decide on the future of the protocol, including every implementation detail. Initially, OSMO was intended for the following purposes:

• Voting on protocol upgrades and other governance functions.

• Allocating mining rewards to different liquidity pools.

• Serving as the gas token for the Osmosis chain.

There has also been a recent proposal under discussion to distribute transaction fees to OSMO token holders.

The initial circulating supply of OSMO tokens was 100 million, with 50 million airdropped and 50 million reserved for strategic purposes. The remaining 900 million tokens were scheduled to be distributed over time: 300 million in the first year, with a 1/3 reduction each subsequent year for staking incentives, developers, liquidity incentives, and the community treasury until fully distributed.

However, with the recent OSMO 2.0 update, the community approved a proposal to reduce inflation and extend the release schedule. This proposal cut the inflation rate by 50%, meaning the current weekly release of OSMO tokens is about 1.28 million. The distribution ratio is as follows: staking: 50%, liquidity pool rewards: 20%, community pool: 5%, and developer incentives: 25%.

Data Sources:https://osmosis.zone/blog/unveiling-osmo-2-0

According to data from Coingecko, the current price of the OSMO token is $0.29, which is an all-time low, and it continues to decline. The market capitalization is approximately $180 million, with a fully diluted valuation (FDV) of about $290 million.

Based on the current price, approximately $53,000 worth of OSMO tokens are released daily, amounting to about $19.43 million annually. With the protocol’s current income estimated at $500,000 per month, the annual income is around $6 million, resulting in a valuation multiple of 30 times (18,000 / 600 = 30).

Data Sources:https://www.coingecko.com/

6. Comprehensive Analysis:

From the above discussion, it’s clear that Osmosis has become both a networking and liquidity hub within the Cosmos ecosystem, generating a strong network effect.

For instance, with the upcoming launch of dYdX Chain, if one wishes to bridge USDC from Ethereum or Arbitrum to dYdX Chain, the official route involves using Axelar to bridge to Osmosis, then swapping for the native Noble version of USDC to deposit onto dYdX Chain. This process is expected to bring significant liquidity to Osmosis.

Moreover, the latest projects built on the Cosmos SDK are targeting OSMO stakers for airdrops, such as the recent Celesita, further solidifying its dominant position. As more projects are developed using the Cosmos SDK, their native token exchanges will need to occur through DEX protocols, with Osmosis being the preferred choice due to its high liquidity and strong network connectivity. This, in turn, enhances its network effect even further.

The success of Osmosis is closely linked to the prosperity of the Cosmos ecosystem. As the ecosystem grows, Osmosis is poised to capture a significant amount of transaction value, positioning itself as the DeFi hub of the Cosmos ecosystem.

However, if the Cosmos ecosystem does not develop favorably and fails to compete with Layer 2 solutions or other public blockchains like Solana, Osmosis could face a crisis. Recent developments, such as Canto transitioning to Layer 2 and the rapid growth of Base chain, have pressured the Cosmos development but also highlighted upcoming chains like dYdX Chain and Celestia built on the Cosmos SDK.

If the migration to dYdX v4 does not result in increased trading volume or user numbers, it might suggest that the narrative for application-specific chains is not holding, potentially negatively impacting other projects considering the Cosmos ecosystem, leading to further contraction of the ecosystem.

Of course, Osmosis will also face competition from other entities within the Cosmos ecosystem, such as Kujira, Crescent, and Astroport.

Therefore, observing the following indicators of change would suggest that Osmosis’s advantages are diminishing:

• Development of dYdX Chain falls short of expectations, facing significant migration challenges.

• The number of chains connected through the Inter-Blockchain Communication (IBC) protocol in the entire Cosmos ecosystem is decreasing.

• Osmosis’s position in the IBC network is declining (for example, the number of chains connected to Osmosis is decreasing, while connections to other DEX chains are increasing).

• Other network activity indicators, such as the decline in the number of native stablecoins and daily trading volumes, are also signs of weakening position.

Conversely, if these indicators are increasing, it would imply that Osmosis’s network position is strengthening.

Regarding the development of the Cosmos ecosystem, it also involves competition between sovereign application chains and Layer 2 solutions, which will be an important direction for the future development of blockchain technology. The author believes that the current scalability of Layer 2 solutions is still unable to meet the usage of a large user base. Once the market improves and on-chain activities thrive, Layer 2 will still face congestion and high fees. Additionally, Layer 2 cannot solve all problems, as some large projects still require the form of sovereign chains to meet specific needs, as evidenced by dydx’s migration and MakerDao’s consideration of using a Solana fork for backend development. Therefore, for the foreseeable future, an era of coexistence between Layer 2 and sovereign application chains is expected, with the Ethereum ecosystem playing a primary role and other ecosystems playing a secondary role.

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