Founder, DeFiance Capital: Why I'm bullish on Osmosis

Arthur, Founder and CEO of DeFiance Capital, translated by Golden Finance 0xjs

Since returning from Istanbul's Cosmosverse, I've been bullish on the Cosmos ecosystem and have thought hard about the best way to hold its positions.

After digging deeper, we found Osmosis to be one of the most exciting opportunities for Cosmos.

Here's why:

One sentence summary:

Osmosis is a DEX-centric Cosmos appchain and the de facto liquidity hub in the Cosmos ecosystem through the Interchain Communication (IBC) protocol.

The latest progress of the project on Cosmos

Circle

Recently, Circle launched native USDC through Noble on Cosmos. Any serious blockchain network should have native versions of major stablecoins, which is a huge win for Cosmos liquidity via IBC. Of the $15 million issued Cosmos native USDC, $10 million is on the Osmosis chain.

dYdX Chain

dYdX Chain was launched last week and will soon enable trading capabilities, which will make the Cosmos ecosystem home to the largest derivatives DEX, with a monthly trading volume of over $23 billion.

Other top projects Celestia, Berachain, XDEFI, Akash, etc

We've also seen other top projects that have been launched or are about to launch, such as Celestia and Berachain. Lido Finance has also launched wstETH.

Wallets centered around the Cosmos ecosystem, such as XDEFI, have also seen significant growth in weekly active users recently.

Akash, the first decentralized cloud network that can provide enterprise-grade NVIDIA H100/A100 GPU chips, is also a Cosmos appchain.

Osmosis is the de facto liquidity center of Cosmos

As more projects, tokens, and users join the ecosystem, the trading volume of the Cosmos Appchain token will increase, providing a considerable boost to OSMO.

The Osmosis appchain is currently the largest on-chain liquidity hub for Cosmos-based assets, with a TVL of $122 million, making it the de facto liquidity hub for Cosmos.

Approximately 70% of the content in Osmosis is done on OSMO's LP pairs, which has several implications. 1) It increases the utility of OSMO, and 2) it has a multiplier effect on the transaction volume on the OSMO pool, given that users usually have to access the required assets through the OSMO pool.

This multiplier effect should be most striking when liquidity returns along with the bull market. While Osmosis currently has a daily turnover of around $20 million, it still pales in comparison to the bull market of > $200 million in daily volume.

OSMO tokenomics improvements

The community also recently voted for a series of proposals that greatly improve OSMO's tokenomics. In the second quarter of 2023, the annual token issuance was cut by around 50% to 10%. From 2025 onwards, this emission rate will be reduced by one-third per year.

Just a few weeks ago, Osmosis started charging a 0.1% taker fee on all swaps. At current levels, this will bring in more than $4 million in revenue, most of which will be acquired by OSMO stakers.

This new revenue stream is expected to be 10 times the current revenue figure, primarily including transaction fees and MEV revenue capture within the Osmosis protocol.

Interestingly, the portion of taker fees denominated in non-OSMO assets will be converted to OSMO on a regular basis. At current levels, we estimate that there will be more than $600,000 per year to buy OSMO.

Osmosis also features hyper-fluid staking, which allows users who provide liquidity in certain pools to also stake to help secure the network, as well as MEV capture, centralized liquidity, and more. Essentially makes staking rewards and LP fees go down at the same time.

Osmosis is grossly undervalued and ready to extract value from the Cosmos ecosystem

As a result, we believe Osmosis is poised to derive value from the growing Cosmos ecosystem. With the launch of TIA, the daily trading volume has increased by 50-100%. We expect the launch of other tokens such as DYDX and the growth of Noble USDC/WBTC to be further catalysts.

While Solana is the most prominent gainer this year, people tend to overlook the fact that some Cosmos appchain tokens like INJ and RUNE have risen better than SOL this year.

OSMO is also significantly undervalued compared to other tokens. Thorchain, which has a similar TVL, is trading at a price of $1.5 billion in FDV, while Osmosis has a float of only $300 million and an FDV of $600 million, which is well below the Paradigm-led Series B valuation (which is priced at $1.60 and is fully released).