According to Token Unlocks, Osmosis (OSMO), a popular decentralized exchange (DEX) built on Cosmos, is discussing implementing the Osmosis 2.0 upgrade that will impact OSMO tokenomics.
The upgrade will consist of three offerings focused on reducing inflation and increasing returns for stakers.
OSMO Altcoin Inflation Will Be Reduced, Staking Rewards Will Not Decrease
The first proposal aims to expand OSMO's emissions program by reducing daily emissions by 50%. However, if this is the only change made, the maximum supply will not reach 1 billion, instead it will be around 780 million OSMO.
Therefore, in order to maintain the maximum supply of 1 billion cryptocurrencies, a future management proposal will need to extend the thirdening period. Thirdening in Osmosis is a process in which the token issuance of OSMO, the native token of Osmosis, is reduced by a third each year.
The second proposal aims to adjust the emission rate to minimize the impact of the first proposal. This change will result in increased staking and pool incentives, resulting in a significant increase in net return for stakers and liquidity providers. However, there will be a drop in community pool and developer rewards.
This will significantly improve tokenomics by reducing inflation by 50% while maintaining the same $OSMO emissions for Staking Rewards ✅
This is particularly important as the current high inflation still results in net inflation for $OSMO stakers 🔑🏦
— Token Unlocks (@Token_Unlocks) April 14, 2023
After the three offers have been implemented, daily OSMO emissions will be significantly reduced by 50%, while the same OSMO emissions for stake rewards will be maintained. According to these analysts, it will significantly improve tokenomics by reducing inflation and increasing returns for stakers and liquidity providers.
The third proposal aims to reduce the superfluid risk factor to 25%; which will allow 75% of OSMO locked in superfluid pools to be used for staking. This change will increase the APR of superfluid pools by ~2%, while reducing the staking APR by ~1.4%.
The Superfluid risk in Osmosis is the risk of losing some of the OSMO tokens staked through Superfluid Staking. Superfluid Staking is a feature that allows you to stake OSMO tokens underlying liquidity pool (LP) positions on Osmosis. This way, both trading fees and staking rewards can be earned for providing liquidity and securing the network.
However, if the authenticator misbehaves or tries to attack the chain, there is a possibility that the staked OSMO tokens will be slashed.
Slashing is a mechanism that penalizes validators for breaking the rules and reduces their tied stakes. In the case of Superfluid Staking, slashed funds are sent to the Osmosis Community Pool.
Overall, the transition to Osmosis 2.0 will have a significant impact on OSMO tokenomics. While there may be some reduction in rewards for some stakers, the reduction in inflation and increase in net return will ultimately benefit the Osmosis ecosystem, according to Token Unlocks analysts.
*Not investment advice.