Earlier this year, developers and members of the Cosmo community gathered in Medellin, Colombia for the Cosmoverse22 conference. A new white paper, Cosmo 2.0, was presented, which proposes radical updates to the Cosmos Hub, the platform’s leading blockchain, and ATOM, the ATOM that powers Cosmos blockchains.
The Cosmos team said the proposal for the new Cosmos
Hub marked “a renewed role for ATOM as the preferred collateral within the Cosmos Network” and “a new emission regime optimized for Liquid Staking.”
Previously, the Hub was primarily an underlying protocol for most Cosmos blockchains.
Now, it now gets a revamped role as the “source” of Interchain Security as other blockchains secure their networks through it. In addition, ATOM, the native token of the network, gets a new utility and issuance mechanism with its new designation now “Atom 2.0”.
Table of Contents:
#1. Emission
The Cosmos 2.0 white paper proposes a new mechanism for issuing ATOM that balances interchain adoption and growth with fiscal responsibility “while preserving the security offered by the original regime.” The ultimate goal is to increase the value of ATOM.
The current method adjusts the output of ATOM according to the amount of ATOM pointed. This means that if the pointed ATOM falls below a specific target, the emitted ATOM increases until it also reaches the amount staked on a particular target. If the wagered amount exceeds a certain goal, the issued amount begins to decrease. This is good for liquidity, but bad for security (as staking also decreases).
In short, Cosmos incentivizes stakeholders to bet more through the issuance of more tokens, which strengthens security but causes liquidity to decrease. As such, there is a constant balance between staking and safety.
It also means that a significant portion of the token supply is blocked to ensure security. The result is a huge capital burden that hinders growth and prevents more participants from entering the system. This issue will be solved with liquid staking, discussed below.
#2. Liquid staking
Liquid staking
is an emerging modern alternative that bypasses the disadvantages of the traditional staking method. Liquid staking involves blocked activities stored by a service, but so that you can still access your funds. The funds are kept as collateral, but are immediately accessible in case the user chooses to withdraw them.
This differs from traditional staking where the user has to wait for the duration of the blocking period before accessing their funds. Liquid staking recently became popular when Ethereum switched to the betting test (PoS).
The Lido staking solution is an avid liquid staking user and introduced it for several Layer 2 blockchains, including Kusama, Polkadot, and Polygon. BNB Chain now offers liquid staking for Web 3 Ankr, Stader and pStake protocols. Coinbase, the largest cryptocurrency exchange in the United States, recently announced plans to offer a liquid staking token called Coinbase-wrapped ETH (cbETH) in the future.
Liquid staking solves the problem of safety and liquidity. For Cosmos, it will improve capital efficiency as users will now be able to bet on ATOM and, at the same time, “use credits” on funds as working capital. Cosmos can now direct its attention to token issuance and opportunities, including interchain adoption and growth.
#3. New Tokenomics
Under the new regime, token issuance will have two phases: transition and steady state. The transition phase will allow consumer chains to join Interchain Security and allow the community to develop a social infrastructure capable of handling “considerable treasury”. The transition phase will begin when Cosmos switches to the new monetary policy and will take place for 36 months, after which the steady state will take over and last indefinitely.
At the beginning of the transition phase, emissions will increase for nine months (to 10,000,000 $ATOM per month) to start financing for the treasury of Cosmos Hub that will support the expansion of the ecosystem.
The issuance will gradually decrease from nine months and reach a constant rate (300,000 ATOM monthly) by the end of the 36 months (a reduction of 97%).
#4. Tariff model
Another thing that will change dramatically is the pricing model for Cosmos. In the old configuration, transaction fees were paid to the Cosmos Hub and distributed among the community pool, delegates, and validators. With the entry of Interchain Security, this changes.
A fraction of each chain’s fees will go to the Cosmos Hub distribution module and help secure all chains and replace the current emission subsidy. So, Interchain Security will change the way validators and delegates are rewarded.
Cosmos 2.0 will also present a global commission model where it will first have a whitelist of accepted tokens and minimum fees. These will be maintained by the governance of Cosmos Hub. It will also implement a single minimum ATOM tariff, with the base rate algorithmically adjusted in response to demand.
According to the white paper, it works better than governance-driven pricing, which is often susceptible to incorrect resource pricing. It is also difficult to determine the price for each token accepted individually. Other applications, such as the Allocator, may choose to design their own commission/fee structure mechanisms.
Cosmos Ecosystem – The Internet of Blockchain
Cosmos is a blockchain internet that facilitates inter-blockchain communication (IBC). It is a Level 1 blockchain that allows developers to create custom blockchains built on Cosmos Hub.
Cosmos has been talked about a lot lately. The dramatic fall of the algorithmic stablecoin terraUSD, whose Terra blockchain was built on Cosmos, has brought the platform under scrutiny. But the reality is that the Cosmos has not been affected by the Earth (apart from losing two, let’s face it, large chains on IBC).
But also, it attracted positive attention when the decentralized dYdX exchange abandoned Ethereum’s Layer 2 Starkware and moved to it in June. The exchange cited the platform’s “decentralization, scalability and customization” as the motivation for the move.
September’s relaunch is an exciting chapter for the blockchain cosmos. The new utility and issuance regime of Atom 2.0 heralds a new future for the platform.
