Hop In The Pool

    Analyzing how Osmosis pool participants hop into pools

    Introduction

    Osmosis is a decentralized exchange that stands on its own as an appchain in the cosmos ecosystem. With Osmosis, users within the cosmos are able to swap cosmos tokens seamlessly without an intermediary. In the background these swaps are made possible by actors (Liquidity Providers - LPs) who pool together funds to honor both the sell and buy side of any trade. Osmosis pools by design are denominated in OSMO, thus they are always half OSMO, and the other half for other tokens. Eg. ATOM/OSMO.

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    How To LP Osmosis Pools

    Osmosis pools can be LPed into either by 1) Supply both assets and in amounts [double side method] or 2) Supplying only a single asset which gets divided into half and subsequently swapped into the other [single side method]. In the second option, the user gets back the funds in the originally supplied single asset. So we want to know which of these pool join types Osmosis LPs prefer to get into pools. We’ll start by looking at LP history since genesis.

    The bar chart above represents the count of the two types of pool joins over various months since the beginning of the Osmosis chain. To differentiate between the single side LP and the double side LP, we count the number of transaction involved, which is recorded twice on the chain for single side, and thrice for double side.

    We observe that generally, liquidity providers prefer the single side method of LPing into Osmo pools, especially from September 2021 until May, 2022, when the bear market kicked in. Since June, it appears that the ratio of sigle side LP to double side LP is close to 1:0.8 - almost at par.

    Adding together the count of all the various LP methods, single side LP accounts for 66.8% while double side accounts for 33.2%, and a total of 203 thousand unique LPs are responsible for that behavior. Comparatively, the average amount deposited using the single side method is almost 2x the average amount of funds deposited using the double side method.

    Conclusion

    It was found that Osmosis liquidity providers (LPs) generally preferred to add liquidity by supplying single side assets. By using the single side method, providers are able to save gas fees and avoid extra steps as they only have to approve only a single transaction. Also, it was noticed that since June 2022, LPs are almost doing as many double sided LPing as single siding. This may be as a result of the fact that they are more denominated into stables now as a result of market volatility, which then forces them to do a double side LPing.