Rethinking Money and Tokenomics for the Cosmos Hub
I’d like to open a discussion about the concept of money and its potential implications for the Cosmos Hub. This is simply an idea I’ve developed after reflecting on the role of money and how monetary systems function. It’s not a proposal, just a vision that I hope can spark thoughtful conversations within the community. The Nature of Money: A Foundational Perspective At its core, money is the debt of the entity that issues it . When new money is created, the issuer owes a service equal to the purchasing power of that money. A simple analogy: Imagine a baker stranded on an island with others. The baker gives a mason 100 coupons , each redeemable for one loaf of bread in the future, in exchange for building a bakery. • These coupons are money —they represent the baker’s debt . • The baker must accept them later in exchange for bread. • When a coupon returns to the baker, the debt is considered repaid . From this, two key points emerge: • The purpose of issuing money matters. If the baker issued coupons just to give them away, it would be a donation, not an investment. Issuing them in exchange for a bakery is a strategic investment to produce more bread. •…
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This reflection highlights a crucial point regarding the economic security of the Hub, which is currently declining while we aim to stimulate the growth of our ecosystem. I find the idea very compelling, and it certainly deserves deeper exploration.
Several questions come to mind:
Should a new token be created? What would be the technical and financial implications?
Should an existing token be absorbed?
P1: Osmosis or P2: Neutron seem to be the most legitimate candidates due to the network effects they already offer.
However, this would require the Osmosis or Neutron communities to agree on a unification, evolving the system to become competitive together.
This seems particularly difficult with Osmosis, as they do not appear willing to share their added value with the broader Cosmos ecosystem.
I would like ICL to provide an initial assessment of this idea, as it seems like a legitimate approach to advancing Atom’s tokenomics @Noam
Thank you for your thoughtful feedback! You’ve raised some key points that deserve further exploration. Here’s how I see it: 1. Should a new token be created? Creating a new token could offer flexibility in terms of design and governance. It would allow us to structure its monetary policy from scratch, with clear objectives: serving as a fee token, funding public goods, and decoupling from ATOM’s role in securing the network. For me, this new token should be used to fund projects that are as profitable as possible for the Hub . The key advantage is that its inflation wouldn’t directly impact the security of the Cosmos Hub by diluting ATOM. Since its inflation wouldn’t have an immediate or direct effect on ATOM’s value or bonded ratio, we could afford to take more risks when investing in growth-oriented initiatives. Given the rapid growth of the ecosystem, I believe now is a crucial time to invest strategically to strengthen the Hub’s position. The Cosmos Hub still holds significant influence, but we can’t afford to take the same risks with ATOM that we could with this second token . This would allow for bold investments without compromising the Hub’s core security.…
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This is kind of close of what our founder was inspired and still trying to implement it on his new project with the photon token. Which make me wonder why it wasn’t pushed and implemented on the Hub when he was still active here, seems like he got all the time those past years but I couldn’t find any meaning full post or proposal in this way.
Pretty supportive of the idea but seems like a big thing that will require huge effort in deliberation, design and implementation.
At this stage and with the new leadership I feel we need some roadmap and insight on what’s the direction we are taking to even know if this proposal can gather enough support to be push into our long and slow governance process
This is an idea that involves enormous fundamental changes, medium- to long-term work, and significant resources. What I do know is that we must collectively improve cross-chain collaboration within the Cosmos ecosystem, enhance economic alignment between chains, and ensure better value capture for our flagship token, ATOM.
All of this could lead to a much better UX/UI overall essentially an all-in-one app experience.
To achieve this, we need to coordinate efforts, build working teams, incentivize them, and mobilize the community to reach a socially adopted consensus.
We must collectively take risks and work harder and faster to restore our reputation and compete directly with the biggest ecosystems.
We have the capability, the talent, and the community now we need to unite to dominate more effectively.
If I had to point out some drawbacks of a dual-token model — with ATOM for security and a second token for fees — I’d mainly highlight the added layer of complexity.
There’s also the fact that we haven’t seen a network successfully adopt a two-token model yet.
That said, the Cosmos Hub’s ICS already introduces this complexity by accepting any token as a form of payment.
This means it’s already somewhat accepted that staking ATOM can result in earning different types of tokens.
On Atone, the photon isn’t inflationary, whereas Atone is.
This differs from what I’m envisioning, but there’s also the intention to separate roles.
The photon is the mandatory fee token for all consumer chains, which I imagine should simplify ICS revenue since it will be exclusively in photon.
I agree, it’s a radical change and probably difficult for the community to accept.
We could imagine a transition period during which ATOM’s inflation gradually decreases to make room for this new second token.
The problem is… there is many discussions on the forum and on X lately from individuals like you two and I have never seen any response or interest from any validators/Dev/existing Team/Foundation. Without support and participation from those bigger entities I don’t see how something that big could be implemented. Without their support and participation we are just 5 small holders speaking for nothing in forums posts. There is nothing we can do with our 0,0001% power vote and 300 followers on X.
Entities in charge, with Dev already working on stuff I figured they don’t really care about community propositions. They will design something, work on it, push it to the community with their influence and they never look around or take ideas/leads on anything els.
