Cross-blockchain interoperability will require exchanges that don’t care what chain a token is on or what chain it’s going to. That vision is being validated today by some of the largest investors in crypto.
Osmosis, a decentralized exchange in the Cosmos ecosystem, today announced a $21M sale of tokens from the Osmosis Foundation treasury, in a round led by Paradigm. Other investors included Robert Leshner’s scout fund, Robot Ventures, Nascent, Ethereal, Figment and Terraform Labs CEO Do Kwon.
Paradigm, the fund led by Coinbase co-founder Fred Ehrsam, is making its first automated market maker (AMM) investment outside of Ethereum in Osmosis, a DEX on Cosmos that very much has that cross-chain orientation in its DNA. This is an important moment of validation for the Cosmos ecosystem, which has been pushing the idea of interoperable blockchains since long before it became fashionable recently, as blue chip apps port themselves to every Layer-1 with a liquidity mining program.
“The Osmosis contributors are a world-class team of engineers, product innovators and operators bringing the right product to market at exactly the right time,” Charlie Noyes, investment partner at Paradigm, said in a statement. “Osmosis is the natural center of gravity for liquidity in Cosmos’ emerging DeFi ecosystem.”
Like most Cosmos applications, Osmosis runs on its own blockchain, an application specific chain (or appchain), following the Cosmos philosophy that every use case should have its own sovereign blockchain. AMMs have been hugely important over the last year, with 2020’s fork of Uniswap by SushiSwap becoming one of the biggest stories in decentralized finance (DeFi) and AMMs themselves driving much of the activity on just about every chain.
“We’re making a bet on vertical integrations here. When you build a DEX on another chain, you are limited to what it says you can do. With Osmosis, not only do we control the application, but we control the blockchain itself,” Sunnny Aggarwal, a co-founder of Osmosis Labs, told The Defiant in an interview. “If you want the best UX for trading, I think Osmosis will provide that best experience.”
Making things easier is a big part of the Osmosis philosophy. The team is heavily oriented toward better and better user experience specifically for non-custodial trading.
Four Pillars of Cosmos’ Cross-Chain Approach
Aggarwal said the team has four pillars for better user experience: First, a focus on privacy, because if the mempool is encrypted, no one can frontrun trades. Second, superfluid staking — where OSMO governance tokens can be used both in the AMM’s liquidity and to secure the chain, at once, earning yield on both. Third, integrating DeFi. And, finally, cross-chain UX.
Everyone has been thinking about going cross-chain in 2021. “In Cosmos, not only have we been thinking about it, but we’ve been building it,” Aggarwal said. For example, there are lots of bridges coming to Cosmos that Osmosis is helping with.
“In a way I see everything as part of Cosmos in a way. It’s all part of interconnected blockchains,” Aggarwal said. “Every time I’ve talked to people who have used other bridges, [and then] they use IBC [inter-blockchain communication], they are blown away by how seamless it is.”
The Appchain Edge
There’s one very particular way UX on Osmosis stands out here in the early days, but it won’t last forever: It’s got no fees right now, because the chain’s not clogged yet.
Further, for yield farmers, Osmosis enables a sort of double yield farming experience via superfluid staking. Holders of its OSMO governance token, for example, don’t have to choose between yield on liquidity provision on the DEX or staking to provide security for the appchain.
This is a real advantage of building an AMM on an appchain, Aggarwal explained. “The base protocol understands the higher protocol,” he said. So the OSMO in liquidity provider shares can also be part of the staking system. The Osmosis chain can keep track of assets doing double-duty in securing the network and boosting liquidity in the DEX.
The Need for AMMs on Cosmos
Cosmos has suddenly been doing well in the markets. ATOM has doubled in price since August, rising to around $40 as of late afternoon Tuesday, New York time. Similarly, OSMO has gone from around $2 in early August to $5.65.
The Osmosis team leads development on Cosmos’ leading wallet, Keplr. Because the native Cosmos token, ATOM, is widely available on centralized exchanges, it has been a good way for people to bridge fiat to Cosmos and then to Osmosis.
The arrival of Terra’s assets, the stablecoin UST and its governance token LUNA, has also been a boost. “It’s great for us,” Aggarwal said. “I think ATOM and UST are going to become this big on ramp.”
Osmosis is not the only DEX on Cosmos. Gravity is built into the Cosmos hub itself. Thorchain is also a Cosmos ecosystem chain which also seeks to cross blockchains outside of Cosmos.
AMMs are particularly important for Cosmos, because getting Cosmos tokens added to centralized exchanges is a little trickier than adding ERC-20 tokens, Aggarwal explained in an interview. Precisely because each Cosmos application has its own appchain, it requires more developer work by an exchange.
So AMMs make “it a lot easier to get liquidity on your asset without having that integration lift,” Aggarwal said. “We’ve done a lot to make it easy as possible. “