Osmosis and the OSMO Token Review
Nov 01, 20225 min read
Decentralized finance was the primary trend of the crypto market in 2020-2022. As of November 2022, $54.97b is locked in DeFi protocols. Most projects work on the Ethereum blockchain. However, many developers choose the Cosmos blockchain because of its interoperability. One of the most popular protocols built based on Cosmos is Osmosis DEX. The service offers to earn money by supplying liquidity to pools and trading tokens. Thanks to simple navigation, even a beginner can quickly master the platform. Low fees and a large pool of assets make it attractive for investors and holders of large capital.
What Is Osmosis?
Osmosis is the largest DEX on the Cosmos blockchain. To date, the platform occupies 3rd place in the Cosmos chain in terms of the TVL with an indicator of $265.54m. The service supports all cryptocurrencies created on the Cosmos network. The blockchains in the Cosmos Network can interact with each other through the basic Cosmos Hub platform. The connection is provided by the inter-block communication protocol IBC. Therefore, traders on the Osmosis crypto exchange can swap tokens instantly. The service has the following features:
- low fees;
- instant swaps;
- pools with increased profitability;
- portfolio monitoring;
- flexible pool configuration;
- staking with a yield of up to 100% per annum;
- arbitrage of coins between DeFi projects with minimal risks.
Osmosis is a chain of DeFi applications. Pools have flexible settings; nothing is hard-coded. Service users can set individual parameters (calculation of the weighted average price, algorithm curves, and rates) and create their own mathematical formulas.
The main task of Osmosis exchange is to simplify users' work with decentralized finance. The developers took into account the difficulties faced by customers of other services.
Osmosis exchange was launched in June 2021. The platform quickly became the largest DEX in the Cosmos network. The Osmosis Foundation owns the exchange. In the summer of 2021, developers raised $21 million in a funding round. Paradigm Ventures, Nascent, and the VC Fund invested in the project. The money went to the development of the service. In 2022, the platform will work with all native network projects. In addition, the developers announced support for ERC-20 tokens via the Gravity bridge.
The Osmosis review is worth noting the absence of its own payment gateway. Instead, transactions pass through a non-custodial Keplr wallet. The service allows you to store and exchange tokens of the Cosmos network. Cryptocurrencies can be transferred from other exchanges or wallets. Fiat transactions are not available.
The service does not charge a commission for transferring money to the account. You will only need to pay network fees. After replenishing the wallet, you need to click on the “Connect wallet” button and confirm authorization on the Osmosis exchange.
Within the exchange framework, customers can easily swap tokens and earn money by supplying liquidity and adding tokens to staking pools.
Osmosis is a decentralized platform available to users from different countries on the condition of anonymity and security. Usually, large DEX pays for the supply of liquidity in native tokens. There are two types of rewards available to Osmosis users:
- OSMO tokens
- Additional payments in the pool’s cryptocurrency
To make money on liquidity supplies, users lock assets in pools. Usually, two tokens are added to the protocol in dollar equivalent in a ratio of 1:1. The Osmosis platform calculates the shares automatically. Thanks to the balancing protocol, investors can place assets with different weights. You can also add not 2 but 3 cryptocurrencies. This makes the platform innovative. The largest DEX (Uniswap, PancakeSwap, 1inch) do not provide such an opportunity.
To make money on the supply of liquidity, you need:
- Add a couple of assets to the pool. Pay the network fee and get LP tokens in return.
- The reward in OSMO is credited automatically to the user’s account. You need to pay a network fee for the withdrawal. LP tokens are not spent.
- Redeem the cryptocurrency after the transaction is completed. To do this, exchange LP for locked assets by paying network fees.
Thanks to the use of the Cosmos SDK, Osmosis provides an instant token exchange for little money.
The fee for the exchange of coins when placing is 0.2-0.4%. Fees are added to the pool, increasing its total price. The withdrawal fee (1% by default) is burned, so the shares of the remaining participants are growing.
The indicators of the main (in OSMO tokens) and additional (in the cryptocurrency of the pool) yields are not constant. This is since the volume of assets is limited, and the number of suppliers may vary. This is how the service encourages investors to switch to less popular pools.
Osmosis exchange does not have its own service for locking coins in the Proof-of-Stake (PoS) protocol. Users can place cryptocurrency in staking via Keplr wallet. The vault provides the ability to lock more than 100 digital coins at 5-100% APR. The minimum locking period is 14 days. Interest is accrued every day. Users can choose a validator based on open data (name, rating, voting power, etc.). To place coins in staking, you need the following:
- In the menu on the left, click on “Stake.”
- In the Keplr wallet interface, go to the Osmosis section.
- Click on “Stake.” Choose a cryptocurrency and an interest rate.
- Click on “Manage.”
- Specify the amount of OSMO converted into an asset for staking.
- Confirm the transaction.
Osmosis crypto exchange quickly gained the trust of users. The developers have created a reward system to stimulate interest in the platform. The Osmosis team regularly distributes native cryptocurrency to users. To get a reward, you need to be active:
- Place coins in staking and liquidity pools.
- Take part in the voting.
- Help develop the community (post posts, videos, memes, and translations of articles about the project).
Also, the Osmosis Twitter account periodically hosts lotteries and free token giveaways. Cryptocurrency is distributed randomly among subscribers.
In the fall of 2021, developers released the native OSMO cryptocurrency. The token performs the following functions:
- formation of trading pairs with assets;
- payment of rewards to liquidity providers;
- voting on the development of Osmosis;
- payment of fees.
Developers also reward active users of the service with native tokens. To get a bonus, you must make trading operations, place coins in staking and liquidity pools, and participate in voting.
Osmosis is the first decentralized exchange in the Cosmos network. The service makes it easier to work with DeFi projects thanks to a simple interface and low fees. The project is relatively new, only gaining popularity, but it has excellent prospects.