My Review: Osmosis New Stableswap Curve & More

Cosmos' largest DEX Osmosis launches a stableswap: Exclusive

And from the Osmosis blog.

Osmosis v13.0.0 — Fluorine Upgrade

For a deeper delve into the maths and algo, you can go to the readme file.

This is not just about a new stableswap curve, but also includes measures such as IBC Rate Limiting, Multi-Hop Fees Discounts and Forced Unlocking. The future is looking towards "interfluid staking, mesh security, concentrated liquidity, the launch of the ProtoRev module developed by Skip Protocol, the launch of Mars Protocol, and so much more."

I don't wish to sound too negative as it is a platform I use, but... I will.

Look at this...

With the v13 upgrade, governance may specify certain addresses to permit instantly unlocking bonded liquidity. This is useful in allowing for liquidation of bonded liquidity that has been used as collateral for a loan. While this is another feature that will not have an immediate impact on Osmosis users, it does signal a future in which Osmosis liquidity providers will be able to leverage their bonded LP positions to take out loans, potentially on the Mars Protocol lending outpost scheduled to launch on Osmosis early next year.

Sorry, but is nobody paying attention as to how to manipulate markets using loans!? Most lenders are either dead or dying. So having a new corpse-creation-protocol is a good feature!? At the very least learn something from the current loan-based manipulations and crashes. Create smart contracts that are... like... smart, with some risk management built in, perhaps.

Going back to the stableswap curve, it is NOT the kind of weight-managed pools designed by Balancer, it just uses a lot of mathematics to slightly flatten the curve near the stable point. Osmosis also needs to stop having a whole gallery of binary swaps when 3-token and 4-token pools are perfectly feasible and far more efficient than binary pools. Just one 4-pool is equivalent to SIX binary pools. Never mind trying then to concentrate liquidity - you can concentrate it by having more efficient pools.

And finally, all these features strike me as increasing the risks of holding staked assets. Nothing is being planned to mitigate these risks. The way to do this is to use the Balancer protocols and use the token weightings to mitigate the risks of one shitcoin creating a platform of toilet-pools. This has already happened.

There was once a 4-pool of "stable"coins that included Terra's UST - see info and sadpool - that once held $8m in liquidity. The collapse of that one coin collapsed the whole pool. This happens because the naive constant-product pools will load up on the cheapest coin - that's what they do, that's their one method to calculate swap prices. So a 4-pool with one shitcoin is going to get filled up with that one shitcoin as everyone swaps out of it by selling it into the pool. But that means that anybody slow enough to still be holding LP-tokens is going to end up with a huge pile of shit and tiny amounts of the other assets. Now, to me, THAT'S A RISK. That's what CONTAGION looks like, and the rubbish swap algorithm that actually fuels the contagion.

If that pool had used a weight-managed protocol, it would decrease the weight of that falling asset - and keep decreasing its weight until some set minimum, which could be close to zero. There would still have been some losses, but only those related to the one rotten coin - the other coins and the whole pool would still be functioning. Those $8m were worth about $400k within a week, and just $24k now.