Osmosis Grants Program v4 Renewal

Description

Summary

• We propose extending the Osmosis Grants Program (“OGP”) for a further 12 months.
• We’re requesting an additional budget of $1.35 million in OSMO tokens to keep funding projects that help Osmosis.
• As part of v4, the OGP will build upon the successes of the OGPv3 by continuing to leave inbound applications closed, and focusing solely on proactively sourcing grantees for high-impact initiatives and RFPs
• The OGP will release semi-annual transparency reports and provide grantee updates on twitter, in addition to other communication efforts.
• RoboMcGobo, Kam Benbrik, and Reverie will be the main contributors to the OGP. They will be assisted by seven reviewers who sit on the four-of-seven multisig (Multisig Address: osmo15dwvndrzndzy7nls57rvq379xeta3dlt467dxerxc4pvkul0thvq6umm9z) that will approve all grants, control funds, and sign multisig transactions.

Background

The Osmosis Grants Program (“OGP”) was first launched on April 9th, 2022 for an initial six month term and has since been renewed twice: for a 12 month period starting on December 1st, 2022 and an additional 12 month period starting on January 08, 2024. With the current term ending January 08, 2025, we seek to renew the OGP for an additional 12 month term.

This post will include a summary of the OGP’s work to date, long-term program design, committee composition, detailed funding request, and future plans.

OGP’s 2024 Accomplishments

With the OGP’s v3 renewal, we closed inbound public applications to focus on proactively sourcing grantees for high-impact initiatives aimed at delivering long-term value to Osmosis and the broader Cosmos ecosystem. The following are some of the biggest success stories from the OGP’s funding initiatives over the last year.

Incentives Working Group

Originally formed as part of Proposal 578, the incentives working group meets regularly to discuss and implement changes to the Hathor Nodes incentives optimization algorithm, which are then approved by governance via monthly incentive adjustment proposals.

OGP funded both ongoing maintenance of, and comprehensive changes to, the incentives optimization algorithm by Hathor in 2024. As a result of this grant, Osmosis has saved over 3.8 million OSMO in emissions reductions this year, amounting to approximately $4.2 million USD at the time of emission and $1.71 million in today’s prices, nearly more than OGP’s entire 2024 spending. In 2025, the working group aims to have LP incentives subsidized entirely by the taker fees allocatable to the community pool, making Osmosis LP rewards entirely inflation-free.

The number of OSMO saved by the working group is tracked on an ongoing basis by an API which can be found here: https://api.hathornodes.com/resources/osmosis/net_incentives_saved

LST Redemption Rate Arbitrage Vaults

OGP funded the team at Margined Protocol to build LST redemption rate arbitrage vaults. These vaults take advantage of discrepancies in the price of an LST on Osmosis and the LST’s redemption rate by buying the LST on Osmosis and redeeming it, generating a profit for depositors based on the difference in value. Deposits of TIA, OSMO, or ATOM have earned depositors a consistent 27-99% APR on a single asset strategy.

In the 2 months since the launch of the vaults, they’ve accumulated over $200,000 in TVL and result in an annualized $3.5 million in trading volume on Osmosis, increasing Osmosis’ total annual trading volume by approximately 1%. The vaults have consistently grown their TVL week over week, so these numbers are expected to continue to increase.

IBC Rate Limit Improvements

Last year, Osmosis added IBC rate-limits to add an additional layer of security to IBC funding flows to and from the chain. However, rate limits being hit became a relatively frequent occurrence, leading to suboptimal UX and requiring changes to be made via the 5 day governance process. To solve this problem, OGP worked with Osmosis core contributors and Range Security to design and implement an alteration to Osmosis’s IBC rate limit contracts. With the changes built by Range, Osmosis can now delegate authority to adjust or reset rate limits to a Subdao.

As part of the grant, Range also designed a system of security practices and procedures for the Subdao to follow when adjusting or resetting rate-limits, and updated their IBC workbench dashboard to allow the Subdao to easily track when limits are hit, and how frequently. As a result, a more comprehensive and secure rate limit schema, stewarded by the subdao, will develop over time. The subdao was recently created and approved by Osmosis governance with the passage of proposal 855.

