Note: this article is based on the latest version of the Cosmos Hub White Paper: The Cosmos Hub v1.2
What do you know about ATOM 2.0? Read on to learn what Cosmos Hub's plans are to drive the Interchain economy forward over the next years.
Over the past year, Cosmos has experienced exponential growth and has become one of the most interoperable and scalable blockchain networks in the Cosmos ecosystem. At the beginning of the year, Cosmos Hub achieved its goal: to originate the internet of blockchains. To this end, it developed the Cosmos SDK, IBC, and Tendermint.
Now, the next objective of the Cosmos Hub will be to develop its role as Interchain Service Provider. To this purpose, it plans to build an economic model with Interchain Security and Liquid Staking as main pillars, along with two new roles introduced in the ecosystem: the Interchain Allocator and Interchain Scheduler. This new economic model will help grow a resilient interchain economy.
New changes in the Cosmos Hub roadmap: ATOM 2.0
So far, Cosmos has achieved to create the Interchain architecture using Cosmos SDK, IBC, and Tendermint.
Now, its team has presented a new roadmap that kicks off ATOM 2.0. The ATOM 2.0 proposal is based on a layered reorganization of its infrastructure.
- Social coordination technology
In this layer, we can include Cosmos' social technology: Tendermint, Cosmos SDK, and DAOs IBC. This set is called the "Cosmos Stack" and constitutes the base layer of the architecture. Being a part of the Cosmos Hub will allow greater number of stakeholders to access open source funding and control.
- Secure economic scalability
One layer above the Cosmos Stack is the Interchain Security and the Liquid Staking, both contemplated within a single layer of secure economic scalability.
To continue to add value, utility, and interoperability between networks, Cosmos will continue to focus on developing Interchain Security.
In contrast, liquid staking will be crucial for the success of the Proof-of-Stake economy. Those who would sell due to liquidity constraints will become potential delegators of liquid staking. As a result, network security will be improved and liquidity will be enhanced.
- Specific functionality of the Hub
This last layer consists of delegating functionalities to the ecosystem networks and putting the focus of the Cosmos Hub on a single function: making the interchain more resilient and driving the interchain economy. In this layer, the roles of the Interchain Scheduler and Interchain Allocator will be key to creating a circuit that generates constant benefits to the ecosystem.
The economic engine of ATOM 2.0: Interchain Scheduler and Interchain Allocator
The Cosmos Hub will rely mainly on the Interchain Scheduler and the Interchain Allocator to boost the economy. But what is the role of these two new concepts in Cosmos?
What is the Interchain Scheduler?
The Interchain Scheduler is a module that aims to create a secure cross-chain EVM marketplace for block space auctions that enable maximum extractable value (MEV) opportunities to participating Cosmos networks. Until now, MEV opportunities were far beyond the reach of ATOM holders and Cosmos ecosystem blockchains, but the Interchain Scheduler aims to solve this.
When a Consumer Chain with the Interchain Scheduler module enabled sends part of its block space to auction in this cross-chain marketplace, it receives an NFT representing this block space. The Cosmos Hub will apply a commission, and this revenue will subsequently drive new projects through the Interchain Allocator module. In addition, the payment for this block space will flow through the protocol (stakers, liquidity providers, community pool, etc.).
What is the Interchain Allocator?
The Interchain Allocator is a system that will incentivize the long-term alignment of the Cosmos Hub with emerging chains in the ecosystem. These incentives will facilitate the economic coordination of the network and the alignment of all Interchain-connected networks around ATOM-based markets.
The role of the Interchain Allocator will be to make ATOM more attractive and expand the potential economics of the Interchain Scheduler through sharing funding for new projects in Cosmos. To do so, it will use the revenue generated by the Interchain Scheduler and provide new networks with a more efficient path to user acquisition, liquidity, and long-term ecosystem alignment. The more projects emerge thanks to the Interchain Allocator facilities, the more projects will be able to contribute to the Interchain Scheduler and keep moving the network economy of Cosmos Hub.
The Interchain Allocator seeks to achieve organized economic growth of Cosmos through transparent collateral agreements with the various independent blockchains participating in its ecosystem to unlock higher-order economic power and capital efficiency.
To ensure that the Allocator function meets expectations, Cosmos Hub will fund incentive-aligned DAOs. To create an incentive-aligned DAO eligible for Cosmos Hub funding and performance bonus, ATOM holders will have to bond their liquid staked ATOM to the DAO for some time. The more tokens bonded to the DAO and the longer they are locked in, the more voting power the DAO will have to execute Allocator actions and decide which projects will be able to benefit from the allocation of Cosmos Hub tokens.
The Allocator will have different tools to carry out these agreements and achieve the economic coordination of the Cosmos Hub:
Covenant: a system that establishes multilateral agreements with other IBC chains in the ecosystem and makes it possible to perform bilateral transactions between two protocols with a single transaction.
