Remove OSMO Pairing Incentives except OSMO/STABLE

Description

This proposal indicates that OSMO pairings should not be incentivized unless paired with Stable tokens. The proposal creates new Volume Splitting Groups (VSGs) consisting of reduced sets of pairings that prioritize establishing Stable pairings for assets, and indicates that incentives should migrate to these newly created VSGs.

Background

Osmosis currently incentivizes liquidity in pairings between any Quote assets since Proposal 670. This proposal removes OSMO from this criteria except when paired with a Stable asset.

These incentives are provided in terms of Volume Splitting Groups consisting of collections of common assets. As noted in Proposals 814 and 817, the OSMO pairing has been relatively unpopular for liquidity providers. When given the option with equal incentivization through VSGs, almost no efficient liquidity chooses the WBTC/OSMO pair over the WBTC/USDC or WBTC/USDT pairing, with only 37% of the ETH volume being catered for by the ETH/OSMO pairings over USDC, USDT, and BTC pairings.

A similar trend has been observed in the ATOM and TIA pairings with 55% of volume through ATOM now being catered for by ATOM/STABLE and 77% of volume through TIA by TIA/STABLE.

This indicates traders' preference to trade to and from a Stable token and liquidity providers' preference to manage tighter positions in Stable pairing positions, which outperform passing through an OSMO pairing.

This proposal is one of two initiatives that aim to encourage the primary pairings of OSMO and other listed assets with Stable tokens, moving away from the previous methodology of OSMO as the main routing token for the chain, initially proposed in Proposal 187.

A followup proposal to this will trigger the actual incentive migration after this proposal creates the VSGs. During the incentive migration to these VSGs, existing LP incentives allocated to the OSMO portion of pools will cease to be emitted but incentives allocated to Stable pairings should remain almost unchanged.

Around 50% of incentives will still go to OSMO pairings - represented by the existing OSMO/STABLE volume splitting group. This is consistent with the desire for tokens listed on Osmosis to be paired with Stable tokens for an independent valuation and ease of liquidity provision unless they expect to be directly correlated in ratio to another token.

This proposal also adds a new volume splitting gauge for ETH to include a selection of BTC/ETH spread factor pools, as enabled by the addition of the BTC quote asset in Proposal 813. While this pairing is not Stable based, it has proven to be an initially popular pairing on Osmosis due to being composed of the two highest market cap assets available.

Forum Thread: https://forum.osmosis.zone/t/remove-osmo-pairing-incentives-except-osmo-stable/3033