Osmosis represents an innovative exchange embedded in the Cosmos ecosystem. This platform stands out in the market due to its scalability and the use of unique approaches in DeFi. The Osmosis platform, which operates within Cosmos, uses its own OSMO cryptocurrency.
Basics of Osmosis
Osmosis is a decentralized exchange (DEX) and automated market maker (AMM), based on the Cosmos SDK. It's a set of tools for creating blockchains intended for specific applications.
What sets Osmosis apart from other DEXs is the ability for users to customize their liquidity pools and create individual AMMs. This provides liquidity providers with more control over their DeFi operations, as they can set their own rules.
Osmosis development is led by Osmosis Labs. The platform is managed by decentralized validators who vote on updates and modifications. In the summer of 2021, the project attracted $21 million in funding from investors such as Paradigm Ventures and Nascent.
Osmosis DEX utilizes the features of the Cosmos ecosystem to merge blockchains and transfer tokens and data through the Cosmos Inter-Blockchain Communication Protocol (IBC).
How Osmosis DEX Works
While decentralized exchanges have significantly improved capabilities in the DeFi sphere, well-known DEXs like Curve, PancakeSwap, and Uniswap face certain limitations that Osmosis aims to overcome. These popular platforms are limited to trading tokens native to their own blockchains. In contrast, Osmosis DEX is a multi-layer blockchain platform that allows users to participate in staking various tokens located on other blockchains. Thanks to its AMM integrated with numerous Tendermint blockchains, Osmosis can support cross-chain transactions for its users.
Unique features of Osmosis include:
Feature Description Sovereignty and Incentive System Allows liquidity providers, DAO members, and other community participants to receive various incentives. Liquidity providers have ownership rights to pools and can set market parameters. Multi-Chain Currently, Osmosis supports only IBC, but plans to expand its capabilities. Super Liquid Staking The OSMO token can be used simultaneously for staking and in the liquidity pool, increasing rewards for users. Thirdening A mechanism similar to halving, which creates a scarcity of OSMO token supply and increases their value.
Using the OSMO Token
The primary token of the platform, OSMO, is used to pay fees and receive rewards for liquidity mining. OSMO holders have the opportunity to influence the strategic development of the project and participate in update voting.
The current circulating supply of OSMO is 492,590,761, with a maximum of 1 billion. The initial offering of 100 million tokens was distributed between the strategic reserve and Fairdrop recipients as follows:
- Liquidity provider incentives - 45%
- Staking rewards - 25%
- Developers - 25%
- Community pool - 5%
The thirdening mechanism helps combat inflation by reducing the OSMO supply by a third each year.
Using Osmosis involves certain risks, and users should be aware of potential issues. Violations by validators can lead to a slashing process, where part of their OSMO tokens is seized. However, with responsible use, Osmosis can become a reliable partner for decentralized investments.
