Proposal: LUNA Incentives for Osmosis Liquidity Pools

Terrans/LUNAtics,

Following Columbus-5 and the enabling of IBC, there is an opportunity to increase Terra exposure to the Cosmos ecosystem by encouraging liquidity into new pools in the Osmosis DEX through their Incentive Matching Program.

What is Osmosis?

An AMM built on its own IBC enabled chain, Osmosis is currently the largest IBC enabled cross-chain DEX with ~$450m in locked liquidity at time of writing. Osmosis rewards its governance token, $OSMO, to liquidity providers to incentivise bonding liquidity to certain pools.

Unlike other DEXs, Osmosis has the ability to offer external tokens to pools as additional incentives to encourage organic liquidity. Osmosis will also match the value of any external incentive provided to a liquidity pool, massively increasing the Liquidity Mining rewards on those pools and attracting even more liquidity than either reward program alone.

As the first IBC enabled USD stablecoin the timeline couldn’t be more perfect for Terra USD to establish itself as the dominant trusted stablecoin across the IBC by encouraging all traders who want to lock their gains into a stable coin to choose UST on Osmosis.

Previous external incentives have included Akash, E-Money and Juno, with Juno currently offering a value of ~$27,000 per pool per day for 180 days.

Proposal

We are requesting 3,976 LUNA from the community pool as incentives for liquidity provision to the following pools on Osmosis.

  • LUNA/UST
  • OSMO/UST

Incentivising these pools will bootstrap liquidity during the Osmosis Incentive Onboarding process to establish a useful base level of liquidity for UST to become the trusted dollar stablecoin of choice on Osmosis, which in turn will benefit LUNA.

This request works out at 71 Luna per pool per day for 28 days. All LUNA used for these liquidity incentives should be matched with an equal value of OSMO incentives (Governance pending).

The total value of this request is ~$170,000 at current market price, approximately in line with previous incentive proposals:
Bringing Terra Stablecoins to Solana ($167,000)
Bringing Terra stablecoins to Solana pt. 2 ($170,000)

With matched incentives in Osmo this allocation causes the selected pools to reach a targeted bonus 20% APR at $11m TVL. This gives a useful base level of liquidity for UST to become the trusted dollar stablecoin of choice on Osmosis.

This governance proposal was delayed due to a change in the Osmosis incentivisation model. Externally matched incentives will now be additive rather than the minimum once this has passed ensuring external incentives gain the maximum benefit of matching even after the onboarding period.

Third party incentives to pools such as ATOM/UST and AKT/UST may obtain matches with LUNA in future proposals to encourage further UST liquidity.

The recipient wallet is owned by Marko Baricevic of the Interchain Foundation (ICF) who will perform the IBC transfer and deposit to the Osmosis liquidity gauges, after which point the funds are completely non-custodial.

16 Likes

I think this seems reasonable? We definitely should do something to incentivize liquidity on Osmo, just to bootstrap demand. Long term I think there will be ample enthusiasm for these pools to support themselves. But to make sure we get a running start so to speak, let’s set up some LP rewards.

120 days takes us through the end of the year, by which point Terra will have asserted itself as the dominant stable in Cosmos, and I doubt we’d need more rewards at that point.

We funded liquidity incentives on Mercurial and Saber I believe on Solana, so this seems logical.

EDIT - To clarify, any rewards program needs to be a matching one. It can’t just be a giveaway.

6 Likes

Not all this liquidity seems valuable - for example, why is ATOM-UST liquidity valuable? And why some assets over others? Where would the community use that liquidity?

I would rather see terra incentives on osmosis be a matching program for liquidity incentives put up by third parties - for example, if AKT puts up liquidity incentives for akt-ust pairs, then the community pool grant program can match.

18 Likes

The community pool should only fund liquidity if the use case for that liquidity is proven - and in a vaccuum it does not seem to be a good spend.

If this was the policy of the community pool we should also fund all liquidity in terra native dexs like terraswap, astroport and loop - or ethereum dexes like curve - we have not done this for a reason

14 Likes

Lets not get carried away with the marketing sell of “luna would get exposed to the wider ibc ecosystem”

  • this is ridiculous

Terra today does more transactions and frankly ferries more value than every ibc chain combined

Debate on facts!

22 Likes

LUNA is too valuable to be given as an incentive!

Period.

The above proposal is ridiculous!

Community pool funds should be kept for projects/devs with real use cases!

I do hope the Lunatics fam will see the bigger picture!

9 Likes

Honestly, this just seems like a way for large ATOM and OSMO holders to farm LUNA - but I don’t see any wider benefit for the terra ecosystem. IBC enables those holders to swap into LUNA…why should the community fund be used to give them a way to do it for nothing more than staking their ATOM and OSMO to the pools…I really don’t see the benefit here. Am I missing something.

4 Likes

I agree with the other prior replies as well. We do not need to turn LUNA into a rewards token. The Terra ecosystem gains nothing from incentivizing pools with LUNA on Osmosis, or any other DEX for that matter. The one thing we need is to increase UST adoption, and in this specific scenario, simply creating the UST pools is more than enough to do this.

4 Likes

Do not get me wrong! I’m a big Osmo fan, been part of the 06.21 airdrop, holding Atoms before 18.02 and having aroung 8 pools on Osmosis atm. I have big respect for Sunny & Josh and if I could, I’d thank them every day for their part in my financial freedom.

