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The Cosmos community has released its latest white paperĀ for the Cosmos Hub, which has plans to radically revamp the tokenomics of the native atom token (ATOM).
The Hub will be at the center of a new feature known as interchain security, while multiple forms of liquid staking of atoms ā as the preferred collateral ā will provide new functionality in the ecosystem, according to presenters at the Cosmoverse conference in MedellĆn, Colombia, on Monday.
The Cosmos Hub doesnāt generate any protocol revenue in its current form, despite having a high market cap, nor does it accrue value to ATOM, said Zaki Manian, a Cosmos contributor and co-founder ofĀ Sommelier Finance.
Thatās set to change; dramatically expanding the potential of liquid staking and turning on interchain security will allow ATOM holders to benefit from the growth of the Cosmos ecosystem, developers say.
āNo one has ever attempted this level of economic rebuild of a large-scale cryptocurrency, and thereās a little bit of showmanship thatās required to make that all happen,ā he said.
Liquid staking ramp up
Staked cryptoassets are often confined to the boundaries of their original chains ā in Cosmos, sovereign chains use staking to provide for their own security, with delegators bonding tokens to validators. To reclaim their tokens, delegators typically endure a 21-day unbonding period.
š„Liquid staking solves this by creating a fluid market for exchange of staked assetsš„With more liquid staked assets comes improved cross-chain composability, according to Manian.
āWeāre trying to accelerate the growth of all the š„liquid staking protocolsš„ so they have a seamless [user experience] for onboarding users,ā Manian said.
The updates coming to Cosmosā liquid staking model will benefit protocols built for composability likeĀ borrowing and lending platform, Umee.
āStaking derivatives are the basis for how we can utilize proof-of-stake as a benchmark or reference rate for building out the term structure of interest rates for crypto,ā Umee CEO and co-founder Brent Xu told Blockworks in an email.
āProof-of-stake rates are also a good hedge against economic inflation as you have a yield bearing asset as the basis for the protocol. This same logic applies to Ethereum,ā Xu said.
Umee plans to take advantage of liquid staking to more easily offer liquid short term loans, a feature that would have been harder to make work without the upgrade.
Uses cases like this should leader to higher staking rates for ATOM across Cosmos chains.
āIf weāre able to then use the success of the liquid staking protocols to get the number of staked atoms to 80% to 90%, weāll be in a good position to change inflation and new atom creation which will be allocated to the security budget,ā Manian said.
The envisioned change in ATOM issuance may mirror the idea of the fee burn employed by Ethereum with itsĀ EIP-1559Ā in August 2021 ā only more so.
āWeāre trying to make EIP-1559 look like a joke,ā Manian said.
Interchain Security
Another area of focus ahead for the Cosmos ecosystem will be the launch and development of interchain security.Ā
Until now, the Cosmos Hub can be seen as a model home inside a new housing development, Billy Rennekamp, Cosmos Hub lead at Interchain.io, said. In this metaphor, the āneighborhoodā around the Hub began to grow based on the model. But the Hubās position at the center is valuable and ācan be transformed into an asset to the community,ā Rennekamp said.
Cosmos pioneered the use of proof-of-stake (PoS) technology, predating Ethereumās switch to PoS by three and half years. New blocks are composed and added to the chain by validators ā network nodes that stake cryptoassets as a sort of collateral to ensure their honest work.Ā
Unlike Ethereum, which sports 435,000 staking validators and counting, there are a limited number of validators by design in Cosmos āĀ 175 currentlyĀ on the Cosmos Hub, and fewer on other chains. Individual token holders choose validators to which to delegate their stake.
The more tokens staked with a decentralized set of validators on a chain, the more secure it becomes, and the Cosmos Hub has been able to generate the most diverse set of validators with significant economic value at stake.
āInterchain Security basically allows the Cosmos Hub to run many blockchains in parallel, all with the same security attributes,ā Jehan Tremback, Sommelier core developer and cofounder of Althea, explained in MedellĆn.
Another way of conceptualizing it is as āvalidator set replication,ā added Rennekamp.
āYou take the validator set of the Cosmos Hub, use IBC to send that set to other blockchains ā so they donāt need to have their own staking token, they donāt need to have their own validator set ā the same people get the validator set of the Cosmos Hub and the same security as ATOM,ā he said.
In return, Cosmosā sovereign chains will pay for that security in their own tokens to ATOM validators and delegators.
