Osmosis has a maximum supply of 1 billion tokens and follows ‘thirdening’ inflation schedule. In the first year, a total of 300 million tokens will be made available. After 365 days, this amount will be reduced by one-third, resulting in 200 million tokens being released during the second year. During the third year, 133 million tokens will be released, and so on. This process of reducing the token release amount by one-third will continue until the maximum supply of one billion tokens is reached.

Newly released tokens will be distributed to a combination of staking rewards, liquidity mining incentives, developer vesting, and community pool according to the following distribution:

• Staking Rewards: 25%
• Developer Vesting: 25%
• Liquidity Mining Incentives: 45%
• Community Pool: 5%

Initial Token Distribution

Osmosis launched with 100 million tokens in its initial supply. Half of these tokens were distributed to ATOM stakers based on a snapshot of the Cosmos Hub chain taken on February 18, 2021. The other half of the initial token supply was allocated to the Strategic Reserve, an on-chain treasury that is controlled by a multisig DAO. Initially, the multisig DAO was composed of members of the development team, but the team plans to expand membership to community members in the future.

Funding Rounds

• Osmosis raised $21M in a token sale from a consortium of investors in October, 2021.

Osmosis Network is powered by Tendermint BFT. Tendermint BFT is a Byzantine Fault Tolerant (BFT) consensus engine developed by Tendermint. It offers instant finality, is horizontally scalable and is secure against malicious actors. It is also open-source, meaning anyone can inspect and use the code. Additionally, it is simple to set up and use, allowing developers to quickly and easily build distributed applications. The active validator set consists of the 100 highest-ranked validators by staked tokens, from which 1 validator is randomly selected to propose a block with 66% of the remaining active validators being required to attest the block in order for it to become final. The higher the stake, the more likely they are to be selected. 

It is essential for users to stake their PoS tokens with dependable and highly performant validators, which is why we have rolled out our Staking Rewards Verified Staking Provider (VSP) Program in June 2022. Through this program, we thoroughly scrutinize potential validators, evaluating factors such as security measures, their on-chain reliability, their provider setup, and value-added services for the whole ecosystem.

Our VSP documentation contains further details about the program, Staking Providers that are part of the VSP will have a blue checkmark displayed next to their names here. If you want to know which validators on Osmosis are part of the VSP, simply go to the validator page on Minstcan and click on a validator’s name. If that validator is a VSP, it will have the Staking Rewards logo shown under ‘Additional information’.

There are many metrics to consider when selecting a validator to delegate to:

Commission Rate: When staking your tokens with a validator, the commission rate represents the percentage of your rewards that the validator will retain for themselves. A high commission rate can result in lower returns for you, while a low commission rate may lead to financial difficulties for the validator in the future. It’s important to note that validators may change their commission rates at any time. The commission rate on Osmosis must be greater than or equal to 5% (i.e. The minimum is 5%) – this has been set by the protocol.

Number of Users: A high number of delegators could indicate positive sentiment towards a validator. 

Validators Self-Staked balance: Validators with significant amounts of self-staked tokens may have a greater motivation to maintain their operations, as they have more at risk than those with lower self-staked balances. However, it’s important to keep in mind that this metric has some limitations, as validators can choose to delegate their own tokens to another validator, which is done to enhance the security of their funds.  

Current Status: In the Validator Overview table, you can filter for active or inactive validators, make sure this is filtering for active validators. Only the top 100 active validators on Osmosis, ranked by balance, get any rewards. 

Network Share: When selecting a validator to delegate to, it’s generally advisable to avoid choosing one with the highest or lowest network share. Delegating to the most popular validators can increase the risk of centralization within the network as they will have more influence in governance and a greater share of blocks. On the other hand, choosing a validator with a low network share may be less profitable and increases the risk of them ceasing their operations. Finding the balance and choosing a validator with a moderate network share could be the best approach to keep the balance in decentralization and profitability.

Performance: To ensure the best results, it’s important to select a validator with high uptime performance. You can view a validator’s performance on the Validator Dashboard. Our suggestion is to only choose validators with an uptime performance of 99% or higher and a track record of not being slashed.

