One of the most anticipated aspects of this year's Cosmoverse was the unveiling of the updated roadmap for the Cosmos Hub and the new tokenomics of ATOM. With the release of the new Whitepaper following Zaki Manian's presentation of ATOM 2.0, it is now time to take a closer look at the Cosmos Hub's future.
Why does the Cosmos Hub need an update?
The Cosmos Hub aimed to kickstart the blockchain internet by facilitating the Cosmos SDK, IBC, and the Tendermint consensus mechanism. With many chains built on top of the Cosmos SDK and over 50 chains already IBC enabled, it is time for the Cosmos Hub to move on and focus on other challenges that have arisen as a result of the growing IBC network in order to foster the growth of a resilient interchain economy.
What will the Cosmos Hub look like in the future?
There will be three infrastructure layers that will make up the Cosmos Hub.
- L0 / Cosmos Stack: Cosmos SDK, IBC & Tendermint
- L1 / Secure Ecnomic Scaling: Interchain Security & Liquid Staking
- L2 / Hub-specific Functionality: Interchain Scheduler & Allocator
Secure Scaling through Interchain Security & Liquid Staking
The two main issues regarding scalability in the Cosmos ecosystem are the costs associated with creating a blockchain and the capital inefficiency due to the fact that most assets (e.g., ATOM) are used to secure their native blockchain. Interchain Security (ICS) and Liquid Staking (LS) are supposed to solve this problem.
Interchain Security
ICS enables new projects coming into the Cosmos ecosystem to utilize the Cosmos Hub’s set of validators to run their own applications, giving them the economic security of the Cosmos Hub, meaning that in order to corrupt one’s application, one has to corrupt the Cosmos Hub. In addition, ICS will reduce the cost of securing one’s application substantially, since there is no need to establish an independent set of validators. All of this will give consumer chains (= blockchains deployed on the Cosmos Hub through ICS) the chance to launch faster, easier, and cheaper, thus promoting innovation within the Cosmos ecosystem.
Liquid Staking
Currently, ATOM holders have to make a decision: they can either stake their ATOM and receive staking rewards as a subsidy for securing the network, or they can use them for something else (Collateral, DeFi, etc.). Therefore, to increase the user experience as well as capital efficiency, one has to get rid of the trade-off between staking and external use. The answer to this problem is LS, where users get a derivative for their staked ATOM that is liquid and can therefore be used across the entire IBC economy. The reason why the Cosmos Hub should offer LS is that it can be seen as its responsibility to ensure that a safe and decentralized form of LS exists within the Cosmos ecosystem.
Cosmos’ Economic Engine
One of the main problems that a lot of people had with ATOM 1.0 was the fact that it wasn’t able to capture the value of the growing Cosmos ecosystem, because for most applications, the Cosmos Hub and its token weren’t needed. To serve its purpose of being a platform of value creation and capturing for the interchain and driving the expansion of the IBC economy, while building long-term alignment with a growing Cosmos Network, two features will be built on top of ICS and LS: Interchain Schedular and Interchain Allocator.
Interchain Scheduler
Maximal extractable value (MEV) refers to the maximum value that can be extracted from a block by excluding and/or changing the order of transactions within a block. With ICS, many new chains will be brought into the Cosmos ecosystem, leading to an increase in block production. As a result, a wide variety of opportunities in terms of MEV throughout the IBC economy will emerge. However, this value is usually shared only between the network participant, who is making the profitable transaction, and the validator, who will benefit from higher transaction fees to increase the likelihood of inclusion of the profitable transactions in a block, leaving protocols and token holders out. The goal of the Interchain Scheduler is to bring the block space market on-chain, making it more efficient and secure while at the same time capturing a part of its value and distributing it to the Cosmos chains and their users.
How does it work?
The prerequisites are that transaction inclusion and ordering can be separated and the right to order transactions within a specific block in the future needs to be tradeable (= tokenization of block space).
- The consumer chain enables the Scheduler module to enter cross-chain contracts to provide block space.
- After an agreement is reached, a non-fungible token representing the future block space on a specific consumer chain will be issued by the Scheduler and auctioned.
- Additionally, there will be the possibility to trade the token on a secondary market until the reservation is redeemed by the appropriate validator—the one that produces the specified block.
- After the block creation, the proceeds are split, and a part is sent back to the blockchain.
Interchain Allocator
To help the interchain economy grow, coordination of on-chain economic activity is needed. The Interchain Allocator is supposed to fill this role by providing a system for capital allocation and incentive alignment, helping new Cosmos projects with the acquisition of users and liquidity, and ensuring long-term ecosystem alignment. The idea is to integrate sovereign economies through a transparent and collateralized agreement that unlocks economic power and capital efficiency through network effects.
The Interchain Allocator consists of two tools:
Covenant
It is a system for establishing multilateral agreements between chains and IBC-enabled entities with the goal of making the process of protocol-to-protocol coordination more efficient since the number of proposals that have to be voted on by the Cosmos community will decrease drastically. Since those negotiations will require human interventions, DAOs will be funded by the Cosmos Hub to carry them out.
How does it work?
A protocol sets parameters and deposits funds into a covenant. If the other protocol has an issue with the chosen parameters, it is free to change them and fund a new covenant. This process continues until an agreement is reached and the covenant is fully funded. The Covenant can be used to build sophisticated multilateral agreements between protocols, to improve coordination, liquidity, or incentive alignment.
