Try Quests to earn cryptoPool 872 Analysis
Question:
As recently as January 2023, Pool 872 (USDC.grv/USDC) had ~$10,000 in TVL; however, today liquidity is less than $500. What happened? Where did these LPers go? Was the precipitous drop in LP activity driven by the release/incentivization of 3-Pools?
Overview of essay:
In this analysis, we are going to study the activity of Pool #872 since start of 2023. For this purpose various sectors have been analyzed to assess the activity of this pool.
This analysis divided into the following parts:
- Track the flow on Pool #872 (USDC.grv/USDC)
- Where did these LPers go?
- What’s the reason of this precipitous drop in LP activity?
- Summary and references
Osmosis chain:
Osmosis is an advanced Automated Marketer Protocol (AMM) that allows developers to build custom AMMs with robust liquidity pools. Osmosis is built using the Cosmos SDK and uses the Inter-Blockchain Communication (IBC) feature to enable cross-chain transactions. The Cosmos ecosystem follows the "Blockchain as Decentralized Program" architecture; This means that Osmosis is a blockchain connected to cosmos Hub, which is also a decentralized exchange.
Osmosis, with the help of IBC, connects to the entire ecosystem of Cosmos chains and their more than 10 billion dollars of native assets. After supporting active blockchains on the Cosmos hub, the project aims to connect to other chains such as Ethereum and Bitcoin.
Being able to change the parameters of a liquidity pool is important and useful, but this feature would be pointless without a way to coordinate a decision between depositors. The independent governance feature of Osmosis pools leads to the creation and evolution of a diverse range of liquidity pools with different risks and strategies.
Methodology:
The data provided by Flipside has been used to handle this analysis.
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Activity of pool #872 over time:
- Metrics→ Volume of inflow and outflow to this pool, Net flow analysis, Average volume of flow, Average volume of action per day
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Where did these LPers go?
- Actions→ Staking, Transfer, Swapping, Providing LP and voting
- Providing LP→ Find out the responsible pools, Count of LP and users on these pools, Volume of provided LP on these pools
- Swapping→ Popular tokens that LP removers swapped their assets into them
- Transfer→ The transfer activity for USDC and USDC.grv tokens by liquidity removers
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What’s the reason of this precipitous drop in LP activity?
- Find out the related proposal→ 402, 403 and 404
- The status of these proposals
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Key Findings:
This part concentrated on the inflow and outflow onto the Pools #872 since start of 2023:
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According to the outcomes, the share of existing pool #872 is larger than joining to this pool from the volume of provided assets point of view.
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The average volume of action per day for pool #872 reveals the domination of withdrawing action with more than 704 USD since start of January 2023.
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The USD volume of deposit and withdraw from pool #872 demonstrate that the highest volume of withdrawal started since January 18th and the highest removal occurred on January 28 with more than 2500 USD.
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The average deposit and withdraw volume shown that the highest average volume of removal occurred on January 23 with over 1075 USD per action.
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Part 2: Where did these LPers go?
After tracking the inflow and outflow onto the pool #872, its time to determine the possible destinations and actions done with these removed assets from pool #872.
As can be seen in the previous part, the large volume of removal happened since January 18th. So, this date is considered as reference time of this part.
Key Findings:
This part aims to find out the possible actions done by removed liquidity from pool#872 after January 18th:
- According to the results, the ==Swap and providing liquidity== are two of the most popular actions done by liquidity withdrawers from pool #872.
- First of all investigate the liquidity providing activity by these withdrawers. As can be seen from the outcomes of Part 2-1, the ==USDC.grv/OSMO== liquidity pool has the highest volume of adding liquidity by these users and with USDC and USDC.grv.
- Adding liquidity to 3 Token pools shown in the overtime analysis. Based on this chart, the highest volume of provided liquidity on 3 Token Pools happened January 22 and 29, accordingly.
- After providing liquidity, the swap activity of these users with their removed USDC and USDC.grv has been investigated. Based on the results on Part 2-2, the most popular tokens that these users swapped their assets into them are ATOM, USDC.grv, WBTC and USDC from the aspect of volume in USD.
- On January 27 and 28, the highest volume of removed USDC and USDC.grv swapped into the ATOM token as can be seen.
- The transfer point of view for these users investigated on the Part 2-3.
- According to the outcomes, most of the users sent their assets outside of the Osmosis network an the highest volume of transfer occurred on January 31.
Key Findings:
Finally, this part is used to determine the reason of this precipitous drop in LP activity on Pool #872:
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For this purpose, the recent proposals about stable coins have been investigated and their final status have been analyzed and connected to the results of previous parts.