Value Add to the Ecosystem: Some providers offer extra services to their delegators, such as tax reporting tools or explorers. This can be another great way to filter for validators that are long-term invested in the Osmosis Ecosystem. By delegating to a validator that is strongly dedicated to the Osmosis Ecosystem, you are supporting their development that indirectly impacts the value of your OSMO investment beyond the rewards from staking.

After delegating your OSMO tokens, there are a few things to keep in mind:

• It is possible to switch your delegation from one validator to another without waiting for the unbonding period. This may be something to consider if your current validator raises their commission rate or gets jailed for misbehavior on the chain. However, please note that once you’ve redelegated, you’ll need to wait 14 days before you can do it again.
• Keep in mind that rewards are not auto-compounded, so to maximize your returns, you may want to claim and stake your rewards more frequently. However, it’s important to consider that each transaction will incur gas fees, so you may want to use our Osmosis Staking Calculator to determine the optimal re-staking frequency for your amount of OSMO. Alternatively, you can use tools like restake.app to choose a validator that will auto-compound your rewards for you.
• Lastly, as a participant in the Osmosis Ecosystem, once you have staked your tokens, you can vote on Osmosis Governance Proposals. While your contribution and vote are highly valuable to the ecosystem, participating does not affect the sum of your rewards.

There are several ways to earn a return on your OSMO, including lending them out to custodial providers or through decentralized lending protocols, running your own validator, supplying liquidity, or delegating your tokens to validators of your choosing.

For the best security and control over your funds, we recommend using a Ledger Hardware Wallet. To delegate your tokens, you should ensure they are stored on your Ledger or Keplr wallet, and then follow these steps below:

Step 1: Go to the Osmosis Staking Dashboard on Keplr and connect to your wallet.

Step 2: Select a validator from the list at the bottom of the page. Check our FAQ on how to choose a validator if you are unsure who to delegate to.

Step 3: Once you have chosen a validator and decided on the number of tokens you would like to stake, click ‘Manage’ and then press ‘Delegate’.

Step 4: Finalize by entering the amount of tokens you want to stake, then click ‘Delegate’ and confirm the transaction in your wallet.

The Staking Rewards on OSMO consist of both network rewards and fees:

• Inflation on the Osmosis Network (Block Rewards): Inflation on Osmosis is structured around a “thirdening” model with token issuance cut by one third each year. Following the initial released supply of 100m OSMO in June of 2021, in year one 300m tokens will be released, in year two 200m, and so on, until a maximum supply of 1B OSMO issued is reached. The Block rewards are distributed at the end of each daily epoch. This implies that OSMO holders who choose not to stake will get diluted over time.
• Transaction Fees: Each transaction processed by the network comes with transaction fees. Transaction fees are collected by the network and distributed to each delegator proportional to their stake. The Staking APR will vary with network usage. The APR will increase as the network gets more traction and more transactions occur on Osmosis Network. 

It’s important to keep in mind that the total annual rewards are divided among all active stakers. As the number of staked tokens increases, the reward rate decreases.

Furthermore, there are governance proposals that could adjust some of the on-chain parameters, which could also change the APR if they are approved.

You’re welcome to use our Osmosis Staking Calculator to get a better understanding of how these factors can impact your rewards.

Whilst we want to ensure staking is as safe and transparent as possible, there are still things to consider regarding whether a specific staking option is right for you.

Slashing risk: OSMO delegated to a validator can be partially slashed if the validator misbehaves. On top of getting slashed, a validator can also be jailed, during which time you will not be earning any rewards. You can get slashed up to 5% for double signing events. 

Unbonding risk: When staking OSMO tokens, there is a lockup period of 14 days. This means that investors will not be able to sell their tokens immediately, but instead need to wait 14 days for the tokens to unbond before they can be traded again. This is something to keep in mind when deciding to stake, as the crypto markets are highly volatile. Consider keeping funds liquid if you do not intend to hold OSMO long-term. 

Dropping out of the active set: The risk of a validator getting slashed or dropping out of the top 100 could result in a loss of rewards. It is important to check frequently on the status of the validator to ensure it is active, not jailed and hasn’t raised the commission fees.

Protocol security risks: There is an inherent risk that the protocol could contain unknown bugs. This not only applies to staking but your OSMO investment in general.

Please note that this is not an exhaustive list of all the risks related to staking.