Rebalancer**: the Rebalancer system is simple. It automatically executes third-party capital allocation strategies taking into account the source and target portfolios and the established exchange rate policy, which can be edited as desired.
What is the Interchain Security role in ATOM 2.0?
Thanks to Interchain Security operation, new projects connected to Cosmos Hub will be able to develop independently and collaborate technologically and economically with other projects in the Cosmos network while benefiting from the Cosmos Hub security.
It consists of a faster, easier, and more affordable way to drive the creation of new chains in the ecosystem, which will reserve part of their inflation and fee income for the Cosmos Hub to cover the costs for this security.
These new Consumer Chains participating in the Interchain Security will be able to apply the Hub's functionality to have a financing system to build their infrastructure.
Liquid Staking in ATOM 2.0
Currently, traditional staking confines assets to their native networks, preventing capital from expanding to more networks and continuing the economic flow of the ecosystem. It hinders the cross-chain expansion needed to achieve more efficient markets where lack of liquidity is not an issue.
For this reason, ATOM 2.0 focuses on liquid staking, the only way to achieve full economic integration of the Interchain. Liquid staking improves both the user experience and the capital efficiency by unlocking the liquidity of delegated assets.
What Cosmos Hub expects from liquid staking in this new ATOM 2.0 proposal is that it will become the transactional medium of the ecosystem. The *liquid staking module will allow users to use cross-chain tokens without waiting for unbonding periods while continuing to generate staking rewards.
This is key to continue expanding the utility of ATOM through the Interchain, as the derived token can be easily exported through IBC and accumulating rewards while compounding with other protocols.
Who is responsible for the custody of liquid staked assets?
Liquid staking represents a significant change in Cosmos' security model, as it requires providers to custody liquid assets, which could suppose a problem if the necessary security measures are not applied. For this reason, Cosmos will ensure that liquid staking providers remain as decentralized as possible in a long-term plan, as this is the only way to preserve the security of liquid staking tokens.
Undoubtedly, the cross-chain liquidity market that will open liquid staking will be the catalyst that will be responsible for ATOM's take-off across the Interchain, creating new waves of innovation based on Cosmos-native secure collateral.
The new monetary policy in ATOM 2.0
The current monetary policy is designed to balance liquidity and staking values in Cosmos Hub.
The point is to achieve ⅔ of ATOM supply staked. To this end, if bonded tokens fall, token issuance increases, thus incentivizing staking at the expense of liquidity. In the opposite case, if more than ⅔ of the ATOM supply is staked, ATOM issuance for staking incentives decreases to ensure liquidity, sacrificing network security in exchange for strengthening the liquidity supply.
However, keeping ⅔ of ATOM staked is an inefficient system, hence the intention to pivot to a system based on liquid staking efficiency that will solve the initial policy problems. The Cosmos Hub will achieve a balance between interchain adoption, capitalization, and network growth using liquid staking without risking security.
How? Cosmos plans to design a new monetary policy focused on redefining the issuance of ATOM. This new policy consists of two phases: the transition phase and the stability phase.
Transition phase
The transition phase consists of 36 months. It will give some time for new projects to join the Interchain Security and allow the community to develop a social infrastructure to effectively manage the Treasury, which will fund the Allocator and the upcoming projects.
Prior to the transition phase, an initial one-off distribution of 4,000,000 ATOM will be issued to the Community Pool, including both the Treasury and the Assembly. As determined by the Cosmos Hub Charter, a total of 10 additional tranches of 4M ATOM will be at the community disposal to support the financing of the new Cosmos Hub Treasury at the discretion of the ATOM holders. A detailed schedule for the remaining ATOM allocations will be provided in the Cosmos Hub Charter.
As the transition phase begins, the distribution of tokens to validators and delegators will begin as a security subsidy that will decrease by a fixed percentage each month for 36 months until the target is reached.
Stability phase
At the end of the transition phase and the beginning of the stability phase, which lasts indefinitely, the token issuance for the distribution module will change to a stable monthly issuance determined in the Cosmos Hub Charter. For example, we would proceed to the issuance of 300,000 ATOM per month.
In conclusion, the new Cosmos monetary policy seeks to rebalance the Hub through several phases and by redefining the current exponential ATOM issuance. By promoting development activity and liquidity mobility, they will boost the economy through the Interchain Scheduler market.
Reflections on ATOM 2.0
With the creation of this new Treasury, the adoption of ATOM as the main driving agent, and the key role of Interchain Security and Liquid Staking module, ATOM 2.0 will provide the Cosmos Hub with the opportunity to expand into new ecosystems and continue to increase cross-chain composability.
However, this ambitious proposal is not yet final, it is already in its third draft version and is still subject to changes before the proposal goes on-chain. In fact, during this last month, several thoughts have been put on the table and different alternatives to the current one have been proposed, such as the ATOM ONE Constitution proposal, published by Jae Kwon. You can find the current draft of the ATOM 2.0 proposal on the Cosmos Network forum, as well as participate in the discussion and share your ideas!