Example
In order to onboard a new project to the Cosmos Network, an authorized DAO could negotiate how much funding (ATOM) a potential new chain would get in exchange for a certain amount of its native token.
Rebalancer
The role of the Rebalancer is to manage the allocation of third-party capital, like tokens acquired through onboarding applications, by considering the current portfolio, a target portfolio, and an exchange policy. It decides whether to sell or buy an asset in order to move towards the targeted portfolio by considering the set policy, which for example, allows for trading only on specific exchanges. The Interchain Allocator and Scheduler are creating a positive feedback loop by increasing interchain liquidity through new protocols due to the Allocator, which will result in a growing block space market, hence creating more MEV, which will be captured by the Scheduler and distributed to the Cosmos Treasury. The Cosmos Hub Treasury is then used to fund the Allocator.
Cosmos's New Monetary Policy
Another point of criticism about the Cosmos Hub is the infinite supply and the inflation module of ATOM. The current model tries to balance security of the network and providing liquidity by having a target of staked ATOM. If the staking ratio is too low, the issuance rate will increase until it reaches the set target or the maximum issuance level, thus increasing security at the cost of liquidity, and vice versa, if the staking ratio rises above the target. Having a substantial amount of the monetary base staked reduces capital efficiency, which limits growth and cross-chain composability. With the introduction of LS, users don’t have to decide between staking and other opportunities. Hence, the current monetary policy can now be revised. Instead of balancing security and liquidity, it can now focus on growth and adoption as well as responsible capitalization, while keeping the security of the network at the same level as in the old regime.
This new policy will consist of two phases:
Transition Phase
Duration: 36 months
Goal: Onboard consumer chains, fund the Cosmos Treasury, and give the community time to develop a solid infrastructure to manage the treasury effectively.
Steady State
Duration: infinite
Start with the end of the transition phase At the beginning of the transition phase, the issuance of ATOM will significantly increase for the first 9 months, starting with 10,000,000 ATOM per month, in order to bootstrap initial funding for the newly created Cosmos Hub Treasury. After that, the issuance will be reduced significantly, with 300,000 ATOM per month in the steady state.
The beginning of the steady state marks the point where the revenue generated by the ICS should be at least the same as the original subsidy. In the event the staking rate falls below the threshold, the new model will be paused, and the original monetary policy will resume, meaning the issuance will increase incrementally up to a maximum percentage of supply until the preferred staking ratio is achieved, at which point the issuance will return to the fixed amount of 300,000 ATOM per month. Part of the issuance will be directed to the distribution module as a temporary security subsidy for validators and stakers, and the rest will go to the Cosmos Hub Treasury.
Transaction fees and ICS
Transaction fees generated from consumer chains will not always be paid in ATOM. Therefore, a whitelist of accepted tokens with a corresponding minimum fee will be needed. All the decisions regarding this list will be subject to governance. With a growing number of consumer chains, the effort of handling this list will increase substantially. Therefore, a floor fee should be established through governance, and the base fee will be calculated by an algorithm. In addition, governance can decide if all the tokens acquired by ICS should be swapped into one currency before being sent to the distribution module. Visualization
Governance 2.0
Although the governance system of the Cosmos Hub is one of the most mature ones, it will need to adapt to the growing political and economic landscape of the ecosystem. The vision is that the Cosmos Hub will evolve into an autonomous and self-sustaining organization, which requires things like a common organizational language and a platform of decentralized planning, resourcing, and accountability, in order to extend the existing governance capabilities.
Cosmos Hub Assembly
Initiatives are currently managed by a multi-sig committee. Organizational entities (e.g., DAOs) can be formed using the newly established social infrastructure to manage the resources of the Cosmos Hub. A system must be developed to ensure that their actions are consistent with the strategic interests of the Cosmos community.
As a result, an assembly system comprised of the Cosmos Hub Assembly and Cosmos Councils is proposed. Members of the Cosmos Hub Assembly will be drawn from the various councils, each of which will serve a domain-specific purpose within the Cosmos ecosystem by managing a portion of the Cosmos Hub Treasury.
The number of seats of any given council will represent the weight of that council within the Assembly. Since the Assembly is accountable to ATOM holders, it will set priorities, make budget decisions, and propose a proposal to them on a yearly basis. Therefore, the members of the Cosmos community always have the possibility of a veto. Overall, governance 2.0 is intended to make the existing workflow more explicit and transparent and will offer the opportunity of wider participation.
Cosmos Hub Charter
The purpose of the Cosmos Hub, the overall governance structure, as well as which entities should become members of the Councils, will be defined within the Cosmos Hub Charter. ATOM holders will have the responsibility of defining and updating the charter such that it aligns with their overall interests.
Conclusion
Liquid Staking and Interchain Security will pave the way for a thriving and scalable interchain economy. Furthermore, Hub-specific functionality such as the Interchain Allocator and Interchain Scheduler will create a flywheel for value accural to the Cosmos Hub by incentivizing new blockchains to join the Cosmos Network (Allocator) and creating a market for IBC transactions (Scheduler) whose revenues will support further growth of the Cosmos economy.
I hope you enjoyed this summary of the Cosmos Hub's updated Whitepaper, and if you found it useful, please consider sharing it on Twitter or other channels. Thank you for reading this article, and I look forward to hearing your thoughts.
"Make ATOM great for the first time." — Zaki Manian
Source: https://forum.cosmos.network/t/proposal-draft-a-new-vision-for-cosmos-hub/7328
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