Kosmos-based decentralized osmosis exchange (OSMO) platform has launched a new “focused liquidity” feature, according to a July 12 announcement from the app’s developer, Osmosis Labs. The new feature allows liquidity providers (LPs) to choose the minimum and maximum price to offer to buy or sell cryptocurrencies.
The Cosmos ecosystem is a network of blockchain networks that uses the Cosmos Software Development Kit (SDK) and is connected through the Inter-Blockchain Communication (IBC) protocol. Osmosis is one of the largest decentralized exchanges (DEXs) in the ecosystem, doing about $120 million in volume each day, according to data from DeFiLlama.
The new feature allows limited osmosis companies to provide liquidity at a minimum and maximum price. If the price falls below the minimum or above the maximum, they will no longer receive a fee. On the other hand, they will get a higher fee when the price is within the range than if they had chosen not to set a maximum or minimum.
According to the announcement, concentrated liquidity will provide a 100 to 300x increase in capital efficiency, meaning the pool can have 100x to 300x less liquidity for the same amount of volume and yet not cause slippage for traders.
The feature was first introduced to DEXs in Uniswap V3 and has become popular throughout the Web3 world. However, the Osmosis team told Cointelegraph that it was relatively rare in the Cosmos ecosystem before now.
Related: The new Cosmos series will use liquid storage tokens for security
In a conversation with Cointelegraph, Osmosis Labs protocol engineer Alpin Yukseloglu stated that the new exchange feature goes far beyond the original version of Uniswap. The original version of Focused Liquidity only allowed liquidity providers to set minimums and maximums at certain price periods, called “ticks”. This improved scalability but also created user experience issues when users couldn’t put price points exactly where they wanted them.
The version used by Osmosis adds more tags within each price range, allowing for fine-tuned minimum and maximum limits and reducing user frustration, as Yukseloglu explained:
“We keep that size, but we’re adding more labels to each group to make it so you can put those preferences more precisely.”
Yukseoglu said Osmosis plans to implement an integrated on-chain order book at some point in the future. The feature is “primarily in the implementation level specification at the moment,” but the team is not yet ready to announce a timeline for its completion. The Osmosis Labs engineer claimed the concentrated liquidity and order book is part of Osmosis’ broader goal of giving liquidity providers more choice.
Cryptocurrency futures exchange dYdX is also developing an on-chain order book as part of its transition to the Cosmos ecosystem.
In August, Osmosis co-founder Sunny Aggarwal expressed his view that Cosmos IBC is a superior method for securing cross-chain bridges when compared to other options, calling it “the most secure bridging protocol in existence.” A serious vulnerability was found in the IBC in October, which was patched the next day.