Bessie Liu

Osmosis, the largest decentralized exchange by trading volume in the Cosmos ecosystem, will merge with Umee’s cross-chain lending UX Chain.



As part of this merger, the UX Chain will transition its code so that it will be compatible with the Osmosis Blockchain and cater to existing liquidity, TVL, and functionality.&nbsp;



This move will enable Osmosis to inherit Umee’s lending features, including spot margin trading, shorting, liquidations, stablecoin pools, interchain flash loans and MEV markets.&nbsp;



Osmosis currently has a TVL of <a href="https://defillama.com/chain/Osmosis">$140 million </a>and a seven-day trading volume of <a href="https://defillama.com/chain/Osmosis">$103 million</a>. Following this merger, its TVL will be combined with TVL on the UX chain, which currently is estimated to be around <a href="https://defillama.com/chain/UX">$17.4 million</a>, according to DeFiLama.&nbsp;



Brent Xu, CEO of Umee, told Blockworks that this initial merger would focus on the weaving of the two different product code bases. Later, a ‘call to action’ proposal will be posted, asking community members to determine the next steps in tokenomics management.&nbsp;



The UX Chain’s UX token could be used to apply <a href="https://blockworks.co/news/mesh-security-cosmos">mesh security</a>, shared security mechanics involving <a href="https://blockworks.co/news/vitalik-buterin-plasma-hype">plasma</a>, or new tokenomic designs developed in the interim, Xu noted.&nbsp;



“In crypto communities, builders should take a product-first mindset and eventually use that as a platform to improve the tokenomics,” Xu told Blockworks. “This is similar to mergers in tradfi where first the deal is announced to the public, and subsequently, the process begins where company governance must decide on all details and specifics of the deal toward final execution and closing.”



<h2 class="wp-block-heading">Mergers in Cosmos</h2>



The Osmosis and Umee merger is not the only unification talk revealed in the Cosmos ecosystem over the past few months.&nbsp;



Earlier at Cosmoverse in Istanbul, liquid staking zone Stride Labs <a href="https://www.google.com/search?q=blockworks+stride&amp;oq=blockworks+stride&amp;gs_lcrp=EgZjaHJvbWUyBggAEEUYOTIHCAEQABiABDIICAIQABgWGB4yEAgDEC4YChgWGB4YrwEYxwEyCAgEEAAYFhgeMggIBRAAGBYYHjIGCAYQRRg8MgYIBxBFGDzSAQgzNjYxajBqNKgCALACAA&amp;sourceid=chrome&amp;ie=UTF-8">floated the idea</a> of becoming part of the Cosmos Hub, a blockchain responsible for connecting thousands of networks within the Cosmos ecosystem.&nbsp;&nbsp;



This proposal ultimately <a href="https://blockworks.co/news/stride-atom-token-conversion">fell through</a> as ecosystem participants were unsure of the role the Cosmos Hub would play in the merger. Participants also noted that ATOM, the native token of the Cosmos Hub, should remain <a href="https://forum.cosmos.network/t/convert-entire-strd-supply-to-atom/11650/143">neutral</a> and not play favorites.&nbsp;&nbsp;



It is important to note, however, that the merger between Osmosis and UX is different from the Stride and Cosmos Hub merger proposal.&nbsp;



This particular merger can be seen as more strategic — as both blockchains share similar objectives to improve trading experiences for their users. Xu notes that there are likely going to be more such alignments within the Cosmos ecosystem in the future.&nbsp;



“It&#8217;s a difficult environment for one team to ship everything, so protocols are better to find synergies than to build in silos,” he said. “This is the ethos of open-source technology. Two chains can merge their technologies to unlock the most powerful applications for the benefit of users, leveraging the benefits of composability.”



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Cosmos chain Osmosis to hook up with Umee’s borrow/lend protocol

Macauley Peterson

<div id="highlights-block_62c6d17f403f5" class="highlights">
 <ul>
 <li>Price oracles are vital for borrowing and lending applications across DeFi</li>
 <li>Cosmos has a broad range of development activity, but this basic piece of infrastructure is currently lacking</li>
 </ul>
 
</div>



Umee, a Cosmos-based borrowing and lending platform, is weeks away from launching the first price oracle service for Cosmos’ inter-blockchain communication (IBC) protocol, the company announced Thursday. The oracle, called Orion, will be provided by Umee blockchain’s validators which run software that will automatically pull pricing data from a set of centralized exchanges, plus decentralized exchange <a href="https://cms.blockworks.co/tag/osmosis/">Osmosis</a>.



