Changes Brought by the New Cosmos Whitepaper

On September 23, Cosmos co-founder Ethan Buchman published an article titled Phases of Cosmos, in which he mentioned that September 2022 represents a critical transition point in the history of the Cosmos project, marking the end of the first major phase (Initiation) of Cosmos and the dawn of a new one (Integration). Buchman also said that once the project goes through Integration, Cosmos will move onto its third phase: Illumination.

Just a few days later, the Cosmos community released a new whitepaper. Compared with the first Cosmos whitepaper released in 2016, the new one mainly outlines the functional improvements of Cosmos Hub and the new tokenomics of ATOM, its native token.

The status quo of Cosmos

Previously, we had introduced the goals and technological visions of ATOM in an article titled A Cross-chain Pilot on the Internet of Blockchains: ATOM. As one of the earliest cross-chain protocols. Cosmos intends to create a blockchain universe consisting of multiple Hubs. Meanwhile, the network has enabled scalability, ease of use, and interoperability through three major solutions: Tendermint BFT consensus, IBC protocol, and Cosmos SDK, which has encouraged countless developers to build public chains and protocols on Cosmos.

Today, Cosmos has fostered a booming ecosystem, and Cosmos-powered chains and protocols such as Evmos, Osmosis, Kujira, Canto, IRISnet, and Umee have attracted extensive attention. Terra, which has been extremely controversial, is also built on Cosmos SDK. As such, the new whitepaper started with: “The vision of the Cosmos Network, as laid out in 2016, has been realized.”

That said, the Cosmos ecosystem has grown at the expense of Cosmos Hub, which should be the core of the entire system, according to the Cosmos community’s vision. As developers build public chains using Cosmos SDK, they often skip Cosmos Hub or simply take its codes as the template for their blockchain codes, which is far from the Cosmos community’s vision. Additionally, as Cosmos-based chains all have their own native tokens, ATOM, the native token of Cosmos Hub, has become increasingly less visible.

Changes in Cosmos Hub

In the new Cosmos whitepaper, the emergence of Interchain Security has turned Cosmos Hub into a platform for maintaining cross-chain security. According to the improvements laid out in the whitepaper, in the future, other Cosmos-built blockchains will be able to use the Cosmos Hub’s validator pool to maintain their network security.

Previously, blockchains based on Cosmos needed to build their own validator pool. Although prosperous chains are less concerned about hacking as an attack on them is expensive due to a large user base and validator pool, smaller application chains are more vulnerable to hacking because the number of validators is much smaller, which means that they have to invest more funds and energy in the maintenance of network security. Once the market cap of such app chains falls below their on-chain TVL by a certain margin, hacking will become much more frequent.

For these chains, Interchain Security offers a faster, easier, and cheaper way to rent the security of Cosmos Hub by paying a percentage of their transaction fees. In other words, the validators of Cosmos Hub will provide transaction and security verification services for such app chains. Compared to building independent validator pools, hiring Cosmos Hub validators is apparently safer and less expensive.

Changes in ATOM

Interchain Security creates a new application scenario for Cosmos Hub — It can now provide security protection for other app chains, which drove up the application value of ATOM, the native token of Cosmos Hub. Additionally, the new whitepaper also set out changes in the issuance of ATOM.

Previously, depending on the percentage of staked ATOM in its total supply, the annual inflation rate of ATOM was between 7% and 20%, a high inflation rate resented by some ATOM holders. According to the new whitepaper, however, the issuance of ATOM will be divided into two phases: the transition phase and the steady-state phase. The transition phase will last 36 months. At the beginning of the transition phase, 10,000,000 ATOM tokens will be issued each month. The issuance decreases at a diminishing rate until it finally drops to 300,000 ATOM per month, thus entering the steady-state phase. The main purpose of having the transition phase is to provide app chains with the time they need to adopt Interchain Security, thereby subsidizing the security expenditure with a higher issuance volume.

ATOM’s monthly issuance equation (source: the Cosmos Hub whitepaper)

Changes in the estimated monthly issuance of ATOM before and after the upgrade (source: the Cosmos Hub whitepaper)

Once Cosmos enters the steady-state phase, the security fees generated by Interchain Security can be used to reward the validators and stakers of Cosmos Hub, which will replace the incentives offered to them via token inflation. This approach will eventually slash the total ATOM supply and help ATOM curb inflation.

Changes in the cumulatively issued ATOM before and after the upgrade (source: the Cosmos Hub whitepaper)

Apart from Interchain Security and ATOM’s all-new tokenomics, the new whitepaper also mentioned two new mechanisms: Interchain Scheduler and Interchain Allocator, which are mainly used to provide cross-chain MEV revenue and facilitate cross-chain trust and coordination in Cosmos.

Based on the new Cosmos whitepaper, we can see that the primary goal of the Cosmos community in the new phase is to enhance Cosmos Hub and expand ATOM’s application scope while improving the native token’s future value. Will the series of improvements help Cosmos Hub and ATOM grow alongside the Cosmos ecosystem? Let’s wait and see.

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*This article is for reference only and offers no financial advice.