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Cosmos Hub Drops ATOM 2.0 Whitepaper to Bullish Fanfare

Cosmos Hub Drops ATOM 2.0 Whitepaper to Bullish Fanfare

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Key Takeaways

  • Leading members of the Cosmos community today shared their Cosmos Hub release.
  • The report recommends reducing ATOM emissions to 0.1 percent and creating three major new structures for the Cosmos Hub.
  • The proposed changes would likely make ATOM the reserve currency of the Cosmos ecosystem.

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Leading Cosmos figures want to introduce a new tokenomics, an on-chain MEV marketplace, a system that streamlines financial coordination between Cosmos blockchains, and a new governance structure for the Cosmos Hub.

ATOM 2.0 revealed

Cosmos Hub is getting a serious makeover.

ATOM 2.0’s highly anticipated instruction was exempt today after Cosmos founder Ethan Buchman, Osmosis founder Sunny Aggrawal, and Iqlusion founder Zaki Manian spoke at Cosmoverse. The Kosmos-centric event started this morning in Medellín, Colombia and will last until September 28.

Buchman, Manian, and eight other leading figures in the Cosmos community wrote a 27-page document simply titled “The Cosmos Hub.” While it outlines new tokenomics for the Cosmos Hub’s token, ATOM, the paper’s most significant proposal is to introduce several new features to the wider Cosmos ecosystem.

New ATOM Tokenomics

Cosmos is a decentralized network of independent blockchains. The Cosmos Hub is a special blockchain designed to connect all other blockchains on the network, not to be confused with the wider Cosmos ecosystem. In its current form, ATOM’s main purpose is to provide the security of the Cosmos Hub through a staking mechanism.

ATOM’s tokenomics have received criticism for their inflationary dynamics. ATOM emission currently varies between 20 percent at worst and 7 percent at best, depending on the percentage of the staked ATOM supply. Although the entire ATOM offering hovered about 214 million in March 2019, data from CoinGecko point that more than 292.5 million ATOM tokens are currently in circulation – an increase of approximately 36.68%.

The white paper proposes a new monetary policy for ATOM in two phases. First, a 36-month transition phase would be introduced, beginning with the issuance of 10 million ATOMs per month (briefly raising the inflation rate to 41.03% if it were to start today). The issuance rate would then steadily decrease until it reached 300,000 ATOM emissions per month, effectively reducing ATOM inflation to 0.1%.

Expected ATOM emissions. Source: Cosmos Hub whitepaper

The long-term ATOM emission would therefore become linear instead of exponential.

Expected ATOM delivery. Source: Cosmos Hub whitepaper

The main reason behind ATOM’s current monetary policy is to support Cosmos Hub validators to provide security services. Under the new model, validators would be rewarded with the proceeds of Interchain Security – a mechanism that allows the Cosmos Hub to generate blocks for other blockchains in the Cosmos ecosystem.

Interchain Security is expected to make running the Cosmos blockchain a faster, cheaper and easier process: it would also enable the creation of scaling solutions and increase IBC connectivity. The security mechanism would allow for the gradual return of the original ATOM emission model if the proceeds from Interchain Security prove insufficient to replace the validators.

Three new features of Cosmos Hub

The report suggested introducing three important features to Cosmos Hub: Interchain Scheduler, Interchain Allocator and Governance Stack.

Interchain Scheduler

Interchain Scheduler would act as an MEV solution. MEV stands for “Maximal Extractable Value”, which refers to the profits that can be made by rearranging transactions within a block when it is produced. The practice is largely considered inevitable extracted over $675 million from Ethereum users as of January 2020. MEV mining is streamlined on Ethereum through off-chain services such as Flashbots. Pickers (known as “seekers”) use these relays to negotiate with validators to implement their MEV strategies.

Cosmos Hub’s Interchain Scheduler aims to bring these negotiations on-chain and make the wider network benefit from them. A willing Cosmos blockchain could sell some of its block space to the Interchain Scheduler; the latter would later yield NFTs that represent “reserves” of block space. These tokens would be regularly auctioned and possibly even traded on the secondary market. The original blockchain would then receive a portion of the revenue. According to the report, the Interchain Scheduler would complement (not replace) off-chain MEV relays, promoting competition and decentralizing the practice.

Interchain allocator

The goal of the Interchain Allocator would be to enhance financial coordination in the entire Cosmos network. By creating multilateral contracts between IBC blockchains and entities, the allocator is expected to accelerate the acquisition of users and liquidity for Cosmos projects, while securing ATOM’s position as the network’s reserve currency. Protocols can use the allocator for mutual stakeholders, expanding ATOM’s liquid stake market, balancing reserves, or participating in the governance of another blockchain. It would also open up the possibility of creating Liquidity-as-a-Service providers, securing undersecured financial practices and reducing defaults due to extreme market events.

According to the report, the liquidity freed up by the Scheduler and the Allocator would ultimately result in the Cosmos Hub having an “asymmetric advantage” over other liquidity providers in the Cosmos network: the blockchain would benefit from the provision of capital; providing capital would reduce its security risks; therefore it could provide even more capital and so on.

Management stack

Finally, the white paper advocated the creation of a governance structure for the entire Cosmos network, called the Governance Stack. Unlike an allocator, the role of the Governance Stack would be to streamline Cosmos-wide governance by giving each blockchain a common infrastructure and vocabulary.

This would potentially mean the creation of a Cosmos Hub Assembly that would work alongside the councils of DAOs in the IBC network. The assembly itself would be made up of representatives from each of these councils, with the number of seats representing a project’s weight in the ecosystem – a system already adopted by political structures such as the US Congress.

Final thoughts

Buchman and Manian emphasized in their presentations at Cosmoverse that the white paper was meant to be a conversation starter. Ultimately, the development of the Cosmos Hub would be the responsibility of ATOM holders, who can vote for or against changes to the blockchain. Although the proposal has only been featured in the Cosmos Hub governance forum for a few hours, the response so far has been mostly positive.

Manian made little effort to hide his bullishness on stage, stating that the Cosmos Hub’s new features would “make EIP-1559 look like a joke,” referring to Ethereum’s combustion mechanism. He also titled his speech “$1K ATOM LFG.” ATOM is currently trade At $13.91, such an increase would represent a 7,089 percent price increase.

If the Cosmos Hub DAO implements the features proposed in the whitepaper in one form or another (as it likely will), it would still take at least three years for ATOM’s emissions to drop to 0.1%. However, there is no doubt that the new features of the Cosmos Hub would increase the utility of the token and secure its position as the leading cryptocurrency in the Cosmos ecosystem.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, ATOM and several other cryptocurrencies.

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