With that being said, having LUNA & UST pools on Osmosis will be more than enough for me and I can’t wait for those pools!

2 Likes

I belive there is better usecase for the community fund then to be sending it off chain, this doesnt benefit both partys, seems to one sided imo.

2 Likes

Does that “third party” qualifier mean native OSMO or ION based incentives to any LUNA or UST pool would be ineligible for a matching program from the terra side?

1 Like

I believe it makes sense to create reward incentive pools in LUNA and OSMO to create value for both communities. Similar to how OSMO / JUNO pools work now. (Machine translation)

I think it helps LUNA more than ATOM tbh. It sort of trojan horses the cosmos ecosystem if you think about it marco-level which is actually kind of why I’m against this myself. Terra could essentially steal a lot of the ATOM liquidity on Osmosis if they incentivize a competitive pool (150% apy +). Everyone knows Terra has superior tokenomics so if there is a LUNA/OSMO LP that is competitive with the ATOM/OSMO LP, my guess would be that a lot of people would switch pools. …so you’ll get this Cosmos eco liquidity that sort of siphons off into Terra over time. Plus you’re going to have all the people that are going to swap their Osmo rewards for LUNA instead of ATOM in prep for alt season part 2. I kind of hope this proposal gets rejected the more I think about it.

ATOM/UST would provide low slippage for ATOM holders to lock into a stablecoin. LUNA/ATOM allows ATOM holders to move to LUNA without using a CEX with low slippage.
As ATOM is the largest IBC chain for the moment I would consider these pairs to be the most comparable to an exchange listing.

OSMO/UST and LUNA/OSMO provide a route for OSMO incentive rewards to be moved into Terra without an intermediary step, increasing the ratio of value locked into LUNA and the usage of UST.

LUNA/UST is probably the least useful in my opinion since you have that capacity natively already, however it would provide an alternative place for LUNA holders who wanted to also accumulate OSMO to provide liquidity.

I agree with the other replies that merely creating the pools will lead to some usage. UST is well liked across the IBC from what I have heard. Osmosis does already have stablecoin pools with E-EUR and the lack of uptake may only be because of the relatively unknown project. The purpose of this proposal is to ensure the widespread use of UST before IBC includes other stablecoins from Gravity Bridge by early bootstrapping of liquidity.

As the onboarding process for OSMO incentives is 5 weeks, and this proposal that overrules the onboarding process would go into effect 2 weeks in, would a downwards revision to 21 days (105,000 LUNA) for maximum effectiveness of bootstrapping be preferable? The pools would then be solely incentivised by OSMO, pending Osmosis governance approval of the pairs.

1 Like

I personally find the proposal senseless. If this were to happen it should have taken place on dexs from the native chain (e.g terraswap) not on Osmosis.

None of the other projects stated above (Emoney, Akash, Juno) who has done this is mature and has any of the tools available on the native chain (Terra). This is a strategy for smaller cap coins which want to gain some traction and exposure, But Terra is has a cap significantly higher than Osmo or the other projects stated above. It is illogic to offer incentives in a larger cap coin for using a smaller one for obvious reasons and from what I know this hasn’t happened before. Moreover, I don’t find this a use case for the community pool.

Although I understand the benefits for Osmosis users and I strongly believe this would have a negative impact for Terra users. Several reasons were presented above (e.g. farming by whales) and taking 600k Luna out of the community pool would have a negative price impact. This would also create a precedent and other similar proposals might arise.

1 Like

I wouldn’t vote for this unless Terra has huge interesting and need (which I don’t see) in bootstrapping more liquidity for LUNA.
Soon you will be in a business of working with different “swap” platforms and doing grants.
I don’t see much benefit for Terra/Luna community in that initiative. LUNA has enough liquidity throughout exchanges and it is up to individual platforms whether they want to have liquidity for LUNA or not. So they solely should balance rewards.

There should be a strong effort to integrate the 2 communities and make it easy to go from Osmo to UST or Luna. If there is a Osmo/Luna incentive pool then this would help majorly because people can swap from atom to Osmo easily already, so we could cut down on 1 pool with that

what Do Kwon said!

1 Like

It make sense for osmosis to incentive luna/xxx pool in order to attract many luna hodlers to put their luna on the pool and increase txs and overall osmosis TVL as DEX.

its a one of strategy used by smaller cap / newly born project, make their own token pool on DEX that have many active user and incentives their LP as part of promotion as they want their token to be distributed to many many users and hope users would start use whatever the token utilities are. (and hopefully not everyone sell the token).

As a terra user,

  • terra wants UST growth, both vertically(number of users) and horizontally(number of project), is what terra wants to see.

  • The objective of community pool should be to help create new project that would increase UST exposure like stated point above.

That being said, using LUNA from comm pool to insentivise LP isnt align with both points.

As an osmosis user,

  • i cant wait for us to have UST.
  • please put mobile friendly osmosis at higher priority, it technically not usable on mobile phone, UX is real to increase user retention.

Conclusion: imo, proposal isnt wise.

1 Like

Continuation of discussion on Twitter: https://twitter.com/stablekwon/status/1449948692522278912?s=20