OSMO LST Support Re-evaluation: September 2024, Transfer qOSMO backing liquidity to Locust

Description

This proposal would transfer the qOSMO backing OSMO position established in Proposal 770 to a Locust vault to provide deep backing liquidity for reliable collateral usage.

The liquidity provided as a static position in Pool 1590 is currently out of range and does not allow the peg of qOSMO to be maintained.

This proposal approves the transfer of this position to a Locust position before returning to the Osmosis community pool. This restores this liquidity to functionality while improving the efficiency of the backing liquidity by around three times.

About Locust

Locust is a market making and position management tool specifically designed for Concentrated Liquidity (CL) pools.

In CL pools liquidity is often provided at inefficient ranges. This is largely due to the difficulty of active management coupled to a desire to ensure that a position remains in range as much as possible.

Locust LST strategies track the redemption rate of the LST and create positions based on the current market rate, the target price of the asset and the expected price at which redemption arbitrage reached equilibrium with staking. This ensures that this liquidity is always used to buy at a pre-defined discount to the target price and sell back at a discount

Proposed Deployment

• Initial strategy of target vault:
  • Spread: 1%
  • Discount 0.25%

The buy side, consisting of OSMO is from market price to market price - spread. The sell side, consisting of the LST, is from redemption rate to optimal rate - discount, where optimal rate is based on the profitability of redemption arbitrage vs staking.

For the qOSMO/OSMO vault the fee schedule would be:

• Withdrawal Fee: 0%
• Performance Fee: 15%

Forum Thread: https://forum.osmosis.zone/t/osmo-lst-support-re-evaluation-september-2024/3113