[PROPOSAL #72][ACCEPTED] Bringing Liquid Staking and DeFi to the Cosmos Hub with Interchain Security

Change log • 2022-05-23 Created initial post • 2022-06-20 New version of this proposal based on community feedback & partnership with P2P • 2022-06-20 Updated title to focus on liquid staking and DeFi use case of Interchain Security [PROPOSAL] Bringing Liquid Staking and DeFi to the Cosmos Hub with Interchain Security The Cosmos Hub is the central chain in the Cosmos ecosystem, providing a stable on ramp and coordination point for Cosmos’s interconnected blockchains. It is the most secure and decentralized public blockchain in the ecosystem, boasting a market cap of ~$2 billion at current prices, and is secured by staked tokens worth ~$1.2 billion, providing an extremely secure proof of stake environment. Even under volatile market conditions, the bonded supply of ATOMs staked on the Cosmos Hub relative to non-bonded supply is at approximately ~10:1, demonstrating strong incentive-alignment on behalf of ATOM delegators to keep securing the Hub and earning inflationary rewards. This community spend proposal will be used to fund blue chip CosmWasm projects coming to Cosmos from other blockchain ecosystems by collaborating with P2P to attract projects to Cosmos. This…

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Hi Jelena,

Thanks for the write up! I think it goes without saying that we all want to get ICS usage with multiple contract and/or custom consumer chains right out of the gate in Q3, and incentivizing ecosystem adoption should be encouraged.

With that being said, can we get some context as to how much is in the Cosmos Hub Community Pool? I saw a link showing 246k ATOM, so this would account for ~60% of the pool. Please correct me if I’m wrong with these figures.

I’m also assuming you meant to say $500k worth of ATOM for 3 CW projects instead of $50k?

For voting YES, it says to “launch a custom contract chain” and for NO it says “contract consumer chain”. Is this proposal strictly to incentivize for a custom chain or contract consumer (or both)?

Will the community be given any insight as to which projects the Managing Committee is considering to fund?

Looking forward to the response.

Thanks again!

David

From what I can see, the community pool contains 1.06M ATOM. The requested amount would then account for ~14%

EDIT: which I think is reasonable, and far off from the previous assumed figure.

Hey David,

Thanks for your thoughtful questions! Responding in order:

• There are about 1M ATOMs in the community pool right now: Grafana
• I did mean to say ~$500K worth of ATOMs. I actually just edited it to peg it to ATOM amount, so 50k ATOMs. Thanks for noticing the error. Fixed
• The proposal is meant to incentivize contract consumer chains launching and here, the terms, “custom contract chain” and "contract consumer chain” are being used interchangeably though I will edit to use the correct official terminology: contract consumer chain. Thanks for pointing this error out (again!)

In terms of insight into projects the Managing Committee is considering - we will be sure to keep the community updated on ongoing discussions on which projects we’re keen to see leverage this grant, though to move fast we don’t plan for each funding decision to go to an onchain vote (up to 3) as this would seriously impact our ability to deploy funds.

I realized the data on the community pool from Figment was last synced 2.5 years ago (my bad, I knew the number I stated above seemed way off, but couldn’t find the right link). Thanks - 14% seems reasonable

I agree on-chain governance is not needed here. I’d be interested in hearing from the Management Committee (MC) pre-vote what type of projects they’d like to see come to the Hub as a Contract Consumer Chain. Maybe point to projects in other ecosystems as a blueprint for what the MCs vision is for the first ecosystem development fund related to ICS. I’m imagining it’d be foundational layers in the stack that will improve Cosmos ecosystem UX and overall infrastructure.

Overall - you have our support! Thanks for putting this together and excited to see how this progresses.

Looking very forward to voting for this… We can also perhaps work on refining the tokenomics shortly after launch!

This is great. One question: will contract consumer chains also support the EVM on day one? Since you only allude to CosmWasm in this post even though I know the last blogpost by Informal Systems mentioned both CosmWasm and the EVM.

too little information to allocate such a large budget. It is not clear from this proposal where the 150,000 atoms will go

Good initiative. I am wondering, though, why this proposal is specific for porting over Terra projects. I know this is an easy business development lift but has there not been specific interest of other non-terra projects to launch on ICS? Or are they simply not ready to launch in August?

Though I generally agree the purpose of the proposal and might be going to vote for yes, I think you should provide more details : the profiles of committee (even though I knew most of you), opportunities and risks for Cosmos Network, your responsibilities, and rough milestones.

