Arbitrum - Mission Osmosis ⚗️

    TWITTER THREAD AT https://twitter.com/Pierandrea21/status/1660784976361672708 The following analysis is done by @Pierandrea21 (https://twitter.com/Pierandrea21). Telegram: @pierandrear

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    Interstellar Liquidity: ARB Expands Cross Chains with Axelar-Osmosis Partnership
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    Axelar and Osmosis have collaborated to create a Cross-Chain liquidity layer, enabling seamless transfers between Arbitrum and Osmosis. As a result, ARB was integrated into Osmosis on April 27th, and initial liquidity for the ARB/OSMO pair has been supplied.

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    Proposal #505: ARB Bootstrapping liquidity incentives

    Summary of the Proposal #505:

    1. Proposal #1: Signaling Proposal for ARB/OSMO incentivized pool: ARB/OSMO pool will be added to regular incentives program. Partnership with Axelar allows ARB to be provided on Osmosis.
    2. Proposal #2: Add ARB to Major category assets: ARB is ranked 40 by market cap, with a valuation higher than Osmosis, the protocol has a TVL of $2.35 billion, attracting top DeFi projects. There is an overlap of users between Arbitrum, Polygon, and BNB Chain, where Osmosis has already found reasonable success attracting liquidity from. Axelar bridge already facilitates transfers of WMATIC and WBNB to Osmosis and further analysis of bridge activity shows that Arbitrum <> Osmosis is a growing source of USDC volume for Squid Router.
    3. Proposal #3: ARB Bootstrapping liquidity incentives: Incentives directly allocated to ARB/OSMO pool for liquidity establishment. Minimum incentives of 0.5% for 4 routine proposals to retain liquidity. ARB liquidity incentivization facilitates trading and flow between Arbitrum and Osmosis. Overall, incentivizing ARB on Osmosis supports its integration, liquidity, and trading activity between Arbitrum and Osmosis, leveraging its Ethereum L2 advantages and promoting growth in the ecosystem.
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    Comparison with AVAX - MATIC - BNB
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    The ARB - OSMO pool, deployed under the ID 1011 (https://app.osmosis.zone/pool/1011), has the following statistics as of May 22, 2023:

    1. Liquidity: Over $130,000 USD
    2. Cumulated Volume: Over $60,000 USD
    3. Number of unique addresses that have made a swap: 148
    4. Number of ARB holders on Osmosis: 54

    On May 16, there was an All-Time High (ATH) in Daily Volume, resulting in significant fee generation. Let's dive deeper into the details.

    The approval of proposal 505 has had a significant impact on the activity in pool 1011 (ARB - OSMO):

    1. There has been a noticeable increase in LP participation, with both new LPs joining the pool and existing LPs increasing their liquidity provisions.

    2. The LP address "osmo19slqpslpctaet05629ut7q9ar00zuk86q36apk" holds the largest share of the pool, representing over 20% of the total LP.

    3. With the introduction of incentives for the pool, a majority of LPs have chosen to bond their LP tokens in the 14-day contract of the bonded liquidity program.

    4. The activity bridge related to ARB has experienced a net increase in Satellite activity. On the 16th of May, there was a peak in the bridging of ARB from Arbitrum to Osmosis.

    5. The LP address "osmo19slqpslpctaet05629ut7q9ar00zuk86q36apk," which is the largest LP, also holds the highest amount of ARB tokens in their wallet, with over 12k ARB.

    These developments have contributed to the growth and activity in Pool 1011, enhancing overall liquidity and engagement within the ARB - OSMO pool. However, as shown in the donut graph, the bootstrap of liquidity in ARB has not attracted many new users, as the activity in the ARB-OSMO pool primarily involves existing users.

    It is evident across all the different coins that the incentivization of pools played a crucial role in bringing liquidity and volume to the Osmosis chain. Prior to these incentivization programs, Osmosis had minimal liquidity and volume.

    However, it is important to note that even with the growth in liquidity and volume after the bootstrapping programs, they still represent a relatively small percentage of the total liquidity and volume on Osmosis. The liquidity of AVAX, BNB, MATIC, and ARB combined accounts for slightly over 1% of the total liquidity on Osmosis. The same applies to daily volume.

    To assess the effectiveness of incentivizing the ARB-OSMO pool, let's compare it with the incentivization of three other large-cap Layer One coins:

    1. BNB: The liquidity bootstrap for BNB was initiated with proposal #360 on November 14, 2022.
    2. MATIC: The liquidity bootstrap for MATIC was initiated with proposal #386 on December 19, 2022.
    3. AVAX: The liquidity bootstrap for AVAX was initiated with proposal #410 on January 30, 2023.

    By examining these case studies, we can gain insights into the impact and success of incentivizing liquidity in the ARB-OSMO pool compared to other prominent Layer One coins.

    Conclusion

    While liquidity mining incentives are effective in attracting liquidity, there are some drawbacks in the approach taken by Osmosis. One of the key shortcomings is the failure to attract new users from other ecosystems. The limited number of ARB holders on Osmosis, which currently stands at 47, can be attributed to the lack of utility for holding ARB within the Osmosis ecosystem.

    In my opinion, Osmosis has successfully demonstrated its ability to attract liquidity from other chains through its integration with Axelar and liquidity incentives. However, it is crucial for other protocols, such as Mars Protocol, to capitalize on this opportunity and enable the utilization of these new coins within their own protocols. Otherwise, Osmosis will remain focused primarily on Cosmos chains and may miss out on broader adoption and expansion.