Cosmoverse is the biggest conference of the ecosystem focused on interoperability, where Cosmos announced its new roadmap and whitepaper 2.0.
Arguably, the main value proposition of Cosmos is to be the leading protocol for the interoperability of blockchains. The Cosmos Inter-Blockchain Communications Protocol (IBC) allows different blockchains to communicate improving capital efficiency, and interoperability of Dapps.
Since its conception in 2016, the IBC network has been growing, and as such have the needs of the interchain. In order to best be suited to deliver on these promises to grow a resilient interchain economy, Atom announced a series of improvements in its infrastructure in its Atom 2.0 Whitepaper, released on the 26th of September 2022.
This article summarises and points out in a TLDR fashion the main takeaways from the new whitepaper.
The Philosophy of Cosmos
The Cosmos Network is an association of autonomous communities connected economically and ideologically with the Cosmos Hub. It is a voluntary association of blockchains that subscribe to a philosophy of sovereign interoperability, localism, and pluralism. A network of networks that uphold the right for communities to maintain technological sovereignty and peacefully interoperate. This philosophy is grounded in a humility for the extraordinarily rich cultural diversity of human beings. It is tacit recognition of the fundamental limits of our discretionary reason in organizing planetary sustainability, while serving as a call to use technology as best we can to facilitate responsible self-governance. Cosmos offers a meta-political economy, one that recognizes the need for representation of different interests at different scales, and for an approach that can bridge the gap from local to global and back.
ROLE OF COSMOS: to be a provider of infrastructure services whose utility scales with the growth of the interchain. The Cosmos Hub will secure and capitalize ecosystem-critical applications, while serving as the port of entry for new Cosmos participants, and a coordinating center for the infrastructure and administrative concerns of the interchain.
Cosmos Architecture
In a positive domino, the Scheduler will monetize IBC economic activity with revenues going to Allocator. The Allocator will support new Cosmos chains, expanding the addressable market of the Scheduler.
The system will work as follows:
- Cosmos Hub collects revenues from interchain economic activity by creating a secure block space market, the Interchain Scheduler, and charging a matching fee;
- Revenue is used to drive long-term ecosystem alignment and add promising new projects to the Cosmos Hub’s holdings via the Interchain Allocator. In turn, these projects expand the Scheduler’s addressable market;
- Interchain Security empowers independent projects to build on the Cosmos Hub while Liquid Staking positions ATOM to become the premier interchain reserve asset;
- Interchain Security’s value proposition starts with an increase in economic security up to the Cosmos Hub’s cost of corruption, together with a substantial reduction in the marginal cost of security when compared to the cost of an independent validator set.
- Interchain Security gives consumer chains a faster, easier, and cheaper path to market, accelerating innovation within the service perimeter. The utility of Interchain Security for consumer chains rests on providing strong accountability guarantees to a broad set of Cosmos chains and substantiating the Hub’s credible neutrality.
Liquid Staking
The full economic integration of the interchain requires liquid staking.
Until liquid staking is introduced, interchain growth is hindered by the conflict between the native staking system and other opportunities for utilizing ATOM.
Liquid staked assets eliminate the opportunity cost of staking, prompting growth.
A competitive marketplace for liquid staking provision will further improve the consumer experience, driving protocols to compete on several dimensions, including trust minimization and safety.
This market for cross-chain liquidity will be the catalyst for ATOM deployment across the interchain, creating new waves of innovation built on secure Cosmos-native collateral.
ATOM Issuance
Since liquid staking solves the problem that the current monetary policy was originally designed to address, issuance can now be reconsidered. Rather than try to balance security with liquidity, the new monetary policy should balance interchain adoption, growth, and capitalization with fiscal responsibility while preserving the security afforded by the original regime.
At the beginning of the transition phase 10,000,000 ATOM are issued per month. This issuance decreases at a declining rate until it reaches steady state issuance 36 months later.
Steady state issuance will be 300,000 ATOM per month
Fees
Today, transaction fees paid to the Cosmos Hub are sent to the distribution module and split among the Community Pool, delegators, and validators.
With the addition of Interchain Security, a portion of transaction fees and issuance from each consumer chain will be sent to the Cosmos Hub’s distribution module, paying to secure all chains and replacing the current issuance subsidy
Cosmos Economic Engine
In order to realize its purpose, to drive the expansion of a more secure and efficient IBC economy and building long-term alignment with a growing Cosmos Network, the Cosmos Hub will require two mutually-reinforcing systems: the Interchain Scheduler and the Interchain Allocator.
- Interchain Scheduler: a secure cross-chain block space marketplace and MEV solution.
As MEV opportunities grow, such relay systems are becoming increasingly active within the interchain. By offering MEV relay service on multiple chains, relays are able to further articulate cross-chain execution guarantees.
At worst, the monopolizing tendency of off-chain block space markets could undermine efficient transaction fee pricing and, ultimately, chain security. The Interchain Scheduler addresses these concerns by bringing MEV markets on-chain, thereby minimizing trust, improving quality of service, and enabling direct block space regulation by chains themselves.
Using the capabilities enabled by Tendermint’s latest ABCI++ upgrade, transaction inclusion and ordering can be segregated and the rights to order transactions for a designated block in the future can be tokenized, traded, and transported over IBC.
By purchasing synchronous regions of block space on different chains, users can lock-in arbitrage opportunities or schedule cross-chain settlement transactions with strong execution guarantees. In moving the interchain MEV market on-chain, the Scheduler can offer a trustminimized assurance that users hold an exclusive right to order transactions for future block regions.
The Scheduler creates an in-protocol market for interchain block space, allowing chains to specify allowable MEV. Unlike other solutions that only split revenues with validators, the Scheduler also splits revenues with consumer chains.
