osmosis

Prop 981: Reposition and Reallocate stOSMO Support Liquidity, September 2025

This proposal redeploys the stOSMO/OSMO static liquidity position, which has served as a backstop for the stOSMO peg and is now increasingly distant from the market rate.

It would move 8 million OSMO from the current 1.3–1.32 range into a new static position at 1.39–1.40, while transferring 2 million OSMO from the position into the Margined stOSMO vault to provide more efficient, adaptive liquidity.

Background

Osmosis governance has previously funded support liquidity for liquid staking tokens (LST) to ensure that OSMO remains a flexible asset across DeFi, while adhering to the following principles:

  • Minimal OSMO staked using Protocol Liquidity
  • Diversity of OSMO LSTs
  • Resilient Pegs for OSMO LSTs

The last deployment (Proposal 890, January 2025) adjusted liquidity between a static position and the Margined Locust Vault to balance depth and peg resilience. That static position is now due for reconfiguration as it is more than 5% out of range.

Current Deployment

  • Static position - ~9.98m OSMO in range 1.3 - 1.32
  • Margined vault - ~3m OSMO

Proposed Deployment

This proposal calls for the following:

  • Withdraw the current static position in its entirety.
  • Redeploy 8m OSMO into a new static position from 1.4 (or spot at deployment) to 1.39
  • Deposit an additional 2m OSMO alongside all accumulated stOSMO into the Margined Locust Vault.
  • Return all assets and liquidity receipts to the community pool upon completion.

This proposal transfers the community pool liquidity position and accumulated stOSMO to the Osmosis Liquidity subDAO, which will execute the proposed adjustments to the liquidity.

Rationale

Expanding the Margined vault from 3 million to 5 million OSMO improves depth efficiency by maintaining a narrow position that adjusts with both the market rate and the redemption rate as they fluctuate.

In addition, these positions gradually sell accumulated stOSMO at a premium, generating a modest profit in OSMO terms. While the current deployment has only earned around 1.8% since inception, this still represents a productive use of funds that would otherwise remain idle.

The new static band ensures continued resilience for the stOSMO/OSMO peg by serving as a backstop close to the redemption rate while maintaining a position entirely in OSMO, consistent with the principle of minimally staking community OSMO.

A narrower range is proposed than previously used, but the previous deployments never approached this range, and functional wide-range liquidity is still available in the older Stableswap pool.

This proposal does not reduce the overall size of stOSMO support, as lending protocols such as Mars rely on this to set appropriate deposit caps.

Forum Post: https://forum.osmosis.zone/t/reposition-and-reallocate-stosmo-support-liquidity-september-2025/3884