[Proposal 996][Voting Period] Revert Community Pool Tax Rate to 2%
Changelog 04/09/2025 : pre-proposal 04/23/2025 : proposed final copy of on-chain text 04/25/2025 : clarification that 2% is the default value for `community_tax` 05/01/2025 : Proposal 996 on-chain Title: Revert Community Pool Tax Rate to 2% Authors : Atom Accelerator DAO & Oversight Committee Summary This `param-change` proposal aims to revert the `community_tax` parameter from 10% (0.10) to 2% (0.02), reinstating the baseline default rate that was in effect prior to Proposal 88 . Parameter Change The proposed change affects the “distribution module” in the Cosmos SDK. Parameter : `community_tax` `community_tax`: Defines the percentage of block rewards (including transaction fees and inflation rewards) that is allocated to the community pool before the remainder is distributed to validators and delegators. The `community_tax` has these key characteristics: • The value must be greater than 0 and less than or equal to 1.00 (100%). • The default value is set to 0.02 (2%) in the distribution module’s default parameters. • Cosmos Hub governance can adjust this parameter through on-chain `param-change` proposals. Parameter and Proposed Value…
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Easy yes. Only logical path forward after AADAO sunset good interim solution.
I am in strong support of this - give this yield back to stakers.
I am going to follow up with a proposal from the ICL to put the community pool funds to work in a way that actually drives value to ATOM and aligns with the Hub’s roadmap (most folks have already seen it).
Tired of seeing the community pool pillaged for no gain to ATOM and us as the community, let’s put this to bed.
Yes, but also wouldn’t mind seeing it go to 1%.
I support reducing the rate to 1%, and have suggested the same in different forums. However, considering voter deliberation dynamics, I thought the immediate context provided by “reverse Proposal 88: revert to 2%” neatly conveys why the rate was initially increased and why a reversal is warranted. That said, if the community here strongly supports reducing the tax rate to 1%, happy to amend.
Personally I’d support a reduction to 0%, eliminating any community tax.
Until future plans for Community Pool assets are finalized there is no point in directing any future issuance to the CP, especially when considering the significant amount of ATOM it currently holds.
I support all three options 0%, 1% or 2% , what ever the consensus think it’s best 
does Hydro benefit from this position it seems to me. In this case it seems logical to keep enough 2% seems good to spread the CP assets across the interchain thanks to Hydro
Great proposal. Easy YES
Long overdue. The initial tax hike to 10% was ridiculous to begin with. We need communities that develop products that use ATOM (ie buy ATOM), not communities that sell ATOM and then deliver products that sell ATOM even more (like Hydro). Hydro isn’t an ATOM buyback program, it is “sell” ATOM and buy all other tokens program. Cosmos Hub has been around for more than 5 years now. There is no evidence the community pool is effective in bootstrapping products that use ATOM (ie “buy”).
The reduction to 2% is an easy YES and after that there has to be a discussion of whether to go down to 0%.
A commodity, like ATOM, needs to be purchased in order to demonstrate “value”. If you are giving ATOM in exchange for even more worthless tokens, you are demonstrating daily its lack of value by selling it. “Spreading the CP assets across the interchain” is not how monetary transmission works. You need something that people need to purchase, the act of purchase is what gives it value. If it is given away, it has no value.
Acquisition of ATOM with tokens from smaller chains that don’t have demonstrated value is not a “purchase”. I mean anybody can create a meme coin and then swap it for ATOM using a couple of phony trades. This is a giveaway - horse for a chicken. Hydro is one giant automated “horse-for-a-chicken” giveaway.
I will support this proposal, we already have a bloated community pool. and the easier way to fund the community project is to mint new tokens on a need-to basis.
Looks like the poll says 65% in favour of 0% or 1% (albeit only 20 voters)
Maybe there should be 2x onchain props - one as a simple reversal to 2%, and one to 0%?
Yea, will do.
We should wait to hear from ICL wrt to their suggestions for how community pool can be used before chaser props reverting “rate to 0%” and or “nuke cp” go up.
waqarmmirza:I will support this proposal, we already have a bloated community pool. and the easier way to fund the community project is to mint new tokens on a need-to basis.
Thank you for your support.
One could argue that minting new tokens every time governance approves spending leads to bloated governance. In my view, that’s not a viable long-term approach.
Instead, we should aim to keep the community pool lean while introducing essential safeguards. For example:
- Prohibit “cost-plus” agreements.
- Set a hard cap on spending requests—no proposals exceeding e.g., $250,000 (example).
- Limit total funding to any single grantee or project to e.g., $300,000 within a 12-month period.
- Require full transparency and reporting at the pre-proposal stage, including clear budgets, objectives, KPIs, clawback conditions, and disclosure of any potential conflicts of interest.
Imo if the community chooses to preserve pool – irregardless of size, there must be clear oversight of how those funds are deployed/managed. To be clear, not lobbying to do that job, and such responsibility doesn’t need to fall to me. But we need it.