You know I think you’re right, I would certainly not be opposed to additional granularity here.

Hi @NjB - Great question - The intention of the proposal was not meant to be specific or exclusive to Terra projects. As you aptly pointed out, Terra migration was/is just one vector of business development that was/is readily identifiable as an opportunity worth pursuing given recent events. Projects migrating from other ecosystems (Solana, EVM, etc.) are also very much on the table. We should / will consider those in earnest, and will be sure to include that language in the on-chain prop.

Sounds like a potential good idea.

Let’s clarify the Contract Consumer Chain:

• a simple, hub like Cosmos SDK app with Interchain Security, IBC and CosmWasm module - with only one smart contract.

Sounds like too much overhead: to create an app chain for a single smart contract. Why not:

• using Juno (and Juno community pools)?
• create a sister Hub chain for bootstraping CosmWasm projects. It will be like Juno. But it will act as an accelerator for high quality projects. This way we remove the overhead of setting up multiple chains.

Thank you to everyone for the thoughtful feedback and questions! I wanted to share a brief update before we share the next iteration of this proposal. I will address (hopefully all) of the concerns brought up here with some high level comments:

EVM/CosmWasm compatibility: While EVM compatibility is on the roadmap, we are prioritizing CosmWasm projects since this is where a lot of the demand is being generated right now in the ecosystem.

Kinds of projects this proposal would fund: This is a good point which we will clarify in the next version of this proposal to narrow the scope to focus on the liquid staking application.

Is this specifically for Terra projects?: It is not and we will incorporate more general/high level language to be more inclusive of non-Terra projects.

Overhead of deploying 1 smart contract per app-chain: We are working with an ecosystem partner that would support smart contract applications launching without having to be their own app-chain, while ensuring that the Hub is in the driver’s seat when it comes to voting on applications that are deployed (governance gated process).

Stay tuned!

EVM will be available upon launch, but the strategy here is to incentivize CosmWasm chains as the native smart contract environment of the Cosmos.

Great proposal Jelena!!! IS is going to be an exciting time chapter for The Hub. I support initiatives like this that will be a catalyst for innovation. I wrote this a bit ago but never sent it, so apologies if you answered some of this stuff. I’ll edit out if I find. A few questions I have: -do you already have an idea of projects to leverage this with & will they be largely Terra projects? -how do you see mergers/acquisitions playing in tandem with IS, and even projects that get community pool funding from initiatives like this? -what are the expectations and means of accountability for projects that get funding as far as staying on the hub? What’s to stop them from leaving and becoming their own completely sovereign chain shortly after those 2 weeks? -what are your plans for transparency reporting on projects being funded and potential projects in the pipeline being funded? -I love love love me some Zaki & Jack [[ Z is a great letter ]], but would it maybe be a good idea to add some more diversity to this multisig? We’re getting to a point where all these multisigs look the same if not compromised of mostly the same people. Maybe we think about expanding these…

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Hi everyone! We’ve incorporated comments and suggestions into a new version and updated the top level post. This new version answers some key questions including:

• The kind of project this proposal would fund (P2P’s proposal for a DeFi Hub, which would also host the Lido liquid staking protocol subject to a vote by the Lido DAO)
• Type of projects funded (liquid staking, defi)
• More information on g2m plans for Interchain Security feature launch (working in partnership with liquid staking partners) and how this proposal dovetails with those plans

Is the defi hub by p2p aiming for similar thing like osmosis? A permissioned cw chain focusing on defi. Basically Terra, without the UST.

Hey there, I think a fundamental difference is that the main focus of the Osmosis Zone is making the Osmosis DEX the best possible product , whereby the DeFi Hub will focus on being the best possible platform to launch on for financial protocols, public goods (e.g. Name services, DAO tooling, etc.) and any other project which relies on synchronous execution. In that regard, I think Interchain Security will be a huge plus. Osmosis is amazing, no doubt. It’s economic security is much lower than that of the Cosmos Hub, though, $1.27bn compared to $0.110bn, and the Hub benefits from a more credibly neutral positions within the Cosmos eco. Judging from ambitious interchain protocols like Delphi’s Mars, Interchain Queries support is also quite a big deal, at least until the official release. While Delphi Labs certainly has the capacity to develop its own custom implementation, that is probably not the case for every project, which is another way P2P’s hub can provide value. Lastly, Lido happens to be a great first protocol to deploy on the DeFi Hub: it’s likely to draw TVL, activity and attention to the zone, it’s very well connected within the broader DeFi galaxy, it’ll help…

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Not trying to assume the worst, but was the whole point of this to fund Lido?

