Key Takeaways

  • Leading members of the Cosmos community shared their whitepaper for Cosmos Hub today.
  • The whitepaper advocates for reducing ATOM issuance to 0.1% and creating three major new structures for Cosmos Hub.
  • The proposed changes would probably turn ATOM into the Cosmos ecosystem’s reserve currency.

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Leading Cosmos figures want to introduce new tokenomics, an on-chain MEV marketplace, a system to streamline economic coordination across Cosmos blockchains, and a new governance structure to the Cosmos Hub.

ATOM 2.0 Revealed

Cosmos Hub is getting a serious makeover.

The highly-anticipated whitepaper for ATOM 2.0 was released today following a series of speeches by Cosmos co-founder Ethan Buchman, Osmosis co-founder Sunny Aggrawal, and Iqlusion co-founder Zaki Manian at Cosmoverse. The Cosmos-centric event kicked off this morning in Medellín, Colombia, and will run through September 28.

The 27-page document, simply titled ‘The Cosmos Hub,’ was penned by Buchman, Manian, and eight other leading figures of the Cosmos community. While it outlines new tokenomics for Cosmos Hub’s token, ATOM, the paper is most notable for suggesting the implementation of multiple new features to the broader Cosmos ecosystem.

New ATOM Tokenomics

Cosmos is a decentralized network of independent blockchains. Not to be confused with the broader Cosmos ecosystem, the Cosmos Hub is a specific blockchain designed to connect all of the other blockchains in the network. In its current form, ATOM’s main purpose is to provide security for the Cosmos Hub through a staking mechanism.

ATOM’s tokenomics have received criticism for their inflationary dynamics. ATOM issuance currently varies between 20% at worst and 7% at best depending on the percentage of total ATOM supply being staked. While total ATOM supply hovered at about 214 million in March 2019, data from CoinGecko indicate that over 292.5 million ATOM tokens are currently circulating—an increase of approximately 36.68%.

The whitepaper proposes a new monetary policy for ATOM, in two steps. A 36-month-long transitional phase would first be introduced, at the beginning of which 10 million ATOM would be issued per month (briefly bumping up the inflation rate to 41.03%, if it were to launch today). The issuance rate would then steadily decrease until reaching emissions of 300,000 ATOM per month, effectively bringing ATOM’s inflation rate down to 0.1%.

Expected ATOM emissions. Source: Cosmos Hub white paper

Long-term, ATOM issuance would therefore become linear instead of exponential.

Expected ATOM supply. Source: Cosmos Hub white paper

A primary reason behind ATOM’s current monetary policy is to subsidize Cosmos Hub validators for providing security services. Under the new model, validators would instead be rewarded with the revenue generated by Interchain Security—a mechanism allowing Cosmos Hub to produce blocks for other blockchains in the Cosmos ecosystem.

Interchain Security is expected to make spinning up a Cosmos blockchain a faster, cheaper, and easier process: it would also enable the creation of scaling solutions and increase overall IBC connectivity. A safety mechanism would allow the original ATOM issuance model to be incrementally reinstated should Interchain Security revenue provide an insufficient replacement for validators.

Three New Features of Cosmos Hub

The whitepaper proposed the introduction of three major features to Cosmos Hub: the Interchain Scheduler, the Interchain Allocator, and the Governance Stack.

The Interchain Scheduler

The Interchain Scheduler would function as an MEV solution. MEV stands for “Maximal Extractable Value,” which refers to profits that can be made by reordering transactions within a block while it is being produced. Largely viewed as inevitable, the practice has extracted more than $675 million from Ethereum users since January 2020. MEV-extraction has been streamlined on Ethereum through off-chain services such as Flashbots. Extractors (known as “searchers”) use these relays to negotiate with validators to implement their MEV strategies.

The Cosmos Hub’s Interchain Scheduler intends to bring these on-chain negotiations and have the broader network benefit from them. A willing Cosmos blockchain could sell a portion of its block space to the Interchain Scheduler; the latter would subsequently issue NFTs representing block space “reservations.” These tokens would be auctioned off periodically and possibly even traded on secondary markets. The original blockchain would then receive a portion of the proceeds. According to the whitepaper, the Interchain Scheduler would complement (not replace) off-chain MEV relays, fostering competition and decentralizing the practice.

The Interchain Allocator

The goal of the Interchain Allocator would be to streamline economic coordination across the Cosmos network. By establishing multilateral agreements between IBC blockchains and entities, the Allocator is expected to accelerate user and liquidity acquisition for Cosmos projects while securing ATOM’s position as the network’s reserve currency. Protocols may use the Allocator for mutual stakeholding, expanding ATOM’s liquid staking markets, rebalancing reserves, or participating in another blockchain’s governance. It would also open the possibility of creating Liquidity-as-a-Service providers, secure under-collateralized financing practices, and reduce the occurrence of insolvency due to extreme market events.

According to the whitepaper, the liquidity unlocked by the Scheduler and Allocator would ultimately result in Cosmos Hub having an “asymmetric advantage” against other liquidity providers in the Cosmos network: the blockchain would benefit from providing capital; providing capital would reduce its security risks; it would therefore be able to provide even more capital, and so on.

The Governance Stack

Finally, the whitepaper advocated for creating a governance superstructure for the entire Cosmos network, called the Governance Stack. Not unlike the Allocator, the Governance Stack’s mission would be to streamline Cosmos-wide governance by giving each blockchain a shared infrastructure and vocabulary.

This would possibly entail the creation of a Cosmos Hub Assembly, which would work in tandem with Councils made of DAOs from the IBC network. The Assembly itself would be composed of representatives from each of these Councils, with their number of seats representing the project’s weight in the ecosystem—a system already adopted by political structures such as the United States Congress.

Final Thoughts

Buchman and Manian stressed during their presentations at Cosmoverse that the white paper was meant to be a conversation starter. In the end, the development of the Cosmos Hub would be up to ATOM holders, who can vote for or against any changes to the blockchain. While the proposal has only been up on the Cosmos Hub governance forum for a few hours, the response has been mostly positive so far.

Manian made little effort to hide his bullishness on stage, stating that Cosmos Hub’s new features would “make EIP-1559 look like a joke,” referring to Ethereum’s burning mechanism. He also titled his speech “$1K ATOM LFG.” ATOM is currently trading at $13.91, so such a run-up would mean a 7,089% increase in price.

Should the Cosmos Hub DAO implement the features suggested by the whitepaper in one form or another (as it probably will), it would still take a minimum of three years for ATOM’s emissions to drop to 0.1%. There’s little doubt, however, that Cosmos Hub’s new features would increase the token’s utility and secure its position as the Cosmos ecosystem’s leading cryptocurrency.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, ATOM, and several other cryptocurrencies.

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