Osmosis, the largest decentralized exchange protocol on the Cosmos network, has launched a variant of concentrated liquidity pools called “Supercharged Liquidity” with the aim of improving the network’s capital efficiency.
Osmosis acts as a decentralized, exchange-based blockchain in the Cosmos ecosystem that enables the creation and management of customizable liquidity bootstrapped pools (LBPs) with customizable peg curves. Currently, Osmosis has the largest number of daily active users in the Cosmos ecosystem.
The Supercharged Liquidity feature is intended to allow liquidity providers (LPs) to set specific price ranges for their liquidity. Previously, the platform allowed LPs to provide liquidity in an unlimited range, resulting in capital being spread across all possible price points of an asset pair. This can result in capital being tied up at prices where there is little trading activity, potentially reducing capital efficiency.
Concentration of capital in certain price ranges
The mechanism allows LPs to concentrate their capital at specific price ranges, potentially leading to more efficient use of their funds. Estimates from Osmosis suggest that this new feature could improve capital efficiency by more than 100 to 300 times compared to the previous model. Supercharged Liquidity shares similarities with the concept of concentrated liquidity found on decentralized Ethereum exchanges such as Uniswap.
“The Supercharged Liquidity feature is intended to provide liquidity providers with a platform to manage their positions more efficiently. It provides a mechanism that allows for more granular control over liquidity provision,” explained an Osmosis representative.
To support the transition to this new system, Osmosis will offer liquidity providers a 5% migration bonus upon initial launch of supercharged liquidity. This is intended to encourage LPs to switch to the new system.
According to data from DeFiLlama, Osmosis reportedly has a monthly trading volume of over $150 million and approximately $130 million in locked assets.
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