Proposal Details
Proposal #486
Proposal title
Decrease the Superfluid Risk Factor to 25%
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Proposal #486 description
This proposal signals that a reduction of the Superfluid minimum risk factor parameter to 25% should be implemented at the next software upgrade. This will allow 75% of OSMO in Superfluid pools to be staked.
Details
Superfluid staking is a unique feature of Osmosis that allows OSMO locked in liquidity positions the ability to participate in securing the network and voting on proposals.
This is currently available on most large liquidity pools in Osmosis and causes 37 million, or around 16%, of staked OSMO to come from these positions.
The mechanism through which this is accomplished is a representative amount of synthetic OSMO being staked on behalf of the locked OSMO. The proportion of this is dictated by a
This has two main functions, it keeps the staking reward earned by the position more uniform by dampening the change in the number of OSMO claiming staking rewards each epoch. More importantly, it increases the cost of voting power attack on the network by discounting the amount of OSMO that an attacker could fake possession of through a double-staking attack.
As the number of locations that Superfluid Staking is enabled in increases, the less influence a double-staking attack would have as it would cost exponentially more amounts to gain an increasingly smaller share of voting power. With Superfluid staking now active in 23 pools, decreasing this risk factor should be feasible without compromising network security even at a lower level than proposed.
For a model of this potential attack type see here: https://docs.google.com/spreadsheets/d/1eQsf7-6HvdHKbEHOv68SYXZ7_U22r56ihZVWqupa0Pk/edit#gid=0
This proposal would cause approximately an additional 19 million OSMO to be staked. This would increase the APR of Superfluid pools by around 2% while dropping the Staking APR by around 1.5%.
In the current scenario where staking net yield is negative and typical Liquidity Rewards are still significantly higher than Staking APR this is not particularly useful for the protocol in itself and so is combined with two other proposals.
Combined with Adjusting the Ratio of Emissions
This proposal is most effective when combined with the proposed adjustment of the ratio of emissions. This causes a shift in net yield for stakers and liquidity providers, and combined with this proposal, changes the ratio of liquidity rewards that come from Superfluid Staking, placing more emphasis on this core feature.
Combining just these two proposals results in an increase in the proportion of liquidity rewards provided by Superfluid Staking.
As the adjustment of ratio proposal changes the net yield to be far greater for stakers, the additional OSMO being superfluid staked is far less detrimental to pure rewards and increases the security of Osmosis at a lowered cost.
Combined with Reducing Emissions
Reducing emissions is not as attached to this proposal, however, the combination of reducing emissions and changing the ratio results in a change in emissions of raw OSMO as follows:
- Staking Rewards remain static at 136,986
- Liquidity Rewards decrease from 73,973 to 54,795 (-26%)
- Community Pool decrease from 200,000 to 13,699 (-93%)
- Developer Rewards decrease in line with inflation 136,986 to 68,493 (-50%)
With an additional 25% of OSMO in superfluid pools being staked, the reduction in raw emissions to liquidity rewards is somewhat compensated for as below:
| Liquidity Yields | Current | Proposed | Change |
|---|---|---|---|
| Swap APR (Weighted Avg) | 3.9% | 3.9% | 0% |
| Incentive APR (Weighted Avg) | 16.4% | 12.1% | -26% |
| Superfluid APR | 5.5% | 7.6% | 39% |
| Total APR | 25.7% | 23.6% | -8% |
To see or adjust the figures for each of these proposals and see specific impacts interact with this spreadsheet: https://docs.google.com/spreadsheets/d/17T54kCoa2I6BdImY6jDVxfKOyGo4NseiAZD5vbPtaWs/edit#gid=664683755
Linked Passing Disclaimer
This proposal is being proposed as part of a set of three:
- A proposal that adjusts or confirms the current emission rate.
- A proposal that adjusts or confirms the ratio of emissions.
- A proposal that adjusts or confirms the superfluid risk factor.
A proposal from each type is required to pass for any to execute. If a proposal fails with between 50 and 75% of the vote being No it will be redrafted with community feedback. If a proposal fails with over 75% being No or is Vetoed then the proposal will be submitted as a confirmation of progression without that component.
Commonwealth Thread: https://gov.osmosis.zone/discussion/10681-tokenomics-upgrade-proposal