Proposal #268
Passed on 03 Jul 2022 with 93.3% of the votes for yes.
Yes
93.3%
98.6% without abstain
Veto
0.0%
of votes cast
Ended
03 Jul 2022
93.32%
of votes cast
5.35%
of votes cast
1.30%
of votes cast
0.03%
of votes cast
Voting Yes for this proposal indicates approval that 20% of Osmosis inflation allocated to Liquidity Incentives should be redirected to the community pool to lower direct Osmosis inflation until governance returns it.
Voting No for this proposal indicates that 1% shall continue to be the proportion of Osmosis inflation allocated to Liquidity Incentives that is redirected to the community pool.
Osmosis has been providing only 80% of the 45% (36%) of emissions to Liquidity Pools since Proposal 230. These have now returned to the liquidity incentives as stated in the original proposal.
Since Proposal 230, Osmosis has continued to attract liquidity in major tokens despite these lowered incentives. This is hard to see at first glance due to the market conditions but becomes much more obvious when viewing liquidity in terms of token amounts rather than value locked.
[Hidden link] [Hidden link] [Hidden link] [Hidden link] ATOM and USDC liquidity have been hit during this period by being an offramp for Terra and part of the loss due to exploited funds but have not seen a significant change in rate of growth due to the incentive spend change.
This raises the question of how much we are overpaying liquidity providers to bring their liquidity to Osmosis. This overpayment contributes to the inflation of the Osmosis token and, if it is not required, then these tokens could be used either during the next hype period to attract new users, to pay for more teams to develop additional utilities for the Osmosis ecosystem or be used to provide incentives to other protocols building on Osmosis.
In the following model, we can see the estimated APR that a user would obtain if they were to stake the two separate halves of the liquidity pool on their own networks and how that compares with providing liquidity. Where there is no alternative staking reward then OSMO staking APR is used as a substitute. [Hidden link] The estimated overspend by Osmosis LP incentives compared to these staking rewards is around 37%.
Some overspending is sensible to attract OSMO compounding in the Major/Osmo category pools where Osmosis would like to build liquidity to gain market share. However the overspending is not only directly contributing to the inflation of the OSMO token, it may also be increasing the sell pressure on tokens such as ATOM, where the optimal use of staking rewards is currently to sell single sided into Pool 1 rather than re-stake.
This proposal initially asks for the funds originally removed for Terra Pools to resume redirection to the community pool for the foreseeable future. If this is successful and the rate of token liquidity change continues then further proposals will be made to reduce emissions to liquidity pools even further whilst still remaining the primary liquidity mining location in the IBC.
Commonwealth Thread: [Hidden link]