Cosmos Poised To Revamp ATOM Tokenomics

Cosmos, an ecosystem of interconnected blockchains whose ATOM token has surged 21% in the last 30 days, is planning to restructure its tokenomics to drive more value to ATOM and better secure its network of chains.

The Cosmos team on Monday released a whitepaper which proposes to position Cosmos Hub as the centre of the ecosystem, improve revenue capture, and reduce ATOM issuance over the next three years.

ATOM, which has $3.7B in total value locked, has bucked the selloff in the rest of DeFi in the last month, besting Ethereum’s 10% swoon and Solana’s 5% jump.

ATOM Price. Source: CoinMarketCap

The Cosmos interchain is an ecosystem of interconnected blockchains that includes the likes of Osmosis, Kava and the now-defunct Terra.

Cosmos Hub Revamp

Cosmos Hub is the inaugural blockchain that was deployed in 2019 and implemented core technologies, including the Cosmos SDK and Tendermint consensus engine. In addition, this proof-of-stake network serves as an intermediary between the various blockchains in the ecosystem through the Inter-Blockchain Communication (IBC) protocol, which went live in March 2021.

Until now, Cosmos Hub has served as a template for developers looking to create their own customized blockchains. Developers replicate the codebase, customize it to suit their needs, and deploy new blockchains using independent sets of validators staking their projects’ native tokens. However, this model has faced criticism since it doesn’t drive any value to ATOM. It also means that each chain must provide its own security, a costly and time-consuming affair.

With the proposed changes, Cosmos Hub will play a far more central role in the ecosystem through Interchain Security, allowing new projects to essentially ‘rent’ security from the Hub.

Cosmos’ ATOM Bucks Broader Bearish Trend

Ecosystem Of Blockchains Unveils Interchain Security

The Defiant

When it comes to blockchain security, a larger pool of validators makes it harder for malicious actors to gain control through a so-called 51% attack. By using ATOM validators to secure their projects, developers can ensure that the cost of such an attack increases significantly – as billions of dollars worth of ATOM would be needed to take over the network.

In exchange for securing what the whitepaper calls ‘consumer chains,’ ATOM validators will earn those respective chains’ native tokens in addition to the usual ATOM staking rewards. The feature, slated to launch in January 2023, is meant to drive value to ATOM stakers.

Interchain Scheduler

Having the same major tokens trading on a multitude of independent blockchains means that there will always be pricing disparities that give rise to Maximal Extractable Value (MEV) opportunities.

The ATOM 2.0 whitepaper adds an Interchain Scheduler, a “secure block space market to avoid off-chain cartelization and [provide] more options for chains seeking to optimize the use of block space.” In a nutshell, the Scheduler will sell the right to front-run transactions, thereby accruing value to the protocol.

Some of the revenue from these block space auctions will go to an ‘Interchain Allocator’ tasked with funding various initiatives to grow the Cosmos ecosystem. The whitepaper calls it a “platform for delegated parties to grow and align ATOM-based markets, facilitating multi-chain trust and coordination.”

ATOM Issuance

The whitepaper proposes major changes to ATOM issuance in a bid to reduce dilution and accrue additional value to stakers. The current mechanism adjusts issuance based on the proportion of ATOM staked and served to bootstrap the network but has often been criticized for its excessive inflation.

Proposed Change In ATOM Issuance

The first 36 months after the changes take effect are intended to be a transition period to give projects time to implement interchain security and avoid a sudden shock to ATOM stakers. Additional ATOM tokens will be distributed in the first nine months to bootstrap the Cosmos Hub treasury.

Starting at 10M tokens per month, issuance will gradually reduce to 300,000 tokens per month once the protocol achieves what it calls ‘steady state.’ At that point, organic revenue is expected to make up for reduced inflation.

“The Cosmos philosophy is fundamentally long-term – a humble nod to the diversity of human communities, to the fruits of empowering them, and to the futility of frustrating their political economic expression,” wrote Cosmos co-founder Ethan Buchman in a post introducing the next phase of the project’s roadmap.

The proposal will need to be approved through a formal governance vote before it can be implemented.

Disclosure: The author holds ATOM tokens.