For any smart contract to make use of data not running on its own blockchain, it needs to rely on a third-party service — an oracle. Typically used to query price data, the oracle acts as an intermediary between the smart contract and off-chain sources — in the case of Umee’s Orion, initially about a half dozen exchanges such as Coinbase and Binance.



“Cosmos has a lot of DeFi, but there’s not a single oracle that works for IBC tokens,” Umee CEO Brent Xu told Blockworks.



Neither Chainlink — the largest oracle network on Ethereum — nor Band Protocol which, although based on the Cosmos SDK, is focusing on cross-chain use cases, has implemented a price oracle for Cosmos native assets.



Projects that need accurate prices have been finding workarounds, but they aren’t as reliable or trustworthy as a decentralized oracle network, where many participants checking multiple data sources need to reach consensus and are economically penalized if they screw up — a mechanism known as slashing.



A rock-solid price feed is essential for borrowing and lending applications, like the one Umee is preparing to launch, and its platform will be the new oracle’s first “customer.” But the service will be available to others. Shade Protocol — expected to launch later this year — which specialized in privacy-preserving DeFi (decentralized finance) applications built on another Cosmos-based chain, Secret Network, is one likely Orion user, Xu said.



IBC allows chains built on Cosmos to relay information about their own accounts and transactions, collectively known as “state.” But it can also be used to create transactions that modify the state of other Cosmos chains.



Xu explained: “What’s special about our oracle is that every time we take price information, it’s the equivalent of an IBC transaction happening [on] the chain, and what we can do is we can allow these IBC transactions to transact information from the Umee blockchain to any other Cosmos blockchain out there as pricing data.”



Umee’s full validator set will pass the price data along about every 30 seconds. Each validator submits the price independently to prevent collusion and guarantee accuracy, Xu said.



The oracle will go live next month, alongside a major upgrade to the Umee protocol, but has been rigorously tested on a test network already.



“We just pushed the oracle to its limits,” Xu said, noting that the testnet processed 30 million transactions from 120,000 unique addresses — at a rate of up to 50,000 transactions per second. Testnets are designed to find potential bottlenecks or problems before software has to handle real value in a production environment.



<blockquote class="wp-block-quote">“There’s no Cosmos app in history that has undergone this many transactions…we’re pretty proud, we really put the Cosmos infrastructure through its paces.”</blockquote>



That level of throughput may not be needed today, but smart contract applications are still in their nascency across the ecosystem.



“With the development of several new DeFi protocols in Cosmos, the ecosystem is in need of an IBC native price oracle that allows cross chain pricing data to be transferred safely across networks,” Peng Zhong, former CEO of <a href="https://ignite.com/" target="_blank" rel="noreferrer noopener">Ignite</a>, noted in a statement.



Xu pointed to the <a href="https://cms.blockworks.co/cosmos-developer-ignite-sees-mass-exodus-and-layoffs-as-ceo-exits/" target="_blank" rel="noreferrer noopener">recent shakeup at Ignite</a> — formerly Tendermint Inc., home to the original contributors of the Cosmos SDK — as evidence of the ecosystem&#8217;s decentralized development prowess.



“There’s at least like 20 or 30 different teams building out core Cosmos SDK code. And so what’s really unique is that I don’t think there’s one team that completely centrally controls Cosmos development. It’s already so distributed that even if Ignite goes through this weird restructuring, the Cosmos space is going great.”



Blockworks contacted representatives of Chainlink, Band Protocol and Shade Protocol but did not receive a reply by press time.



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Cosmos-based Umee Lines Up First IBC Price Oracle

<div id="highlights-block_e835a04c0bf3271bc140c3d87e9a1598" class="highlights">
 <ul>
 <li>DAI can be bridged to Cosmos in multiple ways, but Umee is developing a concept of “​​bridgeless collateralization” using a bespoke oracle</li>
 <li>The CEO of Umee wants MakerDAO to adopt ATOM as a collateral asset to mint DAI</li>
 </ul>
 
</div>



In the wake of the <a href="https://cms.blockworks.co/?s=terra" target="_blank" rel="noreferrer noopener">TerraUSD (UST) collapse</a>, the Cosmos ecosystem has increasingly looked to onboard alternatives to meet stablecoin demand, such as bridged DAI and USDC from Ethereum.