Hydro is not selling any ATOM. It is only providing liquidity in single-sided pools or against ATOM derivatives, and the trading & borrowing activity generates fees from market participants. You can confirm that by checking the size of the active deployments on https://hydro.cosmos.network/tracking and comparing it with the auction results on https://hydro.cosmos.network/metrics - you will notice it’s always more. Hydro & the Hub could choose to burn the excess which would reduce ATOM supply. It is true that if Hydro were to imprudently pair ATOM with an underperforming asset into a volatile LP position, the “impermanent loss” that occurs is effectively the same as selling over a continuous price range. But this is why we have built Vortex - the deployment will instead be clawed back and the other side of the LP will be auctioned off for ATOM. And again the excess can be burned or used for other purposes. Also, protocols use their own tokens to pay tributes to ATOM stakers. So I’d say Hydro actually gets you a bigger horse and a free chicken. About the tax rate, I do think it is currently exaggeratedly high. That said, reducing the tax is equivalent to increasing the Hub’s…
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Thyborg: Hydro is not selling any ATOM. It is only providing liquidity in single-sided pools or against ATOM derivatives, and the trading & borrowing activity generates fees from market participants. I’ve thought people would have this concern. There is ways to over collateralize ATOM supply for financing. Obviously if it dropped below the loan threshold the bank would liquidate it, but has anyone explored financing using ATOM as collateral? Any other token for that matter. I might consider this a more sophisticated use of funds. Anyone had any experience using Crypto as loan collateral? Maybe not the most appropriate on-topic question… To be on-topic - I’m not sure why others would want to lower the community pool revenue stream. Even for whale stakers - essentially what the proposer is signaling is that they don’t have a risk appetite for investing revenue. Not all investments are super successful - VCs are something like 1 out of 10 or 20 investments caputre the bulk of their profits. If the community pushes these kinds of invetments to VCs then it’s VCs that capture all the revenue — not the stakers, ie - investors. Although I’m not opposed to the…
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Support this. Give most back to stakers.
Thank you for posting this @Cosmos_Nanny !
I’m in favor of reducing to 2%, or lower, or even just removing the community pool tax entirely.
With AADAO out of the picture and ICL funding the majority of the work on the hub now, 10% isn’t justified, nor was it effective over the last 2 years.
I have also come to pivot on my thoughts around the Hub investing it’s community pool for exposure to other Cosmos chains. I think there are higher impact things we can achieve like directly incubating teams to build consumer-facing applications, or deploying liquidity on key asset pairs in our upcoming DeFi ecosystem that we’re building on top of Eureka.
Let’s start with going back to 2%. @Cosmos_Nanny, when were you thinking of putting this on-chain?
Totally supporting this. Thanks for bringing up this topic
Hi Noam, thanks for your support!
Proposal will go on-chain in three days once the mandatory deliberation period ends.
Will be submitted by me or possibly, AADAO. Recently, an AADAO contributor expressed interest in sponsoring the proposal. If there’s internal alignment at AADAO to proceed such way, imo it’d be a constructive gesture, in light of the circumstances that led to the increase of tax rate to 10%.
Been informally gauging sentiment across various channels. While anecdotal, the greatest consensus appears to still converge around reversion to the previous 2% tax rate. I agree – we can revisit the parameter and adjust downward as conditions evolve.
Support that idea ! Good for stakers 
Let’s build
Reason to Reform Rather than Remove
The CP serves as a structural safeguard against centralization. From a regulatory standpoint, the ability to allocate resources independently of our founding entities ICF/AIB is critical to objectively demonstrating the network’s sovereignty and autonomy.
Attempts to eliminate the pool, regardless of intent, including under the pretext of “preventing misuse”—risk weakening the Hub’s regulatory posture.
This consideration is often overlooked in governance discussions and deserves more attention.
Bottom line: we need clear limits and controls on community spending proposals (caps for instance), and we urgently need to develop more functional and accountable DAO structures to ensure governance based allocations and delegated authority are both defensible and sustainable. More on this stuff in the forthcoming AADAO transparency report.
Amazing news. Please let me know if there’s anything we can do to support on the ICL side 
We believe the proposed 2% rate represents a reasonable and pragmatic compromise.
While we do not support eliminating the rate entirely — as this could limit future opportunities for meaningful community spending — we also acknowledge that the current 10% rate is disproportionate, especially when the accrued funds are left idle in the community pool without a defined purpose.
In the absence of clear proposals for immediate allocation, we intend to initiate a new proposal aimed at creating a staking program. The goal is to delegate to high-performing operators, thereby generating yield for the community pool and mitigating the effects of inflation dilution during this interim period.
We encourage others to consider this path as a constructive way to preserve and grow community assets until more comprehensive initiatives are brought forward.
Thank you for reading,
Govmos
Theres millions in the community pool already.
Please remind me, when was the last time we spent millions of dollars from the community pool in a meaningful way?
Not to mention that the ICF got hundreds of million dollars.
Hi!
What exactly do you mean? Are you suggesting we no longer need a Community Pool?
StunZeed:
Please remind me, when was the last time we spent millions of dollars from the community pool in a meaningful way?
You’re right, CP funds should definitely be allocated to real projects that actually contribute to ATOM’s value. But that doesn’t mean all the funds should be spent or used for the same purpose. Keeping part of it decentralized still seems like a healthy approach.