2. Interchain Allocator: a venue for economic coordination and interchain project alignment.
The function of the Interchain Allocator is to provide new Cosmos projects a more efficient path to user acquisition, liquidity, and long-term ecosystem alignment.
Cosmos hub: economic coordination between staked ATOMs and new projects in the interchain, aligning the utility of ATOM with ecosystem growth.
The Allocator provides two basic tools that enable incentive-aligned communities to develop strategies for economic coordination on behalf of the Cosmos Hub:
- Covenant: a system for establishing multilateral agreements with designated chains and IBC-enabled entities, to streamline process and facilitate governance.
2. Rebalancer: a system for automatically managing asset portfolios with public liquidity. Users of the Rebalancer can set parameters to strike the desired balance between urgency and slippage minimization on a portfolio or per-asset basis.
One can summarize the Allocator mandate as following:
• Increasing the velocity of new Cosmos project creation
• Accelerating project growth and sustainability
• Expanding the economy for cross-chain blockspace
• Aligning incentives between new projects and the Cosmos Hub
• Making ATOM the most desirable, widely deployed reserve asset in the interchain
Examples of how protocols may use the Allocator include:
• Mutual stakeholding and protocol-to-protocol collaboration
• Providing guarantees on auction price floors
• Expanding liquid staked ATOM markets by entering into AMM pools with liquid staked ATOM or ATOM-backed assets such as collateralized stablecoins
• Rebalancing reserves and tuning the monetary properties of ATOM with diversified collateral backing in order to make ATOM a more desirable collateral asset
• Participating in other chain’s governance as a delegate of the Cosmos Hub by voting as a block on proposals from tokens held by the DAO or third parties
The Allocator gives such projects a more streamlined, formal, and quantifiable means of collaboration.
Incentives Alignment
Increasing interchain liquidity is a win-win for both Hub-aligned protocols and the Hub itself because it strengthens the economic development of the Hub-aligned protocol, while simultaneously increasing the utility of the Interchain Scheduler.
Greater liquidity increases the utility of the Interchain Scheduler because it increases the market for arbitrage, making blockspace more valuable, thereby increasing the amount an MEV captor could pay for Scheduler-provided blockspace while remaining profitable
The Interchain Allocator is designed to increase the rate of Cosmos-aligned project growth and expand the cross-chain blockspace economy. Accordingly, the Allocator fosters cross-protocol coordination while installing ATOM as the primary reserve asset of the interchain.
The Cosmos Network’s expanding sphere of ATOM-based collateral establishes a region of cooperative integration, benefiting all those who contribute to its success.
In providing a generalized multi-party collateralization system, the Interchain Allocator forms the basis for a more collaborative interchain economy, empowering creative endeavors that leverage the primitive to engender trust and effect the next phase of interchain growth
Cosmos Governance
A Forum for Sovereign Interoperability; to achieve the ambitions of this next phase of interchain cooperation, Cosmos will require a shared organizational language and a substrate for decentralized planning, resourcing, and accountability.
The Cosmos Governance Stack: a generalized system that may be used by any Hub-aligned DAO to flexibly deploy governance infrastructure that meets their needs.
Main role consists in extending governance capabilities to suit Cosmos’ needs and creating more robust social layers that tie together a constellation of participating entities, core teams, funding organizations, and other DAOs that wish to make the Hub their home.
The Cosmos Hub Assembly, a proposed decentralized organizational body, could represent the strategic interests of the Cosmos Hub community. The Cosmos Hub Assembly, together with a set of domain-specific Councils, form a governance supply chain that enables a variety of entities to work within a common framework.
The Councils and Assembly system are intended to make existing informal and off-chain workflows more explicit, accountable, and open to wider participation.
ATOM holders have the responsibility of defining and updating the Cosmos Hub Charter, which includes directives at the highest level: the purpose of the Cosmos Hub, its essential governance architecture, as well as which entities are admitted Councils.
Furthermore, ATOM holders have ultimate discretion over the passage of policies, priorities, and budgets with veto power on all proposals put forward by the Cosmos Assembly
Public accountability is perhaps the most significant challenge of decentralized governance.
The introduction of a new Community Council can aid in this effort. The Cosmos Community Council will represent the interests of the ATOM Community within the Cosmos Assembly and on a day-to-day basis.
Their role will include observing the work of core teams, providing feedback on product decisions, and providing a bridge to the wider community by communicating important facets of ongoing workstreams.
The Cosmos Governance Stack and the subsequent formation of a Cosmos Assembly permit the higher-order organization required for the next phase of Cosmos’s development. Though Cosmos Hub governance is in some ways the most mature in the ecosystem, it will need to evolve significantly to meet the needs of a growing political economy.
The first step in this process should be a community dialogue on the forum about a Cosmos Hub Charter and initial Rules of Engagement.
Community-driven creation of initial governing documents will be complex, but effective governance is only created through a shared commitment to accountability and decentralization of power.
CONCLUSION 2.0
The Cosmos Hub gave rise to the internet of blockchains.
Interchain Security and Liquid Staking are the final building blocks required for a secure interchain economy, which in turn, enable the creation of the Hub’s application-specific functionality, the Interchain Allocator and Interchain Scheduler.
Together, the Allocator and Scheduler would create a positive feedback that builds additional utility: the Allocator capitalizes new Cosmos chains and incentivizes them to transact while the Scheduler creates a market for high-value IBC transactions and uses revenue to support netwkork growth.
With the creation of this powerful economic bloc, the Cosmos Hub’s success becomes coupled to the success of other Cosmos chains and that of the wider IBC economy.
Infrastructure and community come together to drive the expansion of the interchain with credibly neutral functionality, capital, and social infrastructure.
