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Exploring DEFI in the Cosmos Blockchain Ecosystem >> Osmosis AMM DEX

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Written by   1
4 months ago


In my earlier article, I articulated my experience dabbling my feet into the DEFI ecosystem waters, using Matic. This time I explored more of DEFI in another ecosystem, the Cosmos Blockchain.

 

 

 

 Thriving projects of Cosmos are interconnected due to IBC protocol activation


Even though, many Ethereum DEFI platforms have devised ways to connect to other blockchains like Binance Smart Chain and Matic, they have no plans to connect with Cosmos Blockchain, although they have plans to connect with Blockchains that are yet not functionally live like Cardano and Polkadot.

 

Cosmos Blockchain, despite being ignored, is home to many promising Blockchain projects. There is also a Cosmos Hub based DEFI platform there called Osmosis which is an Atomatic Market Maker (AMM) platform, where one can swap tokens of popular projects that are built inside the Cosmos Blockchain - AKT, ION, DVPN, IRIS, XPRT, CRO and Regan.

All these project channels are interconnected with each other, thanks to the mechanics of the Inter-blockchain Communication (IBC) protocol which enabled me to send my ATOM tokens to the Osmosis platform using the IBC transfer feature in my keplr wallet.

Blockchain projects inside Cosmos that can be accessed through Keplr wallet
Keplr wallet app

The first active DEFI platform in Cosmos - AMM DEX Osmosis

Osmosis website

 LPs provide liquidity for swaps in Osmosis Dex


AMM platforms like Osmosis, get liquidity for swaps with the liquidity provided by liquidity providers(LPs) to token pools. In Osmosis, there are token pools where a token is paired with either the Atom or Osmo token (native token of the Osmosis project), to which users can provide liquidity.

osmosis interface
AKT token deposit pools in osmosis

For instance, for the Akash Network holders, there are two token pools - AKT/ATOM and AKT/OSMO. If Akash token holders want to provide liquidity they can do so by depositing coins in any of those 2 pools.

They have to deposit AKT with the corresponding pair of the particular pool to be a liquidity provider. In return for providing liquidity they get LP rewards with OSMO tokens.

 

 

Liquidity Rewards for LP providers - OSMO tokens

Right now, I don’t know any other way of procuring OSMO tokens other than providing liquidity to the platform as OSMO tokens are not available in any other major Centralized exchanges to be purchased.

I got these Osmo tokens by being a Liquidity Provider for the AKT/ATOM liquidity pool


So, it turned out I am earning some OSMO tokens after being a LP provider for AKT/ATOM pool. I choose to be a LP provider bonding my tokens to the pool for 14 days.

Osmosis interface
My active liquidity pool at Osmosis

 Transferring tokens to different project networks using Keplr wallet’s IBC transfer feature

Being a LP provider was not a straightforward process, as I had to transfer my Atom and Akash tokens in the kepl wallet to the Osmosis channel in that wallet using the IBC transfer feature.

IBC Transfer feature to transfer coins from one Cosmos channel to another


 The one required wallet to connect with the entire Cosmos Blockchain Ecosystem - Kepl wallet

Keplr wallet can connect to different Cosmos projects (options come in the dropdown

Keplr wallet is a must have wallet for users who want to participate in the Cosmos Blockchain ecosystem, it’s like what Metamask wallet is to the Ethereum Blockchain.


The Kepl wallet is connected with all the major projects inside the Cosmos Ecosystem. One can send tokens from one project channel to the other project channel of the Cosmos Ecosystem by using the IBC transfer feature in the Kepl wallet.

The process for doing this is outlined in this reference article - https://medium.com/chainapsis/getting-started-with-ibc-transfers-276e9ce91e17.

 Transferring tokens to Osmosis through IBC transfer using the Keplr wallet

Image Source

In my case I had to transfer Atom tokens from the Cosmos channel to the Osmosis channel in the Keplr wallet. Then I had to transfer AKT tokens from the Akash Network Channel to the Osmosis channel in the Kepl wallet.


I needed to add the Osmosis IBC channel inputting the Destination chain and Chain ID details.

Add IBC channel by inputting correct Destination Chain and Channel ID. Details of all this is here in this reference guide article

After this I could transfer the tokens to the Osmosis channel, to the deposit address of the Atom smart contract in the Osmosis platform.

Once the IBC Channel is added, the coins can be sent to the recipient's address 

 Fees for swapping tokens in the Osmosis DEX are paid with OSMO tokens


I could perform no swap activities in the Osmosis protocol yet as I needed to have OSMO tokens to pay fees for the swaps. I reckon part of these fees go to compensate liquidity providers of that particular pool too.

As expected the APR for LP providers is high now to attract them to the Osmosis platform and encourage them to stake and be Liquidity providers.

All in all, it was an interesting learning experience, where I learnt a bit on how AMM DEFI platforms work.

Thank you for reading, have an awesome day!!

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