Not to mention that the ICF got hundreds of million dollars.
Exactly — that’s precisely why maintaining a decentralized portion of the CP is important.
Where do I say we should get rid of the Community pool?
The comment by govmos was about not eliminating the rate to 0, but keep it at 2. Not eliminating the entire CP.
My argument is that since the cp already has millions of dollar, and it wasn’t really used for meaningful spending in the past (hence my question), we can just bring the tax rate down to 0. @Eru-Era
It’s much clearer now, thanks for clarifying!
I think the idea behind keeping the tax at 2% is to maintain a steady inflow in addition to staking rewards. ATOM, as a commodity, needs to be strong in that regard.
This setup also leaves room to create new opportunities.
That said, the key question remains: how is the Community Pool governed, and how can we ensure it truly brings value back to ATOM?
The idea to go back to 2% is just to reverse the proposal. I don’t think the number 2 is chosen for any other reason than that.
A follow up proposal to go to 0% is totally imaginable, because there’s millions in the CP. So why keep filling up the pool?
A fund called AAA that manages the CP is in the work afaik, consisting of ICL / specialists / community members.
StunZeed:The idea to go back to 2% is just to reverse the proposal. I don’t think the number 2 is chosen for any other reason than that.
2% is the default value for the community_tax parameter.
Cosmos SDK documentation says the community tax must be positive (non zero value) BUT it appears the code can be implemented in a way that allows for zero values. For the Cosmos Hub, we have historically maintained non-zero values – originally 2% (until Proposal 88), and now 10%.
Due to these reasons, would be unwise to set it to 0.
I’ll also update the text of the prop to clarify that 2% is the default value for community_tax
Thank you AADAO & CosmosNanny for this proposal.
Cosmos_Nanny:helps mitigate inadvertent capital accumulation, improves validator and staker economics, and reinforces fiscal discipline without compromising the Hub’s ability to fund public goods and services independently.
Cosmos_Nanny:establishes a more appropriate baseline for future governance discussions concerning long-term treasury management frameworks and strategic capital deployment
Great to see.
However, still firmly believe that raising the community tax and lowering the inflation rate would help strictly solve ATOM’s value.
Although I could understand the logic, the amount currently in the CP should not influence community tax rate, no?
FHZ:Although I could understand the logic, the amount currently in the CP should not influence community tax rate, no?
The community tax rate determines how much flows into the CP.
Generally, the tax rate is adjusted through governance based on strategic considerations about funding needed. When the rate was increased from 2% to 10% via proposal 88, it was argued that the Hub had a small pool compared to it’s market cap, and needed more funding for initiatives such as AADAO.
AADAO didn’t exist at the time of 88, but 88 needed to pass in order to make their inaugural funding request of 588k possible (proposal 95}.
Please let me know if I can do better in clarifying any of these points in the final copy of on chain text (above).
FHZ:Thank you AADAO & CosmosNanny
To be clear, AADAO had no involvement in bringing this proposal to the forum. I shared the idea bc the tax rate adjustment keeps getting snared into broader treasury deliberations. And we can separate these issues.
Upon observing the community response, AADAO expressed interest in sponsoring the proposal. They felt it would be a good gesture.
I’ve already provided markdown and json file for them to put it on chain.
If there’s no action by Monday, I’ll just put it up myself as planned.
But removing CP == setting the rate to 0%? If for regulatory reasons 0% is unwise, could set it to 0.1%
Appreciate your time and responses, as always. Would reverting the tax rate to 2% affect APR and if so, by how much?
Current Staking APR is 15.33%
Inflation = 10.00%
Staking APR = (Inflation × (1 - Community Tax)) ÷ Bonded Ratio
= (.10 × 0.98) ÷ Bonded Ratio
= 0.098 ÷ Bonded Ratio
Staking APR with 2% Community Tax (Inflation = 10%)
| Bonded Ratio | Staking APR (with 2% Tax) |
|---|---|
| 55% | 17.82% |
| 53% | 18.49% |
| 58.7% (current) | 16.69% |
| 60% | 16.33% |
| 65% | 15.08% |
| 67% | 14.63% |
Thank you for the breakdown. Although reverting back to 2% increases APR, the Hub’s CP remains relatively small compared to its market cap. Why stop the growth and value generation for ATOM, when this rate adjustment easily enables more potential selling?
Cosmos_Nanny:must be clear oversight of how those funds are deployed/managed.
Fully agreed and this also serves as a reminder the need for us to have a constitution.
Keep the tax rate.
Hello world,
x/distribution no longer supports legacy param-change proposals, and feel uneasy pushing this on-chain blind.
Would be grateful if someone can help confirm the formatting is clean and correct via test on testnet or localnet. Unfortunately, I don’t have any testnet tokens and do not use Discord.
Here is the (1) markdown version (2) JSON file.
Hi just wanted to chime in and say AADAO alongside myself supports this proposal. The community deserves more rewards now, and reverting to 2 percent just brings things back to normal.
The pool is already well funded. What matters more is deciding how to use those funds moving forward and making sure they create real value in a responsible way.
This change is timely and makes sense.