Developer Onboarding Resources (Collab with Neutron Grants)

One of OGP’s goals for this cycle has been to improve accessibility for developers by jointly funding educational resources as public goods in collaboration with other organizations across the ecosystem. To that end, OGP has funded two programs alongside Neutron Grants, with the hope to fund additional resources next year:

• Cosmwasm Developer Portal: Built by B9Lab, this portal operates as a self-guided course to take a Cosmwasm developer from amateur to professional. It will serve to replace current Cosmwasm courses by Confio that are being deprecated. The portal is in production, and expected to be ready in the next couple of months.
• Cosmwasm Educational Courses: Created by the team at Obi, this resource is meant to be a series of 5 or more courses that will walk a developer through the basics of Rust development. The first course is live now, with more currently in development. Additional Osmosis Ecosystem Development

In addition to sourcing and funding grants, OGP has also had the opportunity to support Osmosis with various grants-adjacent ecosystem development, either building on grants we have approved in the past or working with teams that were not approved for grants to secure funding to launch on Osmosis in other ways. A few examples:

• Fee Abstraction - Secret Network: Working in concert with the Secret Labs and Shade Protocol teams, OGP negotiated a revenue sharing agreement that would see Osmosis share in the fees generated by transactions on Secret Network in exchange for allowing Secret Network to implement the fee abstraction module (funded by OGP last year) on-chain. More details on that revenue-sharing agreement can be found here.
• evmOS Revenue Sharing Agreement: OGP began working with the evmOS team to discuss a grant for them to deploy their EVM module on Osmosis. In the course of the discussions, it became clear that a grant was not the most incentive-aligned manner in which to fund development and integration of the module. Given the value that the EVM can bring to Osmosis, OGP worked with Osmosis core contributors and the evmOS team to scope a revenue sharing agreement instead, which was approved by governance with the passage of proposal 827.

These are just some of the more exciting developments that OGP has supported over the last year. For all approved grants please see our website.

Program Design

As a result of the decision to reduce the scope of the program last year, the OGP has:

• Narrowed Focus: Closing off inbound applications operated to filter out dozens of low-quality inbound applications per month, allowing us to focus on a smaller number of concrete initiatives for which we proactively sourced grantees. As a result, the delivery rate and quality of grants improved substantially over previous iterations of the OGP. As a testament to the value of this improvement, of the 27 grants approved over the last year, 25 grantees have already completed 1 or more milestones, and no grants have been discontinued.
• Reduced Costs: OGP’s estimated grants budget for 2024 as outlined in the last renewal proposal had an upper limit of $3 - $3.5 million, compared with $4.7 million in previous cycles. Having a more targeted focus on approving high-need grants allowed us to come in significantly under budget, committing just $1.8 million in grant funding in 2024.
• Streamlined Operations: As mentioned in the OGP v3 renewal proposal, reducing the OGP’s surface area for grant spending has also resulted in less operational overhead for the program’s contributors. As a result, we slashed operational costs by over 66%, from ~$1m per year with OGPv2 to $318,000 per year with OGPv3. The v4 renewal will see these costs reduced even further (more information in “Contributor Compensation,” below).

The OGP v4 renewal proposes to continue the same reduced mandate begun under the OGP v3, with a renewed focus on the 3 funding categories outlined in the v3 renewal:

Core Product Roadmap Initiatives These are initiatives we can set up and fund to accelerate Osmosis’ product roadmap, heavily influenced by the Osmosis core team’s needs. This may include initiatives like support for Polaris, improvements to order book accessibility for market makers and institutions (trading clients and libraries, etc), smart account functionality improvements, and more.

Osmosis Ecosystem Development These are projects that aim to grow the Osmosis ecosystem by helping Osmosis attract new developers and expand its current reach, as well as by making it easier for existing ecosystem participants to build and operate their products on or adjacent to Osmosis by improving infrastructure, tooling, and educational materials. This funding category will also look to fund apps and infrastructure that result in a direct, high-value ROI to Osmosis (like the Margined LST redemption-rate arbitrage vaults). This may also include structuring certain grants in exceptionally promising protocols or apps in the Osmosis ecosystem as investments, in order to capture upside in these protocols for Osmosis.

High Priority Cosmos Initiatives We’ll also look to fund initiatives that seek to expedite the development of the interchain stack, as well as other skunkworks projects aimed at advancing the interchain as a whole, including further developer onboarding / educational materials in collaboration with Neutron Grants and other organizations, improvements to the Cosmos SDK or IBC infrastructure, or other public goods.

It’s important to note that these are just some of our current ideas that were inspired by discussions we had with many different members of the Osmosis and wider Cosmos community. We expect these priorities will change and more funding needs to emerge over the coming months, so we’ll be in constant contact with stakeholders to adapt our priorities and best align with the long-term goals of the protocol.

Treasury and Budget

The current composition of the OGP treasury is as follows:

• Osmosis Multisig: 2.6m OSMO, 400k USDC, 40k USDC.axl
• Gnosis Safe (Ethereum): 1.7m USDC.