I would appreciate things like this just being more upfront. I feel like there’s a push behind the scenes to make Lido happen specifically and I wish there was just transparency behind that.

I have indifference on the Lido LS Whitelist especially if we’re doing to fund this, but I do see the value in using community funds to help consumer chains. Maybe we use this in sort of a venture arm, or another way to continue having bootstrap funds as time goes on.

Please correct me if I am wrong, this proposal will decrease staking rewards because 75% of fees will be redirected to a DAO?

Also, which validators will provide liquid staking? Is it Lido and then we validators must turn our wallet keys over to Lido? If so, not sure this is a proposal we can support at Blocks United.

Hi there. We have only pre committed a portion of these funds (50k) to the P2P team for a DeFi Hub which would host the Lido liquid staking protocol. The rest of the funds would go to blue chip projects on a discretionary basis. If there is not sufficient demand, the unused funds would be sent back to pool.

Obviously, everything is on chain and the funding committee would share all funding updates to the community when/if they arise.

Hey BlockUnited, afaik: • This proposal does not change the staking rewards you’re earning for validating the Cosmos Hub itself. If it passes, it will not reduce these staking rewards, on the contrary, it may increase them: • Currently , Cosmos Hub validators get: Cosmos Hub staking rewards (ATOM) • If this proposal is accepted , Cosmos Hub validators will get: Cosmos Hub staking rewards (ATOM) + 25% of the tx fees collected on the DeFi Hub (DeFi Hub token)* + 25% of the tx fees collected by other Consumer Chains launching with funding from this proposal (in their token). • The final name has not been announced yet • Liquid Staking is built on top of the existing set. This means any validators is free to decide whether or not they want to participate in liquid staking. There is no penalty for not participating, but there is an incentive (more delegations) to do so. Participating to a liquid staking protocol such as Lido does not require handing over your validator’s wallet or private keys. From an on-chain perspective, the main difference is that your validator’s public address has been added to the Validator Registry at the smart contract level. The liquid…

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Are you with the Lido team?

Can you confirm whether or not there is a whitelist controlled by Lido and how a validator gets on that whitelist?

Lido’s exact validator selection method for potential Lido on Cosmos deployment is not finalized yet. This proposal is not about Lido, it’s about funding an interchain secured cosmwasm zone.

I like this proposal, but there are a few reasons why I must vote NO. These are my concerns and I hope they can be addressed: Redundance of DeFi hub: I have read P2Ps article and their plan for the DeFi chain and I must say it is very similar if not the same as Quicksilver (probably even Persistence, not sure about this one). So my question is, should we be earmarking 50k ATOM to bring a functionality that will already exist ? What is the benefit of giving this 50k grant to P2P, when the added utility seems very little? Are there any problems that the Core devs see with Quicksilver or the others that I’m not aware of? I would be much more comfortable supporting a project like Quicksilver with the grant who seems to have more emphasis on decentralization. I agree that competition is good, but then P2P should compete without the grant. Which brings me to my next point: I think this proposal can be split in two. One, to approve funding for ICS projects and potentially the DeFi hub (which I would very much support!). And the second, where we can decide who could build the DeFi hub. Maybe there are other projects/concepts out there for a DeFi Hub/ liquid staking solution that we…

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Does this proposal give ATOM tokens to the liquid staking provider? Will it be Lido? Lido v1 does require validators to send their wallet NFTs to a smart contract. V2 supposedly does not require that.

Here are a few answers to the questions we at P2P were receiving while discussing the proposal: Is P2P getting 150k ATOM? Proposal 72 is asking for 150k ATOM in total, but only 50k ATOM will go to P2P to build Neutron, a permission-less, Interchain-Secured CosmWasm platform for Interchain DeFi. The rest will be distributed by the proposal’s multisig (which includes Zaki, Jack, Jelena and David Feiock) to other projects launching on Neutron or on their own Consumer-Chain. • Isn’t that a lot? Why can’t the projects fund themselves? 50k ATOM (~$400k at current prices) sounds like a lot, but it is a tiny amount when compared to the overall cost of bringing a platform such as Neutron to market, which P2P will cover. The ATOM grant remains important: it is an indication of the community’s support for the project. • Is Lido going to receive ATOM? No, Lido will be funded separately by the Lido DAO. It will not get ATOM from Prop 72. • How will staking rewards for ATOM stakers be affected by Prop 72? Prop 72 offers to collect 25% of the transactions fees generated on Neutron and other Consumer-Chains funded via the proposal. These fees will be paid out to ATOM…

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@jelena @sacha and I have prepared clear and simple responses to many of the community’s questions through an FAQ.