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Proposal no.402 and 403== indicate that the USDT and BUSD would be recognized as a Stablecoin asset on Osmosis and could be used on various Category on the ecosystem. According to the results, these proposals have been passed by over 96 and 94 “YES” votes.
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Proposal no.404== recognises the StableSwap 3pool of USDC/USDT/BUSD as a core StableSwap pool and enables OSMO incentives at the next routine incentives proposal. This proposal depends on the passing of Proposals 402 and 403, which recognise USDT and BUSD as Stablecoin assets on Osmosis. This proposal has been passed with near 98 % of votes during its voting period.
It can be seen that the start date of proposal no.404 was from January 18th and this happened at the same time as a significant amount of removal from pool #872 happened.
Conclusion:
By the use of combination of the above parts, the following statements could be concluded:
- The Osmosis protocol is one of the leading platforms in the field of providing collaborative governance, enabling both people active in liquidity pools and developers.
- Osmosis is a decentralized autonomous organization (DAO) that makes decisions based on voting by its governance. These decisions have the potential to affect the behavior of liquidity providers, who provide liquidity for the organization’s assets. Osmosis provides a platform for stakeholders to make their voices heard and vote on important decisions that will affect the future of the organization. By utilizing smart contracts and blockchain technology, Osmosis ensures that these votes are secure and transparent. This enables stakeholders to make informed decisions about how their funds should be used and what direction the organization should take in order to achieve its goals.
- The impacts of these type of proposals and their status, clearly shown in the liquidity activity of related pools like #872. Therefore, before investing in liquidity pools of Osmosis network, you should definitely check the recent proposals in the network.
Useful links:
PROPOSAL 402
This proposal would recognize USDT as a Stablecoin asset on Osmosis.
Details:
Proposal 233 defined Stablecoins as an asset type to used in the incentive category structure. Assets defined as Stablecoins are currently eligible for:
- Access to the Osmo/Stable Category for their incentivized pools
- Access to the Stable/Stable Category for their incentivized pools
- Automatic matching of External incentives within the Stable/Stable Category as per Proposal 377
In the wider market, USDT is currently the USD Stablecoin with the greatest share of Stablecoin marketcap at ~48% dominance.
On Osmosis, USDT is currently provided canonically via the Axelar bridge, however, this proposal authorizes whichever USDT is authorized as the canonical asset on Osmosis as the stable asset.
Final status: Passed
PROPOSAL 403
This proposal would recognise BUSD as a Stablecoin asset on Osmosis.
Details
Proposal 233 defined Stablecoins as an asset type to used in the incentive category structure. Assets defined as Stablecoins are currently eligible for:
- Access to the Osmo/Stable Category for their incentivised pools
- Access to the Stable/Stable Category for their incentivised pools
- Automatic matching of External incentives within the Stable/Stable Category as per Proposal 377
In the wider market, BUSD is currently the USD Stablecoin with the 3rd greatest share of Stablecoin marketcap at ~12%. On Osmosis, BUSD is currently provided canonically via the Axelar bridge, however, this proposal authorises whichever BUSD is authorised as the canonical asset on Osmosis as the stable asset.
Final status: Passed
PROPOSAL 404
This proposal recognises the StableSwap 3pool of USDC/USDT/BUSD as a core StableSwap pool and enables OSMO incentives at the next routine incentives proposal.
Details
This is a signalling proposal to include the StableSwap 3pool USDC/USDT/BUSD into the set of pools that receive OSMO liquidity incentives by recognising it as a core StableSwap pool. After this proposal has passed governance, the pool will be added to the regular incentives program of OSMO and receive incentives as a Stable/Stable pool.
The pool incentivised at this time would be Pool 877 with all assets listed provided via the Axelar bridge and as such are the canonical representations of these on Osmosis according to Proposal 206. If the canonical status of one of these assets is changed then incentives would move at the next routine proposal to the pool containing the new canonical assets, with the highest volume and matching the criteria stated in Proposal 377.
Stable pools are incentivised by the model defined in Proposal 377. In brief, incentivised pools receive a subsidy of up to 2 times the value of fees generated in the pool in OSMO, with the total of the Stable/Stable category being capped as 4% of current Liquidity Provider emissions.
This proposal depends on the passing of Proposals 402 and 403, which recognise USDT and BUSD as Stablecoin assets on Osmosis. If this proposal passes whilst one of the referenced proposals fail then it would have no immediate effect as one of the constituent assets would not be recognised as a Stablecoin asset. If all constituent assets become recognised by Osmosis governance as Stablecoin assets in future then this proposal would take effect.
Final status: Passed