Cosmos is also known as the "Internet" of blockchains. Its core concept is to allow different blockchains to communicate with each other by providing an open protocol. Recently, the Cosmos community proposed a plan called "ATOM War", which makes people feel a little sad. Although this seems to be the end of the road, we still need to hold out hope, because this may be an important attempt for Cosmos to find a new way out.
The Sovereign Narrative of Cosmos
The concept of Cosmos is sovereignty, which means that it gives applications the right to launch their own chains. This feature allows applications that are not suitable for the "native" chain environment to have their own blockchain. Applications no longer need to be attached to a sovereign chain, Cosmos directly gives them the right to stand on their own. Therefore, Cosmos was once considered the most crypto-spirited habitat, and many developers also love Cosmos very much. The founder of Celestia once said on Interchain Travel that Cosmos is his spiritual home.
Dilemmas and challenges of ATOM
Although the Cosmos ecosystem is strong and many excellent projects are launched through Cosmos, ATOM, as the governance token of the Cosmos Hub, has not gained any revenue from it. This was a trade-off made to give economic sovereignty to projects launching chains on Cosmos, but it also caused ATOM to be ridiculed as a meme coin. As a continuously updated project, Cosmos cannot just become an unprofitable public good. The Cosmos Hub and ATOM are the first and largest source of funding for development of IBC, Cosmos SDK, CometBFT and the rest of the Cosmos stack, while the community pool has been underfunded for years. Cosmos Hub needs to find a way to capture some of the revenue from the ecosystem to support its continued development.
The birth of ATOM War
The term "ATOM War" comes from the Curve War on Ethereum. In Curve, the incentives that liquidity providers can receive have two parts: the pool’s transaction fees and additional CRV incentives. CRV incentives are determined through voting. In order to obtain more CRV incentives for their own pools, liquidity providers will purchase the governance token CRV and lock it to obtain higher voting rights. As the demand for locked CRV increases, the price rises, which in turn increases the APY of the pool, attracting more liquidity providers, forming a flywheel effect.
ATOM War is a continuation of Universe 2.0 in a sense. Since the liquidity staking module has been developed, ATOM pledgers can convert the pledged ATOM into "DelegationShares" through the liquidity staking module, and then lock the "DelegationShares" to the new governance platform Hydro to obtain hATOM and enjoy voting rights. Different levels of Voting Power can be obtained with different locking periods.
Proposals and revenue sharing
Usually, the Cosmos ecosystem has the need to request liquidity from the Hub. Taking Proposal 853 as an example, pSTAKE Finance requested the Hub to allocate 600,000 ATOMs. This part of ATOMs is mainly to provide stkATOM/ATOM LP to the Cosmos Ecological DEX, of which 300,000 ATOMs are used to pledge to obtain stkATOMs, and then with The remaining 300,000 ATOMs together form stkATOM/ATOM LP. There are two places where income can be generated. One is to pledge ATOM to obtain stkATOM, and the other is LP income. pSTAKE promises to share 15% of the revenue with the Hub and waive the 5% protocol fee.
Therefore, the Cosmos community came up with the idea of ATOM War, which is to let parties with financial needs for ATOM compete to obtain funds. Initial liquidity comes from the Hub community pool, with initial funding of 1 million ATOM (approximately 1/3 of current community funding), as proposed by the proposal.
Projects that require liquidity support need to whitelist registration on the Hydro platform, and describe in detail the use of the funds, the revenue shared to the Hub community pool, and the bid for hATOM voters (that is, the project is willing to support its hATOM in order to win the auction (the amount paid by the holders), hATOM holders vote based on this information, and the project with the most votes can obtain the liquidity of the community pool.
Risks and Mechanisms
Bidding can easily bring about a drawback, which is that it can easily lead voters to support "high-yield, high-risk" projects. Curve USDM stablecoin pool is a lesson learned from the past. Therefore, Hydro added an "Incentives alignment" mechanism. If a project mismanages funds, the voting parties that support the project will be punished accordingly; and if a project party makes good use of the funds obtained and the final performance is higher than expected, the voting parties that support the project party will be punished accordingly. Earn rewards.
The subtle relationship between Cosmos Hub and ecological projects
The relationship between Cosmos Hub and Cosmos ecological projects is actually very subtle. On the one hand, Cosmos gives ecological projects the highest level of freedom - economic freedom. But on the other hand, Cosmos Hub is still responsible for the development direction and decisive role of each component of Cosmos. Hub leaves economic issues to itself. Ecological projects do not have any tax system after enjoying various convenient services of Cosmos. But the Hub should find a way, because it’s not just about fiscal and economic issues, it’s also about governance. Ecological projects are stakeholders of Cosmos. Regardless of whether the ecological project is conscious or not, as a Hub, it is obligated to allow the ecosystem to participate in governance, whether actively or passively.
Conclusion: Hub has been talking about enhancing ATOM’s ability to serve as a reserve currency. ATOM War can help this goal to a certain extent, but is it really a good idea to monetize governance tokens? Before the ATOM War, finding the positioning and meaning of the Hub may be more important than the ATOM War itself. It remains to be seen how this war will affect the future of the universe.