Thoughts on Osmosis and Bridges

Recent community discussion surrounding Cosmos-Ethereum bridges and Osmosis’s credible neutrality has highlighted some important concerns. They wanted to contribute to the active and at times passionate governance participation in the ecosystem by providing commentary as to how they think about the role of bridges in the Cosmos ecosystem and Osmosis specifically.

Bridged assets are not fungible: ETH arriving across Gravity Bridge vs. ETH arriving from Axelar are two different tokens within Cosmos. This challenge is replicated with all ERC20 assets. Were Osmosis to support both versions of ETH on the front end, ETH1 and ETH2 would both appear when swapping. Rather than one liquidity pool for OSMO/ETH, there would be two: OSMO/ETH1 and OSMO/ETH2. This comes with significant detriment to user experience and dex liquidity.

User Experience

Osmosis seeks to one day overtake centralized exchanges. Therefore, the interchain user experience is one of the main pillars of Osmosis. If decentralized exchanges are going to appeal to centralized exchange users, the decentralized user experience must meet or exceed the centralized exchange user experience. The app.osmosis.zone frontend has already taken inspiration from the UX flows of centralized exchanges, such as in the Deposits/Withdrawal flows on the assets page.

On a centralized exchange, there is one version of each asset. Users have come to take this for granted, and decentralized exchanges should endeavor to meet this expectation. Like the 70 million customers on Coinbase, defi users just want a quick and easy way to buy ETH. Most don’t want to think about comparative bridge risk.

Fragmented Liquidity

User experience aside, maintaining a single reference token improves liquidity and therefore DEX utility and economics. Constant product AMMs provide lower slippage when they have more liquidity. With multiple versions of an asset, multiple pools would arise, fragmenting liquidity, providing inferior pricing to traders, and reducing the utility of Osmosis as an exchange.

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https://medium.com/osmosis/thoughts-on-osmosis-and-bridges-f8ca958b71e0