Osmosis, the first decentralized exchange servicing blockchains connected by Cosmos’s Inter-Blockchain Communication protocol, has launched a new staking service.
On March 1, Osmosis (OSMO), launched “superfluid staking,” which will allow liquidity providers to stake LP tokens representing their assets while continuing to earn a share of trading fees.
The new service will allow LPs providing ATOM/OSMO to also designate their LP tokens to an Osmosis validator and earn staking rewards in addition to a share of trading fees from the liquidity provided. The Osmosis team describes superfluid staking as pioneering “reverse liquid staking” by allowing Proof of Stake tokens that are used in DeFi to also be mobilized for validating transactions and securing networks.
“On other blockchains, decentralized exchanges and proof-of-stake blockchains compete for the same resource — value — meaning that liquidity providers must compromise the security of the blockchain on which they are based in order to earn LP rewards,” said the team.
At launch, superfluid staking will only support ATOM/OSMO LP tokens being used to secure the Osmosis chain. Additional pairings are expected to go live in the coming weeks and will be determined by community governance.
The Osmosis team also notes that half of the OSMO tokens represented by deposited LP tokens will be mobilized for staking, although the ratio may be changed by governance in the future.
Sunny Aggarwal, co-founder of Osmosis Labs, told The Defiant about the differences between superfluid staking and existing liquidity mining programs. The latter permit liquidity providers to earn rewards in exchange for locking up their LP tokens.
“In superfluid staking, when bonding LP shares, users can also choose a validator to stake to,” said Aggarwal. He also noted that superfluid stakers may be vulnerable to slashing events, cautioning that “if a validator misbehaves, the users’ LP shares are slashed.”
Aggarwal said the new service will eventually be expanded to support validating other chains within the Inter-Blockchain Communication (IBC) ecosystem called “interfluid staking.”
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Cosmos launched its IBC protocol in April of last year. It enables blockchains built using the Cosmos SDK to communicate and transact with each other within an interconnected network for the first time.
Within the Cosmos ecosystem, dapp developers launch decentralized applications as unique blockchains called “zones.” Each zone must also launch its own staking token and independent validator set, meaning that zones with fewer validators do not enjoy the same level of security as their larger counterparts.
“Currently, we only use the OSMO value of LP shares to secure the Osmosis chain,” Aggarwal said. “But in a future feature called interfluid staking, we will offer superfluid staking to other chains, where the other tokens can be used to secure other zones.”
The Osmosis team described interfluid staking as allowing smaller zones to bolster their security through incentives targeting stakers. The interfluid staking service is expected to mobilize 90% of the ATOM in LP positions for staking.
Osmosis capitalized on IBC going live by launching the first DEX enabling cross-chain transactions within the Cosmos ecosystem in June of last year. The protocol surpassed a total value locked (TVL) of $100M in August and crossed $1B in early January amid surging growth in the Cosmos ecosystem.
The dapp has been on a tear since January when it integrated an Ethereum bridge enabling ERC-20 tokens to be traded on the exchange and enabled Metamask support. Osmosis also broke above $100M in daily volume for the first time in January.
Osmosis’ TVL currently sits at $1.69B after gaining nearly 43% over the past 30 days.