Osmosis, the largest decentralized exchange protocol on the Cosmos network, has introduced a variant of concentrated liquidity pools called “supercharged liquidity” with the aim of improving capital efficiency of the network.
Osmosis operates as a decentralized exchange-based blockchain in the Cosmos ecosystem that facilitates the creation and management of customizable liquidity bootstrapped pools (LBPs) with adjustable bonding curves. Currently, Osmosis has the most significant number of daily active users within the Cosmos ecosystem.
The supercharged liquidity feature is meant to enable liquidity providers (LPs) to designate specific price ranges for their liquidity. Until now, the platform has allowed LPs to provide liquidity across an infinite range, which led to capital being spread over all possible price points of an asset pair. This can result in capital being locked up at price points that see little trading activity, potentially decreasing capital efficiency.
Concentrating capital on specific price ranges
The mechanism allows LPs to concentrate their capital on specific price ranges, potentially resulting in more efficient use of their funds. Osmosis estimates suggest that this new feature could improve capital efficiency more than 100 to 300 times compared to their previous model. Supercharged Liquidity shares similarities with the concept of concentrated liquidity found on Ethereum decentralized exchanges like Uniswap.
“The Supercharged Liquidity feature is designed to provide a platform for liquidity providers to manage their positions more efficiently. It provides a mechanism that allows for more precise control over liquidity provisioning,” a representative from Osmosis stated.
To support the transition to this new system, Osmosis will offer a 5% migration bonus to liquidity providers during the initial launch of supercharged liquidity. This is intended to encourage LPs to transition to the new system.
According to data from DeFiLlama, Osmosis reportedly has over $150 million in monthly trading volume and about $130 million in locked assets.
© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.