Superfluid Staking (Osmosis Chain)

Having followed multiple chains and projects I have learned that maximizing earnings in the defi spaces requires a lot of liquidity. Yet what if like many others who do not have the large amount of cryptocurrency to invest in defi space what can we do to maximize our returns? Protocols comes up with several solutions to this and in Osmosis it is called superfluid staking. We will look at what Osmosis does now and what superfluid staking brings to the table.

Bonding and Unbonding

Currently on Osmosis to obtain the highest yields earned in a pool one needs to stake their assets into a pool and bond them for up to 14 days. By doing that they stabilize the liquidity in the pool as they won't be able to take them out until 14 days after unbond and in return get the highest APY yield possible. There is the flexibility to bond the liquidity at shorter terms but essentially Osmosis is the first chain I have ever seen doing this form of pool farm terms duration.

What is Superfluid Staking?

When we provide liquidity into the pool such as the one above ATOM and OSMOSIS are locked into the and not able to be use for individual chain staking to earn. This is because we can only pick one of the two options. We can either stake in pool to earn or we stake in the chain as individual asset to earn.

In the Cosmos ATOM staking users can earn a little over 14% yield while OSMOSIS staking over 80% yield. In addition by staking in these individual pools it reinforces the validations of the transactions that occur on the blockchains. Ideally as an investor we want to invest in both liquidity pools and stake in the chain vaults to earn both interests.

Superfluid Staking will allow us to do that. Here is how it is done. Osmosis will take your invested assets in a pool and provide you a receipt for investing specifically in the pool. The receipt is in itself a token representing a portion of your liquidity pool and Osmosis will use the newly minted token to stake into the blockchain vaults. The assets staked in the vaults will be in the form of ATOM and OSMOSIS thereby all the while still making it tradable on the liquidity pool. Investors would earn a larger overall yield with this approach.

Drawbacks with superfluid staking? Its a first of its kind to be as such. There are plenty of liquidity pools currently that can mint a new token representing a pool investment but the token has no real user case beyond just a receipt. Osmosis is adding the additional layer of allowing investors to have that receipt as an actual asset to be able to stake in the respective chain's vaults. It is not fully certain that this will work flawlessly, however Osmosis had promised to introduce this staking to have arrived late 2021. It is now Feb. 2022 which means they have delayed the arrival. I am assuming this is done to vet out the problems Osmosis is encountering with superfluid staking and when it officially launches in less than a week from now that it will prove to work effectively.

There is also a concern that the pool investment could result in impermanent loss thereby effecting the amount of assets also allocated in each staked vault. Osmosis has explain that due to the time required to bond the assets when investing in the pools that timing will assist in the fluctuation of assets quantities. In other words the assets invested in the vault although is fixed the protocol will track and divide the ownership of the staked rewards based of the liquid pool percentage of ownership at each interval that the staked rewards are given out.

Conclusions

Osmosis has a lot going for it. Currently ranked 23rd overall in TVL based on DefiLlama.

With a total TVL currently at $1.4 billion.

A closed end DEX where its native token is not traded on exchanges but the demand is still high as OSMOSIS token is currently ranging around $9 each. With the new suprefluid staking it will likely introduce even more rewards to participants thereby also likely to increase in people investing on the platform. If you have not looked into Osmosis DEX yet I recommend you to do so as the distribution of Osmosis declines over time. In addition all transactions on the chain are fee-less and it is on its own blockchain. Built on the Cosmos ecosystem Osmosis can easily be exchange and swapped between different blockchains on Cosmos. There is much to be excited for in the coming days for Osmosis and I will be ready to invest in their superfluid staking pools when it arrives.

None of what I write is financial advice. It is for entertainment purposes only. Thanks for reading!