Osmosis (OSMO) is a decentralized exchange (DEX) and automated market maker (AMM) protocol for the Cosmos ecosystem.^[1] Osmosis is a multi-chain AMM built for the Cosmos ecosystem. It offers interoperability between blockchains using Inter-blockchain Communication Protocol (IBC) and Axelar. ^[7]

History

Osmosis is an AMM protocol by Osmosis Labs created using the Cosmos SDK. The project was announced in October 2020 and launched on June 19, 2021. Its development was spearheaded by Sunny Aggarwal, Josh Lee, and Dev Ojha. Osmosis raised $21M in an October 2021 token sale led by Paradigm.^[6]

Osmosis Labs Pte. Ltd. ( “Osmosis Labs” ) is responsible for most of the initial code development for the Osmosis protocol, the Osmosis project is actually run by a decentralized validator set. Every upgrade and modification to the protocol is voted on and carried out by the Osmosis community (holders of the OSMO governance token.)^[2]

Overview

Osmosis is a fair-launched AMM protocol for interchain assets that aims to allow the development and management of a self-balancing, noncustodial, interchain token index. It is a decentralized exchange platform for swapping, earning, and building on the Cosmos network. Osmosis uses smart contracts to determine the price of digital assets, to produce liquidity via a peer-to-peer (P2P) methodology, and to exact trades between users. It offers tools for analyzing assets and liquidity, governance participation, and building interchain-native apps. Osmosis seeks to offer customizability, such as adjustments of swap fees, custom-curve AMMs, and multi-token liquidity pools. ^[1][3]

The Osmosis AMM allows users to create new and unique liquidity pools that are controlled and voted on by participants. Users are able to natively trade assets from more than 47 different chains within Cosmos. Osmosis self-governing liquidity pools are not hard-coded and users can use the OSMO to vote on pool parameters. The Osmosis token (OSMO) is used to vote, stake, and provide liquidity throughout its pools.^[1]

Osmosis also offers non-IBC assets bridged from the Ethereum and Polkadot ecosystems. As an appchain DEX, Osmosis has greater control over the full blockchain stack than DEXs that must follow the code of a parent chain. This fine-grained control has enabled the development of Superfluid Staking, an improvement to Proof-of-Stake security. Superfluid staking allows the underlying OSMO in a liquidity pool to add to chain security and earn staking rewards. The customizability of appchains also allows for the development of a transaction mempool shielded with threshold encryption, which will significantly reduce harmful MEV on Osmosis. ^[4]

Osmosis's vision is to build a cross-chain native DEX and trading suite that connects all chains over IBC, including Ethereum and Bitcoin. To build out the trading functionalities, Osmosis has invited external developers to create a bespoke DEX ecosystem that includes lending, credit, margin, fiat on-ramps, Defi strategy vaults, NFTs, stablecoins, and more – all the functionalities of a centralized exchange and more, plus the trust-minimization of decentralized finance. ^[5]

$OSMO

OSMO is the native token of the Osmosis network. The OSMO token is a governance token that allows staked token holders to decide the future of the protocol. OSMO is primarily used for voting on protocol upgrades, setting the swap fee for the base network, and allocating the mining rewards for liquidity pools.^[1]

Governance is a crucial component for the working of Osmosis as an AMM protocol. OSMO token holder governance aims to select the liquidity pools eligible for rewards, allowing stakeholders to draw up an incentivization strategy that benefits the long-term interests of the protocol. Osmosis also aims to let third parties add incentive mechanisms to some liquidity pools. As the OSMO token is fairly launched, it seeks to be distributed to network participants like developers, liquidity providers, stakers, and more. OSMO also serves as the staking token used by delegators and validators to verify transactions once consensus is reached. ^[5][7]

The maximum number of OSMO tokens has been set at 1 billion. As of May 2022, there are 282 million OSMO in circulation. OSMO also seeks to be used to deploy new curves with the help of existing wallet integrations, order flow, IBC connections, and liquidity in the Osmosis ecosystem. ^[6]