According to Messari, in the second quarter of 2023, Osmosis Protocol, a decentralized exchange (DEX) within the Cosmos ecosystem, experienced a decline in volumes and users, each of more than 25%. Despite this, Inter-Blockchain Communication (IBC) transfers remained a bright spot, generating nearly $500 million in inflows to Osmosis.

The quarter saw a 43% quarter-on-quarter (QoQ) decline in trading volumes, with ATOM volumes falling to 15% of total volume, its lowest share to date. “USDC accounted for 14.9% of volume in Q2, the lowest in the last four quarters,” which is expected to change with the introduction of native USDC on the Cosmos network.

Average daily liquidity at Osmosis has been on a downward trend since Q1 2022, down 17.9% from the previous quarter in Q2 2023. Despite this, “depositors remained patient in Q2 as the average daily return on trading fees fell to 3.8% (daily fees per TVL unit, daily compounding) from 5.6% in Q1.”

Transaction counts of all types fell in the second quarter, with governance-related activity experiencing the largest quarter-on-quarter decline. Vote participation and osmosis transactions were down 71% and 55%, respectively, representing nearly a third of the decline in transaction count in the quarter. However, transactions related to the base product, with IBC transfers and swaps, fell only 21% and 23%, respectively.

Despite a year of subdued value flows, “more than $466 million was transferred to Osmosis through the IBC network in the second quarter.” Total IBC transfer volume in Osmosis fell 4% from the prior quarter to $2.1 billion transferred.

On June 19, Osmosis unveiled its next phase of development, OSMO 2.0, which includes a revised tokenomics model aimed at improving the sustainability of the protocol and better aligning incentives. Key changes include halving the inflation rate, an extension of the issuance schedule, a change in the issuance allocation to incentivize long-term participants, the introduction of a protocol revenue burn mechanism, and a quota sharing mechanism.

Despite the decline in key metrics, the network continues to adapt and implement new strategies for growth. The introduction of OSMO 2.0 demonstrates a continued commitment to sustainability and better alignment of incentives, which could set the stage for a potential rebound in the coming quarters.

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