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Osmosis, a DeFi hub for the Cosmos ecosystem, is set to introduce OSMO 2.0, an upgrade to its tokenomics model, according to an announcement from the project.
The Osmosis DEX had a trading volume exceeding $22 billion since its launch in June 2021.
The problems facing the cosmos ecosystem
As Osmosis celebrates its annual anniversary, the community anticipates the introduction of the OSMO 2.0 tokenomics upgrade, coinciding with the platform’s second year of operation.
The updated tokenomics model aims to fortify the ecosystem, foster sustainability, and solidify Osmosis’ position as the leading hub for Cosmos DeFi applications.
Following this announcement, crypto.news reached out to Emperor Osmo, who is lead llama & marketing at Osmosis Labs, to ask about the current challenges facing the Cosmos ecosystem. Emperor Osmo highlights 3, stating,
First, the scalability of the Cosmos ecosystem, despite its design to support scalability through the Inter-Blockchain Communication (IBC) protocol, poses challenges as the network expands.
The increasing number of chains and transactions could potentially lead to congestion and strain on the IBC infrastructure. This concern was raised by Emperor Osmo, who emphasized the need to address these challenges to ensure a smooth and efficient network operation.
Furthermore, while Cosmos was initially intended to be interoperable, its interoperability currently extends primarily to chains built on the Cosmos Software Development Kit (SDK). Expanding this interoperability to other ecosystems, such as Ethereum, has proven to be challenging.
The utilization of bridges like Axelar and Gravity Bridge has been attempted to bridge the gap between Cosmos and Ethereum, but the process has encountered difficulties. Achieving seamless interoperability with external ecosystems remains an area that requires further development and exploration.
Emperor Osmo also expressed concerns regarding the user experience (UX) within the Cosmos ecosystem. Acknowledging the steep learning curve associated with cryptocurrencies in general, the complexity of the Cosmos ecosystem adds an additional layer of challenge for users.
Managing different tokens and interacting with various sovereign chains can be intricate and intimidating, particularly for newcomers. Enhancing the UX within the Cosmos ecosystem is essential to attract and retain users, encouraging wider adoption and participation in the network.
The forthcoming OSMO 2.0 upgrade is expected to introduce changes, including a reduction in inflation and an extended emission timeline.
Osmosis governance has voted to decrease the inflation rate of OSMO by 50%, ensuring a sustainable emission model and positioning Osmosis as one of the Cosmos ecosystem’s chains with the lowest emissions.
Additionally, the upgrade will shift emissions and incentives towards Stakers, incentivizing active participation in network security and governance.
Another notable feature of OSMO 2.0 is the Protocol Revenue Burn Mechanism.
“OSMO 2.0’s updated tokenomics model could significantly contribute to the growth and development of both Osmosis and the broader Cosmos ecosystem in several ways. By reducing inflation and extending the emission timeline, OSMO 2.0 is focusing on long term and sustainable growth. This should serve to attract more long-term investors and users, leading to sustainable growth.
Introducing an incentive of staking through the shift of emissions, furthering the goal to encourage users to participate in governance and the security of the network. Features like the Fee Share Mechanism, further the value proposition OSMO stakers have, potentially benefiting one of the Cosmos most liquid assets.”
Emperor Osmo, Osmosis Labs.
The ProtoRev module tries to capture arbitrage opportunities for the community after each trade. Osmosis governance is currently discussing the possibility of burning the revenue generated from ProtoRev to further counterbalance token inflation.