Osmosis

Osmosis is a DEX protocol, which means it 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. This approach to an exchange platform is known as an AMM — a DEX protocol that prices crypto assets in liquidity pools. Contributing tokens to these pools helps foster decentralized liquidity, which is then used to facilitate trades on the exchange. Participating as a liquidity provider (LP) can earn you both trading fees and newly minted LP tokens as incentives for participation. The Osmosis AMM is unique in that it affords users the ability to create their own liquidity pools, or to duplicate existing ones with their own unique parameters. Because Osmosis is built on the Cosmos ecosystem, users are able to natively trade assets from more than 47 different chains within Cosmos. Two primary concepts that drive the Osmosis protocol are sovereignty and heterogeneity. To that end, Osmosis makes use of self-governing liquidity pools. These liquidity pools that exist in Osmosis are not hard-coded and users can use the native Osmosis token (OSMO) to vote on pool parameters and protocols, provide liquidity, and stake. Essentially, it allows holders of the token to decide the make-up of specific liquidity pools, in addition to playing a central role in wider Osmosis protocol governance.

The Cosmos Ecosystem

osmos, which bills itself as the internet of blockchains, is a decentralized network of independent yet interoperable blockchains that are able to exchange information and tokens between each other permissionlessly.

Cosmos aims to address some of the issues faced by other blockchains — such as scalability, usability and governance — by providing the tools to help developers quickly build independent blockchains for a variety of use cases and enabling blockchains in the network to communicate with each other.

The independent blockchains, called “zones” in the Cosmos ecosystem, are powered by the Tendermint proof-of-stake byzantine fault tolerant (BFT) consensus algorithm. A byzantine fault tolerant consensus algorithm allows the network to reach consensus even if some of the nodes fail or act maliciously. The first blockchain on the Cosmos network is the Cosmos Hub and ATOM is the native token of Cosmos Hub.

Question:

• What type of wallets provide liquidity on Osmosis?
• Is liquidity concentrated and owned by a small number of whales? Or, are there a diverse range of participants in the LP ecosystem?
• Do LP composition change based on TVL of the pools themselves?

Definition

Total value locked (TVL)

f you have been using DeFi tracking sites, the chances are high that you have run into total value locked (TVL) as a reference point. To put it simply, total value locked represents the number of assets that are currently being staked in a specific protocol: this value is not meant to represent the number of outstanding loans, but rather the total amount of underlying supply that is being secured by a specific application by DeFi completely.

Total value locked is a metric that is used to measure the overall health of the DeFi and yielding market. You can track total value locked on many services. 

There are three main factors that are taken into consideration when calculating and looking at decentralized financial service's market cap TVL ratio: calculating the supply, the maximum supply as well as the current price.

In order to get the current market cap, you need to multiply the circulating supply by the current price. In order to get to the TVL ratio, you would need to take that market cap number and divide it by the TVL of the service.

From a theoretical standpoint, the higher the TVL ratio is, the lower the value of an asset needs to be; however, this is not always the case when we look at reality. One of the easiest ways to implement the TVL ratio is to help determine if a DeFi asset is undervalued or overvalued, and this can be done by looking at the ratio. If it is under 1, it is undervalued in most cases. 

Methodology

We divide Osmosis wallets according to their USD holdings into the following categories based on their USD asset balances:

• Shrimp: balance < 1K USD

• Fish: 1K< balance < 10KUSD

• Dolphine: 10K< balance < 100K USD

• Shark: 100K< balance < 1M USD

• Whale : 1M< balance < 10M USD

• Humpback (>10M USD).

Data Sources

We use following data tables:

• smosis.core.fact_daily_balances
• smosis.core.fact_liquidity_provider_actions
• osmosis.core.dim_prices

Results

Wallets Categorization Based On USD Balance

Key Results:

• The total number of Osmosis users who have a balance greater than 0 is equal to ~ 443K users.
• 96.5% of Osmosis holders are Shrimps (Balance less than $1K).
• 0.054% of Osmosis holders are Humpback Whales but 95.8% of the total balances belong to this group.
• Almost always the same ratio has been maintained between users. But the growth of the number of shrimps has been higher than other groups.
• The total number of whales and Humpback Whales has increased significantly since Jun 2022.

Liquidity Providers Analysis

Key Results:

• We see that the vast majority (80.9%) of pool join transactions were made by the Shrimp users. Fish and Dolphin are in the next rank with 13.9% and 3.59% respectively.
• Whale and Humpback Whale pool join transactions have increased in the last 3 months.

To better understand Liquidity Provider’s behavior, we have converted all the amounts into USD and calculated the total of the amounts deposited to the pools for each wallet type. In the following charts, we have shown the

• total USD amount of each wallet type that is locked in pools.
• Monthly total USD amount of each wallet type that is locked in pools.

Key Results:

• In total, 45.5%, and 28.3% of the pool join volume was related to the Fish and Humpback Whales users.
• Although Humpback Whales and Whales are a small percentage of the total pool join(0.83%), their pool joins volume is very large .

• LP composition Analysis based on TVL of the pools

Key Results:

• Humpback Whales and Whales users have more capital locked in the large pools (ATOM/OSMO, USDC/OSMO)