Osmosis is an automated market maker (AMM) built on Cosmos that enables cross-chain transactions through Inter-Blockchain Communication (IBC). This gives the protocol an added layer of interoperability and composability. Unlike most existing AMMs, Osmosis is deeply customizable and allows developers to leverage many different changeable parameters to build truly unique AMMs that can dynamically fit a variety of outcome goals. Ultimately, Osmosis enables developers to design and deploy custom AMMs that can quickly adjust to changing market conditions and allow market participants to decide which iterations provide the most optimal results, rather than relying on the protocol itself.
Most existing AMMs are confined to operate within the native blockchain in which they were originally built. While there are workarounds, this places certain limitations on developing a truly chain-agnostic AMM that can execute transactions across different networks seamlessly and efficiently. In addition, while the features between AMMs can vary quite significantly, they are often hardcoded into the protocol, leaving a rigid infrastructure that is unable to adapt quickly to the demands of an ever-changing market. Developers very rarely have the freedom to change key parameters like swap fees, token weights, let alone the more infrastructure-drive values such as the curve algorithm or TWAP calculation.
For instance, popular AMMs like Uniswap V3 allow users to create liquidity pools with different fee sizes, specifically between 0.3% and 1%. This creates a bit of a quality of life improvement for casual users in that they are not required to spend time tinkering with the underlying tokenomics and implications of a given set of LP fees. It also provides some flexibility and is useful in cases that involve more exotic token pairs. For more sophisticated users, however, additional parameterization might be useful to better react to changing market conditions. This approach also shifts the focus of fee structures away from how common or how rare a given token pair is to be more comprehensive by including other factors such as slippage and market volatility. Ultimately, there is no single solution that fits all AMM design goals, and an additional layer of customization helps developers fine-tune optimal strategies around fees and liquidity provision, and takes into account other factors that may directly impact success of the AMM.
Osmosis attempts to solve these shortcomings in many different ways. To begin, the protocol was developed using the Cosmos SDK which allows it to operate across chains. This gives Osmosis access to any chain built on the Cosmos ecosystem which unlocks over $10B in TVL. It also allows Osmosis to integrate with non-IBC enabled chains, such as Ethereum, giving it even more composability and interoperability.
From a design perspective, Osmosis is focused on user experience and a deep level of customization. The protocol extends AMM functionality beyond simply token swaps and implements a host of other features such as bonding curves, dynamic fee swaps, and multi-token liquidity pools. It therefore enables developers to build, design, and deploy their very own AMM, fully customized with novel parameters and fully connected to the IBC ecosystem and beyond.
Data from : consensys
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