A quick guide to Osmosis
In this article, I will be covering Osmosis, the biggest AMM built on Cosmos. It is one of the fastest, if not the fastest growing DeFi platforms right now and we will be taking a look at what it has to offer exactly.
What is an AMM?
AMMs or automated market makers are part of the decentralized finance ecosystem. They use liquidity pools instead of buyers and sellers and that allows assets to be traded in an automatic and permissionless way. Here, the AMM’s users supply these liquidity pools with tokens or coins, whose prices are mathematically determined. Liquidity pools can be further optimized for different purposes. Before AMMs, liquidity was a problem, because for certain tokens the number of buyers and sellers was small, which meant it was quite hard to trade at any time. Now, people are incentivized to provide liquidity (for example by receiving a cut of the transaction fees) and this just makes trading on decentralized exchanges so much easier. Moreover, liquidity providers often receive yield in the form of project tokens through what is called “yield farming”. Basically, anyone with Internet connection can do it and it is a high-risk, high-reward type of passive income. Generally, the smaller the market cap of the coin, the bigger the risk, so always make sure to check rigorously before investing and farming.
What is Osmosis?
Osmosis is an AMM built on Cosmos, which describes itself as an “Internet of blockchains”, meaning developers can build interoperable dapps (decentralized applications) to connect various blockchains. This makes Osmosis a particularly interesting DeFi project, because you are no longer limited to a single chain and have more options and better opportunities.
Osmosis offers several options: you can swap tokens, contribute to liquidity pools, view your assets, stake, vote in the governance program and finally view the general stats regarding total liquidity and certain aspects of each token.
How can you use Osmosis?
First of all, you will need to get Keplr Wallet in order to connect with Osmosis. This can be done both on mobile and on pc. I have tried both options and I must admit I am quite pleased with the overall aspect and usability of this Wallet. The cool thing is that you can change the chain and view the specific assets; it even connects to Crypto.org, which I found interesting. Here are some of the options:
After you’ve set up you Keplr wallet, you can connect it to Osmosis.
At first, I was quite confused why I couldn’t see my funds even though I had ATOM in my wallet. The thing is, you have to deposit your assets to Osmosis first, before you can finally use it. You do this by going to the “Assets tab” and depositing the token/coin of your choice (for example, ATOM):
This is where you can also perform withdrawals.
This can be performed from the “Trade tab”:
Here, you will be able to choose the pair of tokens you want to swap, as well as the slippage tolerance, which refers to the maximum % that can be lost during the transaction. You need to press this button and then select the number:
As you can see, you also get the current rate, as well as the fee and the estimated slippage for the transaction, which is 0% in this case, meaning I will only lose 0.3% in fees.
Afterwards, you submit the transaction and also confirm it in you Keplr Wallet.
You can see which pools are available using the “Pools” tab:
Here, you can add liquidity to a pool and start earning, or remove said liquidity when you no longer want to participate.
The cool thing is you can select an unbonding period during which you lock-up your assets depending on when you want to have access to them again. The longer you lock them up, the more you gain.
This is an example from the ATOM/OSMO (the native token of Osmosis) pool.
You can also see the “Pool Catalyst” which shows how each token is distributed in the pool. This is calculated automatically and, as you can see, it sits at 50% each for this one.
The most interesting pools available, in my opinion, are:
· ATOM/OSMO — max. 109.9% APR
· CRO/OSMO — max. 81.25% APR
· ATOM/CRO — max. 78.24% APR
· ATOM/JUNO — max. 73.83% APR
· LUNA/OSMO — max. 92.71% APR
Please keep in mind that these rates are always changing.
Staking and voting
These can both be done directly from the Keplr Wallet under their respective tabs:
For staking, you have to pick a validator to stake with and then you start getting that sweet passive income. Here are some examples of validators for staking ATOM. Make sure to always take a look at the voting power, meaning how many tokens were delegated to that particular validator and also to the commission they each require.
Voting refers to certain changes in the ecosystem. Because it is decentralized, users choose what happens and how it evolves, so your vote is pretty important. To vote, you need to pick your choice and then confirm the transaction on your wallet (you will need to pay a small gas fee). This is an example from the time of writing:
Osmosis has grown to become one of the biggest DeFi applications in the whole crypto space, with a market cap almost as big as Pancakeswap. Considering the recent growth of Cosmos, I believe it is a good time to give it a try and see if you like what it has to offer. It also seems as if the developers are constantly working to bring new things to the table and users have a voice as well through the Governance Program. If you are interested in making passive income using DeFi and are also bullish on ATOM, I would definitely recommend Osmosis.