DeFi
Why Cosmos DeFi Hub Osmosis is launching a Bitcoin L2
While Osmosis is now secured by OSMO stakers, the developers plan to add staked BTC to the mix in June.
Osmosis is the fifth largest blockchain network within the Cosmos ecosystem in terms of total value locked.
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Posted May 3, 2024 at 4:04 PM EST.
Osmosis, a Cosmos-based blockchain known for its decentralized exchange, is entering the Bitcoin layer 2 race. This is the latest indicator of growing Bitcoin developer activity.
Osmosis is expected to roll out “bitcoin ally” next month, the latest in a series of internal products designed to simplify trading tickers and inject additional liquidity. Allied Bitcoin is a tradable asset that functions as a derived representation of a Bitcoin liquidity pool.
Sunny Aggarwal, co-founder of Osmosis Labs, told Unchained that allied bitcoin is a new product, made up of “basically a basket of BTC variants from across the ecosystem.” For Osmosis, it brings together liquidity such as nBTC issued by Nomic, wBTC issued on Ethereum, and Osmosis’ native wBTC.
The solution takes a page from the centralized exchange book, with companies like Coinbase classifying all ether (ETH) on its platform as ether, regardless of its origin or connection to other chains. For Osmosis, mixed bitcoin is the last in a number of similar products, notably alloyed ether.
Learn more: Bitcoin Layer 2 aims to attract Ethereum-type Dapps. Will they succeed?
Mixed Bitcoin Could Secure Osmosis
Allied bitcoin could prove a key part of Osmosis’ security model once its smart contracts are in place. But the first members of the governance, composed of OSMO token holders, must vote on the inclusion of allied bitcoin in the security model. OSMO is the native token of the Comsos DeFi hub.
Osmosis security now comes from validators powered by Staked OSMO. But allied bitcoin would add the asset as a staking possibility in addition to OSMO. If the community approves the addition, BTC could become the primary DeFi asset on Cosmos, according to Aggarwal.
“I think how this is received by Osmosis governance will depend on the terms of the individual proposal,” the head of the Osmosis grant program, who goes by the name RoboMcGobo, wrote to Unchained on Telegram. “Osmosis will need to dedicate a portion of its security budget (currently allocated only to OSMO stakers) to staked BTC. While I think most will be in favor of this, the amount of staking rewards diverted to staked BTC could be a point of contention.
If governance allows BTC staking, “staked BTC will earn a portion of OSMO staking rewards, which will slightly reduce staking rewards for OSMO stakers based on the number of BTC staked,” RoboMcGobo added.
With a total value locked (TVL) of $177.45 million, Osmosis is the fifth largest blockchain network within the Cosmos ecosystem, with a seven-day trading volume of $175.57 million, per ChallengeLlama.
Staking BTC on Osmosis increases security and brings more liquidity to Osmosis and Cosmos as a whole, because “staking brings a [annual percentage return] it encourages people to cross that BTC,” Aggarwal said.
Osmosis’ plans come as experimentation with Bitcoin has increased. From the rollout of Ordinals in January 2023, which brought non-fungible tokens to Bitcoin, to the more recent rise of the Runes protocol, use cases on the original blockchain have continued to expand.
Learn more: What are runes? A Guide to the New Fungible Token Protocol on Bitcoin
Innovations have been evident in projects aimed at creating layer 2 Bitcoin networks, such as Citrea and Merlin Chain. Rely on Bitcoin, a layer 2 focused on decentralized finance, released its mainnet Wednesday, highlighting Bitcoin’s renewed activity as developers return to the older blockchain.
The price of BTC increased by 4.4% in the last 24 hours to trade around $61,800, according to CoinGecko data. watch.
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