Osmosis taker fees to acquire more BTC for liquidity provisioning

Description

This proposal is to have 25% of the Osmosis protocol's non-OSMO taker fees go into purchasing Bitcoin. This BTC should then primarily be used to increase the liquidity on BTC/USDC, in greater concentration.

In range liquidity in BTC/USDC helps increase the price depth on Osmosis, and notably helps increase volume. To recap, the prior BTC/USDC community pool LP position was effectively 2.27 BTC LP'd from 90.8k to 108k. To date, it has generated $12.6k in fees, half in taker fees, half in LP fees. The pool was at a .1% spread factor. This is effectively 6% yield independent of the BTC price action. There was $6_300_000 of volume swapped against this position to date.

Some retrospectives on the community pool LP position, is that:

• It is great to have liquidity from the community pool on positions, especially in supporting demand at all time high breaks
• The community pool's positions need to be tighter (and ideally with some solution for rebalancing that doesn't risk too much in bleeding)
  • 250k of the USDC was below the market price, and never got tapped into. Obviously we can't predict tops, but we can be more concentrated, especially using vaults
• We need to have the community pool LP positions be at lower spread factors, e.g. .05% to .01%. At the chosen .1%, on top of the .1% pool taker fee, it is too high spread for traders.
• Lowering the chain taker fee on BTC, to capture more volatility, and give more accurate pricing to traders may be beneficial. The protocol fee controller subDAO is working on experiments in this regard right now.

The position would have facilitated better pricing and more volume given some of the above.

In general the community pool's assets should be used for:

• Investing in growth of the protocol:
  • Using lending markets, liquidity on-chain, positions in various vaults
  • Potentially taking leveraged bets for growth
• Acting as an insurance fund in event of hack. (In which case, BTC better tracks the potential debt)

We've started putting community pool funds into growth and already seeing success.

Increasing the community pool's ownership of BTC, particularly Alloyed BTC, supports all of these purposes.

This proposal suggests that we change the community pool's allocation of non-OSMO taker fees from:

• 67% to stakers (via OSMO purchases)
• 33% to community pool (in-kind or USDC)

To instead be:

• 45% to stakers (via Osmo purchases)
• 30% to community pool (in-kind or USDC)
• 25% to community pool (buying BTC)

The increased bet on growth gathering more volume helps us more. We can keep using the taker fees to improve growth, creating a flywheel. Funds to stakers helps create buy pressure through OSMO purchases, but compounding growth of BTC liquidity is higher impact and will grow the raw amount of staker OSMO distribution in the long term.

If agreed, this proposal should execute as:

• Immediately change the non-OSMO taker fee distribution to 45% staker, 55% community pool
• Until theres a code update, swap 25% of revenue to BTC via a gov prop once a month
• Upon code update, make the distribution, 45%, 30%, 25% as listed above, with the BTC buys happening once a day at epoch.

Details of how to re-invest this BTC into liquidity provisioning should be left for another governance proposal / forum thread.

Forum Thread:https://forum.osmosis.zone/t/have-osmosis-taker-fees-acquire-more-btc-for-liquidity-provisioning/3368