A new borrowing and lending protocol, Umee — think <a href="https://compound.finance/" target="_blank" rel="noreferrer noopener">Compound</a> for Cosmos — is betting on the OG of decentralized stablecoins, MakerDAO’s DAI. For the uninitiated, Cosmos is an ecosystem of sovereign application chains connected by the Cosmos hub.&nbsp;Umee is one of them.



UST’s blowup hit Cosmos hard, as UST was the de facto stablecoin in Cosmos DEXes Osmosis, Junoswap and Crescent. In Osmosis, for instance, many liquidity providers (LPs) were prevented from selling their UST positions due to the DEX (decentralized exchange) providing strong incentives to lock liquidity for up to 14 days. These LPs could only watch helplessly as the value of their pool tokens drifted toward zero, until <a href="https://wallet.keplr.app/#/osmosis/governance?detailId=226" target="_blank" rel="noreferrer noopener">an emergency governance proposal</a> to remove UST kicked in.



Once it became clear UST was dead, Cosmos stakeholders quickly sought to fill the void. Enter DAI, the oldest decentralized stablecoin, with about $300 million in daily volume and a $6.5 billion <a href="https://blockworks.co/price/dai">market cap</a>, according to <a href="https://cms.blockworks.co/prices/" target="_blank" rel="noreferrer noopener">data gathered by Blockworks</a>.



“In the Cosmos space, we believe in quality, and we want to find the most viable decentralized stablecoin,” Umee CEO Brent Xu told Blockworks.



<blockquote class="wp-block-quote">
“At the moment, all things point to DAI being this go-to stablecoin that the whole interchain can rely on.”
</blockquote>



Interchain refers to all the blockchains connected via the Cosmos hub through <a href="https://cms.blockworks.co/?s=inter-blockchain+communication" target="_blank" rel="noreferrer noopener">inter-blockchain communication</a> (IBC).



DAI can be minted using a myriad of collateral on Ethereum, although <a href="https://daistats.com/#/" target="_blank" rel="noreferrer noopener">predominantly ether</a>. It has survived multiple market cycles, including periods of high volatility, over its roughly five years in existence.



<h3 class="wp-block-heading">A Cosmos-native approach</h3>



Xu advocates for making DAI multichain — both in its availability and its collateral. He proposes expanding DAIs collateral set to include Cosmos-native assets, such as ATOM.



To pull it off, Umee has developed a new cross-chain technology called “​​bridgeless collateralization.” The idea is that users can keep their assets on one blockchain, rather than sending them across a bridge to become wrapped assets on another. That should, in theory, avoid the security problems involving wrapped assets seen in several high-profile exploits, such as <a href="https://cms.blockworks.co/wormhole-parent-commits-320m-ether-to-replace-massive-defi-hack-losses/" target="_blank" rel="noreferrer noopener">Wormhole bridge’s</a> in February.



“What we do is we have a powerful oracle in the middle…it can send a signal to say, ‘Hey, let’s mint some DAI on the Cosmos blockchain that’s backed by Ethereum assets, as well as Cosmos assets.’”



This bridgeless form, which Xu calls “a much more sustainable model, as opposed to having multiple bridges for one particular asset,” will come later, however. At first, Umee plans to use the decentralized <a href="https://www.gravitybridge.net/" target="_blank" rel="noreferrer noopener">Gravity Bridge</a> for DAI as a wrapped asset.



“We take a bridge-agnostic approach and have stable swaps on our roadmap in anticipation,” he said. That will allow users to move between various stable assets, including different types of wrapped DAI.



For instance, the largest Cosmos-based dex, Osmosis, has adopted bridged DAI from <a href="https://axelar.network/" target="_blank" rel="noreferrer noopener">Axelar Network</a> as its canonical version of the Ethereum stablecoin.



To realize Umee’s vision, Maker governance votes will be needed. Details of the process are pending, but Xu expects it will take three to six months to rally support from the Maker community.



“We see this as a deep partnership,” he said. “We want to encourage as much DAI usage in Cosmos [as possible] to help bolster this lack of a viable stablecoin in the Cosmos ecosystem,” adding that he has personally been working with MakerDAO for years.



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