At current prices, this amounts to approximately $3.1m USD. However, 1.5m of the OSMO can only be allocated to the Osmosis market maker initiative and cannot be spent on grants. A further $1,126,465 in OSMO and USDC has already been committed to grants approved by the OGP over the last 2 years. This leaves a remaining $1.5m USD to fund new grants at current prices.

The OGP is requesting $1.35m USD in OSMO to extend our runway and continue funding strategic initiatives, projects and tools that help Osmosis grow. For context, the $1.35m request takes into account previous grants spending, and new initiatives we want to help support.

In the event that a budget surplus exists at the conclusion of the 12 month run of the program, and the program is not renewed, any remaining treasury will be rolled over into subsequent renewal periods or returned to the community pool if OGP is not renewed beyond this 12 month runtime.

Over the last 12 months, we’ve spent a total of $1.8m on standard, Grants-related funding, with an average monthly burn rate of $172,000. Based on historical spend, we expect to spend, at a maximum, $2.5-2.8m over the next 12 months. Thus, we think having an additional $1.35m in OSMO, combined with our existing $1.5m available, provides us with sufficient runway to safely operate the OGP regardless of market conditions, as well as a funding cushion in the event of OSMO volatility.

Stablecoin Diversification

As with previous iterations of the OGP, a portion of OSMO tokens will need to be converted into stablecoins, likely via OTC transactions. This will allow the program to operate in cases of market volatility, and pay grantees in stablecoins if they’re based in the US.

The OGP will not convert more than 20% of the OSMO requested in the first 3 months of the program. Thereafter, conversions will take place only if the OGP’s treasury falls below 1m USDC in non-committed funding.

Communication & Transparency

As grantees continue to work on and deliver finished projects, it’ll be important for us to keep the community up to date about the latest developments. To that end, our communication and transparency efforts will include semi-annual transparency reports, regular updates via the OGP twitter account, and a dedicated Discord channel.

Additionally, to address concerns raised about real-time transaction and accounting transparency, the OGP will migrate its multisig to DAODAO.

Program Leads

RoboMcGobo and Kam Benbrik will continue on with the OGP v4 as program leads. Max Einhorn, a Program Lead in the current iteration of the OGP, will be stepping back from the program. To fill the open program lead slot without increasing operational costs, Reverie will resume their program lead role. The Program Leads’ goals and responsibilities will be:

• Operating the Osmosis Grants Program on a day-to-day basis, including designing high-impact RFPs, proactively sourcing and evaluating providers to tackle specific RFPs, as well as approving and communicating grants.
• Project management to ensure the grant initiatives have maximum impact on the protocol (execute on development, assist with business development to ensure maximum impact post implementation).
• Advising and assisting the core Osmosis team with various needs related to strategy, integrations, and BD.
• Operating and maintaining the legal entities related to the OGP.

Operator

Lemma Solutions will continue as the OGP’s Operator, responsible for issuing payments, tracking expenses, and financial reporting. In addition to the operator role, Lemma will take one of the review committee / multisig slots. Lemma is a service provider who has been working with communities across the DAO ecosystem on operations, financial management, and reporting to improve transparency and decentralization.

Review Committee

The multisig of seven reviewers will be responsible for approving all grants, controlling funds, and signing multisig transactions. The multisig address is: osmo15dwvndrzndzy7nls57rvq379xeta3dlt467dxerxc4pvkul0thvq6umm9z.

As mentioned above Lemma will be joining the review committee, and Andrew Allen will rotate out of the committee.

In summary, OGP v4’s Review Committee will include:

Lemma Solutions

Cosmostation

Figment Capital

Brandon Curtis

Polkachu

Schultzie

Juri Maibaum

Compensation

The OGP’s total operational budget for committee compensation over the next 12 months will be $21,000 per month, representing an approximate 21% decrease in operational costs when compared with the previous run of the grants program. Operational costs are broken down as follows:

Program Leads The monthly breakdown of program lead compensation is as follows:

• Robo: 7000 USDC per month
• Reverie: 7000 USDC per month
• Kam: 3000 USDC per month

Total: 17,000 USDC per month

Operator Lemma will receive a monthly payment of 2,500 USDC.

Reviewer Committee Two members of the Reviewer Committee will receive a monthly payment of 750 USDC, for a total of 1,500 USDC per month.

Figment Capital, Cosmostation, Polkachu, and Lavender.Five have decided to forgo any financial compensation for their contributions to the OGP.

These payments will be issued as part of the 12 month term contract, after which the OGP can be renewed through governance. The contract start date is January 09, 2025 (the date that the OGP v3 concludes), and runs until January 09, 2026.

The forum post with the full discussion can be found here: https://forum.osmosis.zone/t/osmosis-grants-program-v4-renewal/3328