A brief analysis of the Cosmos Hub and Osmosis merger proposal: who supports and who opposes

Author: yyy Source: X, @y_cryptoanalyst

Let's talk about the merger of @cosmoshub and @osmosiszone that has been widely rumored in the past two days

So did Osmosis save Hub or did Osmosis destroy Hub? The supporters of the two communities argued fiercely, and neither could convince the other.

I. Overview of the merger proposal

@cosmoshub and @osmosiszone merged into a unified blockchain ecosystem. Cosmos Hub is the security center of the Cosmos ecosystem, and Osmosis is the largest AMM Dex in the Cosmos ecosystem. The merger can integrate their respective advantages and optimize resource allocation.

Proposal process:

1. Initiate an extension proposal on @cosmoshub.

2. Initiate an acceptance proposal on @osmosiszone. That is, both proposals must be passed to be effective.

Token swap details:

It is implemented through smart contracts. Deposit $OSMO and get $ATOM. The token swap price is fixed, based on the average value of 12 months + x% premium (the specific premium ratio is still under discussion); the conversion period is 3 months.

Merge mechanism:

• Phase 1: Osmosis as the $ATOM consumption chain (ICS Chain) without native tokens. Osmosis' core positioning as the Cosmos ecosystem AMM Dex remains unchanged, and $ATOM is the only staking token and governance token.

• Phase 2: Merge the states of the Cosmos Hub and Osmosis chain into one, that is, the dual chain becomes a single chain.

2. Community Discussion

Once the merger draft was issued, it caused an uproar in the Cosmos community, with supporters and opponents holding diametrically opposed views.

Supporters believe:

1. The merger is conducive to resource integration and expanding the overall influence in the Cosmos ecosystem.

2. The merger is conducive to the introduction of BTC liquidity (the view of Osmosis founder @sunnya97, who pointed out that the effect is similar to @THORChain's product RunePool).

Opponents believe:

1. There have been previous experiences, and there is no need to repeat the same mistakes. There was Gravity Dex on the Cosmos Hub before, but it was offline for various reasons. Osmosis should not follow the old path of Gravity Dex.

2. The governance rights of Osmosis stakers have been greatly weakened. The total circulation market value of $OSMO is $400 million, which is only 1/5 of the circulation market value of $ATOM. The conversion will greatly weaken the governance rights of the original $OSMO stakers.

3. Potential selling pressure from ICF and AiB + changing from a token with a hard cap to a token with unlimited inflation.

My thoughts:

I will remain neutral.

The merger of Cosmos Hub and Osmosis is not a traditional merger and acquisition. It does not use funds from the community pool for repurchase, but directly adds $400 million worth of $ATOM liquidity on the Hub (corresponding to the destruction of all $OSMO worth $400 million on the Osmosis chain); in addition, a certain premium must be given to Osmosis holders in terms of the conversion ratio. If the 50% premium proposed in the draft is followed, it is equivalent to an increase of $600 million in market value of $ATOM out of thin air.

Trade-off points: The negative effects of ATOM dilution caused by the merger and the positive effects of the merger, such as functional improvement, resource integration, and airdrop expectations, need to be weighed.