Osmosis + Axelar = The liquidity layer for all web3 applications

A vision for Osmosis, and how Axelar is uniquely positioned to enable it

Osmosis has the potential not just to be the primary DEX in Cosmos, but eventually grow into the most valuable DEX in the world, catalyzing DeFi innovation and becoming the fundamental driving force of open finance globally.

Axelar’s mission is to create the most secure and seamless cross-chain communication platform for web3, with a commitment in building and enabling truly decentralized structures, like the ones pioneered by Osmosis and Cosmos.

Axelar seems fully aligned with the vision of Osmosis to create the optimal DEX user experience, superior to the most successful CEXs out there.

Overtaking centralized exchanges

By the end of 2022, DEXs will have reached a point of product maturity, operational knowledge and transactional history that can make them positioned much stronger as a web3 gateway of choice against CEXs.

Improvements in design, user and developer experience, cross-chain communication, as well as variety of assets covered, can make all the difference in terms of ecosystem growth and the range of applications created. This is particularly true for Osmosis, which has shown tremendous progress on all fronts.

To attract a larger number of users to DEXs, including those that have traditionally favored CEXs, simplicity is key. An important feature towards that end is the deposit address flow. This is the familiar flow of generating an exchange address, sending funds from any regular wallet, and receiving the funds moments later within the exchange interface.

Axelar is the only interoperable platform supporting the deposit address flow. Every other potential “bridge” requires users to sign in with a third-party solution (e.g. MetaMask) in order to transact across chains. This is a key collaboration opportunity to enhance the usability of Osmosis, speed up adoption and show that DEXs can start leading from the front.

Currently, web3 wallets collectively have approximately 300M users, vs the top Ethereum-based wallet, MetaMask, which has about 30M monthly active users. Integrating the deposit address flow could expand the addressable market by at least one order of magnitude.

An important prerequisite for any successful exchange is having the widest possible cross-section of assets listed on it. Axelar’s platform can enable universal coverage, helping Osmosis become a competitive destination for any new asset that is currently forced to cut deals and/or pay high listing fees in order to get on a reputable CEX upon launching.

A roadmap to getting Osmosis integrated into every single application

The seamless integration described above can be extremely powerful, but at the end of the day, its effect is only experienced by exchange users. Only a small fraction of internet users utilize exchanges. Therein lies an opportunity to do much greater things. How could Osmosis touch on and improve the lives of billions of internet users across the world?

By leveraging the additive power of composability and partnering with Axelar, Osmosis can offer a developer-focused product that can become the go-to backend for *every* web3 application being created today, reaching a much wider audience than ever before.

This future will materialize gradually, and then fast, in a sequence of steps:

1. Universal cross-chain swap functionality (bridging all chains)

The immediate first step would be enabling universal cross-chain swaps between any two blockchain protocols. How would that look in practice? Let us look at the example of a user swapping ETH on Ethereum for DOT on Moonbeam.

On the front-end: The user holds ETH (on Ethereum), but wants to get DOT (on Moonbeam). On the Ethereum side, the user signs a single transaction sending ETH with a specific payload (i.e., DOT, destination address, slippage tolerance), and receives DOT on Moonbeam just a few seconds after the transaction is confirmed on Ethereum.

On the back-end: Through the Inter-Blockchain Communication (IBC) protocol’s interchain accounts, Axelar routes the ETH to Osmosis together with the payload, the swap is automatically conducted on Osmosis (ETH → OSMO → DOT), and DOT is routed seamlessly to the user’s destination address on Moonbeam.

With Axelar’s universal coverage, users would be able to swap between BTC, ETC, ATOM, SOL, AVAX, ALGO, DOGE and any other asset they want, on their native chains in a one-click decentralized flow. This makes Osmosis a bridge for swaps across all ecosystems.

Importantly, any application could decide to integrate this functionality on their frontend, enabling their users to on-ramp from just about any chain.

2. Instant payment rails

Eventually, every vendor in the world will accept a stablecoin, such as UST, as a form of payment. How that would look in the short-run is simple. Through a simple API, the vendor would be able to generate a QR code that any user can scan with their preferred digital wallet to send funds in any currency (e.g. ETH, FRAX or DOGE), with settlement happening in UST on Terra.

The idea here is to facilitate instant payments through decentralized structures that can reach consumers in the mass market. Osmosis, enabled by Axelar, could effectively become the payment on-ramp of choice for web3, in the same way that Stripe was for web2, only more equitable, inclusive and truly decentralized.

3. Liquidity layer for all of DeFi and beyond

What would Osmosis look like as the fundamental liquidity layer for the entire DeFi landscape?

Let us look at just three of many potential examples.

Chain-specific DEXs (e.g. Raydium on Solana, Algofi on Algorand): A chain-specific DEX could plug into Osmosis and allow users to instantly swap into assets that are native to that particular chain. For example, a user could swap ETH → OSMO → SOL (on Osmosis), with SOL routed through Axelar to Solana, followed by SOL → USDT (on Raydium on Solana).

Chain-specific money markets (e.g. Benqi on Avalanche, Moonwell on Moonbeam): On Benqi, users could borrow AVAX against their WETH.e, the most liquid ETH version on Avalanche. How would an Ethereum user get an AVAX loan? If Benqi plugs into Osmosis on the backend, it can allow Ethereum users to get the loan routing ETH → WETH.e and loaning in AVAX. When users claim their collateral, AVAX is deposited, and the collateral is provided back from Avalanche to Ethereum by routing WETH.e → ETH.

Cross-chain NFT and Gaming wallets: Imagine a single interface that lists all NFTs by aggregating every marketplace across all available ecosystems. How would that look in practice? A user pays for their NFT in any asset and Osmosis routes the payment to the settlement asset of the marketplace. The user then receives the NFT into their wallet. The user can later sell their NFT in their preferred asset, while the counterparty can pay in any asset. This is particularly relevant for gamers who play many different games across different virtual worlds and want to efficiently acquire, trade and collect items across different game-chains.

Conclusion

Axelar shares the same deep commitment to sovereignty, transparency, accessibility, decentralization, credible neutrality, community empowerment and human-centric design that characterizes Osmosis.

It’s this no-compromise approach to all of these core values which characterizes the Cosmos ecosystem, and Axelar extends these as a pure gateway to the Cosmos. A gateway for the world to access the ingenuity overflowing across the Osmosis developer ecosystem. Osmosis is well positioned to one day overtake CEXs and become the liquidity layer for all web3 applications.