ATOM has a market cap of 2.2 billion and currently has a 10% inflation rate, i.e., a $220m security payment a year and earns presently ~$1m in revenue a year. Any secondary inflation token would need a value proposition of some kind to be able to support this if unchanged. NTRN and OSMO are both mentioned here, but NTRN already gives 25% of its revenue to the hub (if I recall correctly) and Osmosis’ revenue is around 6.5m a year. Neither of these tokens could compete with the level of emissions ATOM offers sustainably, and a newly created token would face similar issues without a substantial new revenue source. The payments for security are far too high on the Cosmos Hub, and rather than trying to offload these to an alternative token, the actual amount of inflation should be re-evaluated. The last time this was discussed was incredibly contentious, with the inflation min being heavily rejected and the inflation max only passing narrowly and being blamed for a drop in ATOM value so I doubt this will ever happen. daodao.zone Cosmos Hub | ATOM Halving: Set the max. Inflation Rate to 10% This proposal seeks to reduce the max_inflation param from 20% to 10%,…
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I understand what you’re saying, and it’s definitely an important point. However, what I’m discussing here is not the way to generate revenue with this new token. I’m simply saying that the inflation of a second token will be a tool to generate revenue, but it will be up to the community to decide how to use it. Additionally, the inflation of the second token will likely be a less sensitive issue because it won’t involve Atom inflation, but rather the “money” token.
But you’re right, the numbers you’re sharing are problematic.
The ICL seems to be working on Atom’s utility, and I believe this is a crucial point for reducing inflation. Right now, Atom will likely be much less desirable if inflation decreases.
If Atom becomes useful for other purposes, then inflation can be reduced without risking a massive unbonding.
In my opinion, we should probably push for the adoption of LSTs because they allow staked Atom to be used for purposes beyond just staking.
Why not focus on what we have instead?
Once again, we’ll take the time to clarify a common misconception: inflation on the Cosmos Hub is not equivalent to the cost of security . Framing it that way is misleading and ignores the mechanics of how staking, inflation, and validator economics actually work. 1. What is the real cost of security? The net cost of security is not the inflation rate—it is the validator commission , i.e., the tax validators charge for their operational services. This fee is independently set by each validator. Notably, reputable operators tend to adopt the network’s minimum commission, currently set at 5% . Let’s break this down with some basic math: • Supply: ~440,000,000 ATOM • Inflation rate: 10% • Community Pool tax: 2% (assuming the current proposal passes) • Validator commission: 5% So: ``` 440,000,000 * 10% * (1 - 0.02) * 5% = 2,150,000 ATOM/year ``` Note: This is a rough annualized estimate. In practice, inflation is applied per block and dynamically adjusted. It’s also worth mentioning that: • Some validators charge above the 5% minimum , increasing the actual cost of security. • Stake distribution is highly uneven, which can lead to centralization and…
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Thank you @Victor118 for initiating this thread. [PROPOSAL] Set Max Inflation at 10% Regrettably, the adoption of existing liquid staking protocols has been less than stellar. Lido’s Drop is imminent, which could potentially serve as the catalyst we’ve been anticipating. Following a “try-now-revert-later” approach, wrt the recent prop#998, why not start rethinking “money and tokenomics” by reverting proposal 848? Respectfully speaking, was it not a politically driven agenda to fund, in phases, wasm based liquid staking and increase adoption? Further treating ATOM as “money,” when it was designed for staking and governance RE tokenomics. ~Two years following, seems like the goal has been complete, upon dAtom’s being returned, versus the committed 50,000 ATOM. Govmos: • Staked ATOMs earn yield in exchange for security participation and immobility. • Liquid ATOMs do not receive inflation but retain their liquidity for other uses. Would like to add here, that staked ATOM not only earn yield by helping secure the network to maintain/reach the ~67%, but within this framework, it also serves as Validator’s personal CP and a means to gain…
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Thank you for the clarifications.
Personally, I tend to think that locking up ATOM through staking is an integral part of securing the network, and therefore the rewards given to delegators are indeed a cost of security.
What I meant to highlight is that the Cosmos Hub currently lacks a strong monetary instrument. It only has ATOM issuance and a community tax on that inflation. If we consider that there’s still a lot to build — meaning significant investment is needed — this capacity is quite limited. But increasing it (i.e., issuing more ATOM or raising the tax) would be risky for ATOM, as it could reduce its security value.
That being said, we’re now moving toward reducing the community tax, which clearly indicates that the Hub does not currently need additional investment capacity. That, in turn, puts into question the need for a dedicated “Hub currency” specifically designed for funding or investment.
My point is that a currency should be able to be issued when necessary in order to create value through investment.
If we consider that the current tax is sufficient, then fine — the Hub can secure its network and invest using ATOM.
If we take the example of the United States, which issued massive amounts of dollars during many years to rebuild, secure, and assert its dominance over the world, to me the Cosmos Hub cannot do the same with ATOM, do we agree with that ?
We’d need simulations to avoid deflationary spirals for any economical change imo.
About centralization risks with LS providers - its possible to explore caps on providers and tiered rewards for smaller validators. Formulas can and should be automatized.
The idea of a community-governed treasury funded by a portion of IBC fees above is cool imo.
What about quadratic voting for governance to avoid past mistakes?