What is Osmosis – OSMO?

Osmosis, also known by its ticker OSMO, is a decentralized exchange, or DEX, connected to the Cosmos blockchain.

What makes Osmosis different from other DEXs?

Founded back in 2021 by Sunny Aggarwal and Josh Lee, two former employees of both Tendermint and Cosmos, which I’ll talk about shortly.
Osmosis is currently the largest DEX in the Cosmos ecosystem. However, to explain how Osmosis works, I must explain Cosmos quickly too.

Cosmos is a blockchain built in 2014, and its mainnet went live in 2019.

The Cosmos blockchain is an application-specific blockchain that connects other separate blockchains to its network through its consensus mechanism, development kit, and immediate interconnectivity.

The Cosmos blockchain uses a modified variant of the Proof-of-Stake consensus mechanism, known as the Tendermint Core.

The Tendermint Core is a ready-made engine that accepts any programming language, allowing developers more time to focus on the quality of their apps.

In addition, all Cosmos apps are built using the Cosmos Software Development Kit, which means they are fully interoperable with each other if the Inter-Blockchain Communication protocol is enabled.

Because of this, Cosmos is fast – like really fast. Performing over 10’000 transactions per second, the Cosmos blockchain makes itself a strong choice for a DEX as they rely on executing time-sensitive transactions promptly.

Unlike on Ethereum, platforms on the Cosmos blockchain are not blockchain apps but their own independent blockchains, all connected through the Cosmos SDK and IBC protocol.

This means congestion problems and increased transaction fees that haunt the Ethereum network do not happen to the same degree on the Cosmos blockchain.

Any blockchains that have IBC enabled can instantly, cheaply, and securely send to-and-from any other blockchains with IBC enabled.

However, for a further breakdown of the Cosmos blockchain, I recommend you check out my past article on Cosmos itself here.

Ok, but now we know about Cosmos and how Osmosis is a decentralized blockchain connected to the Cosmos network via the IBC protocol, we can begin to talk a bit more about what Osmosis is and what makes it unique.

What is an AMM in crypto?

Similar to platforms like Uniswap and Pancake Swap, Osmosis is an AMM, or automated market maker.
In short, an AMM is a part of decentralized finance, which includes DEXs like Osmosis. The purpose of the AMM is to keep markets open 24/7, trading in an automatic and permissionless way.

They achieve this through “liquidity pools” – this is essentially where a group of crypto holders pool their funds together to create a “pool” of money. They do this to achieve varying rewards, usually some tokens and a percentage of the transaction fees.

AMMs like Osmosis can keep markets open 24/7 as they do not need to wait for both buyers and sellers to participate as there is already a reserve of crypto to trade from – the liquidity pool.

For AMMs to work, a minimum of two assets must be in the pool, with the price determined by the ratio of these assets left available to trade.

Most notably, speed and price. Osmosis offers cross-blockchain transaction finalization in around 5 seconds for only a couple of cents. As such, it becomes an attractive proposition for those moving funds around the Cosmos network.

The following differences come down to the Cosmos blockchain itself. Cosmos is an application-specific blockchain, which means all networks connected to it run their own blockchain rather than being an app on the Cosmos network.

The benefit here is that it is harder for congestion to wreck the network. Unlike on Ethereum, where a new crypto craze can send the transaction fees into orbit for all Ethereum apps, all networks on the Cosmos ecosystem are their own blockchains, meaning their fees aren’t suddenly impacted by another popular app causing increased network activity.

This is critical for a DEX, where trades often need to occur as quickly as possible.
Though, the most unique difference between Osmosis and its peers is Super Fluid Staking.
SFS allows you to stake not just the native network token to secure the chain but also ‘equivalents’ to it.

For example, the first version of SFS was for those who had provided liquidity on Osmosis.

As I briefly mentioned early, if you add funds to the liquidity pool you are often rewarded with tokens, known as “liquidity pool tokens,” or LP.

These LP tokens are considered ‘equivalents’ because they were reward by Cosmos for securing its network, and are fully interoperable with Osmosis by default.

The Benefits of Super Fluid Staking

On Proof-of-Stake networks like Cosmos and Osmosis, transactions are verified by one
individual and checked by others to ensure honesty.

Those with the most deposited to the network are likely to be chosen, so the benefit of Super Fluid Staking is it allows all your Cosmos-based tokens to be staked, rather than just the native Cosmos token.

Thus giving you more chances to be chosen as a validator and receive the validation or checking rewards.

Initially, 100 million OSMO tokens released at launch. 50 million OSMO was deposited to holders of Cosmos’ native token, and the other 50 million was kept aside as a strategic reserve.

In addition, there will also be a “thirdening” event, similar to Bitcoin’s halving event – where the incoming supply decreases over time.

Thirdening event of OSMO token

In year 1, an additional 300 million OSMO tokens were released. In year 2 this will decrease to 200 million, 133 million in year 3, and so on until a total supply of 1 billion OSMO has been created.
From these newly released tokens, 25% will go towards staking rewards, 25% towards Developer vesting, 45% towards liquidity mining incentives, and 5% towards the Community Pool.

How do I get OSMO tokens?

Despite the request of major centralized exchanges, the only place to get OSMO is on the Osmosis DEX.
So, to get yourself some OSMO tokens, first, you will need to be able to access the Cosmos network.
The quickest and easiest way to do that is through the Keplr wallet, which can be added as a Google Chrome extension.

In conclusion, Osmosis is the largest decentralized exchange on the Cosmos network.
Its purpose is to provide cheap, near-instantaneous transactions across all blockchains connected through Cosmos’ IBC protocol.
Unlike other DEX tokens, OSMO is not on centralized exchanges. The benefit here is it teaches self-custody, a fundamental cryptocurrency philosophy that is only becoming more relevant after the collapse of platforms like FTX.