Here is the link: https://hackmd.io/@ssaintleger/prop-72-faq

The goal here is to help governance participants understand the proposers’ arguments clearly and dispel misinformation.

Hope you find our attempt useful as you vote!

Thanks for putting all of this information together, great work!

Hi, this is Jacob from Notional here. We’ve chosen “abstain” as our position on 72, but strongly welcome p2p, lido, neutron, quicksilver, and any legit liquid staking provider. The reality of our conversations with various groups is that we now feel that liquid staking is inevitable, that 72 should have really been majority about liquid staking, and that it’s most likely that 72 should simply have affirmed that we were building neutron, and sent payment directly to the p2p validator’s wallet. I have all kinds of questions about neutrality and what have you but the situation with liquid staking is relatively clear: it is going to happen and it will happen best if there are numerous liquid staking participants. So it’s going to be our policy on ongoing basis to look for governance proposals that directly pay out to their principles. For example in this case that would mean that the payment goes directly to the P2P validator instead of to an intermediary multi signature. I remain strongly convinced that the cosmos hub should fund consumer chains and that in order to do so in a way that allows the nearest possible tracking expand and mapping of spend to results for the holders…

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Hi, this is Jacob from notional with another update about consumer chains on the hub. My advice to Lido / p2p, if they wish to continue down this path, is that they really, really carefully watch what they say. For example, you could get smacked around with the hub’s huge CoC or dumped on by the interchain foundation’s favorite validators: mintscan.io Interchain Explorer by Cosmostation Interchain block explorer and data analytics for sovereign blockchain networks. If you were to question the destruction of the marketplace for validation on the hub by the interchain foundation, this might happen: raw.githubusercontent.com Letter%20to%20the%20cosmos%20ecosystem%20concerning%20the%20care%20and%20maintenance%20of%20the%20cosmos%20hub.pdf 3.34 MB The gentleman threatening me since I “tweeted too much” during prop 69 – is the first interchain employee that I approached about my concerns about the random string validator. I tried to pave the way for greater safety for consumer chains on the hub, and that was shut down too: github.com/cosmos/gaia Delete CODE_OF_CONDUCT.md…

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I think Cosmos Hub as a community and the by-side organisations has proven thoroug the last five years that there’s an unwavering vision for interchain, dedication to push out great systems - and that all despite the internal conflict in the community and between key contributors. I think that being under Cosmos Hub’s governance umbrella is a good place for us.

Just so you know I’m not actually referring to the hubs governance umbrella which you’re probably right is just fine. I am referring specifically to the code management practices used on the hub .

Just so you know, the hub could be an ideal place for neutron. But right now I don’t think that it is. Reason being, the software development team does not listen. If you go to them with concerns, they may literally instead of trying to address your concerns or even conversing with you say that you have violated the code of conduct for the cosmos hub which is sprawling and vague.

“better not tweet too much”- you mean, like, incessantly? Like 500 times/day in long threads on everyone in the ecosystem’s tweet replies? Directly @ing everyone your current daily fixation is even tangentially related to?

Your style is not productive for good faith discourse is the real problem.

so strange how issues like this:

Interchain Explorer by Cosmostation

Interchain block explorer and data analytics for sovereign blockchain networks.

and this

Letter%20to%20the%20cosmos%20ecosystem%20concerning%20the%20care%20and%20maintenance%20of%20the%20cosmos%20hub.pdf

3.34 MB

keep being made about myself. They aren’t. Good day anon.

In the Twitter spaces hosted my cryptocito Jelena and the Neutron devs said the chain would use ATOM as its native token and thus be accretive for ATOM’s value. That was an important fact for us, because the proposal read like a validator trying to launch their own chain/token, get rich and have community funds pay for it.

This morning on Twitter i saw that Neutron is launching their own token, which seems to be the opposite of what we were told. Will you please help me understand where I’m wrong?

I think there’s a confusion here between “native token” and the token used to pay gas fees. Here is what the proposal says, which is what was discussed during the Twitter Spaces: jelena: Majority of gas fees go to developer DAO: On this type of consumer chain, gas fees are paid in Atoms. For example, 25% of the gas fees are sent to the Cosmos Hub validators and delegators for securing the chain, and the remaining 75% go to a DAO supporting the development of the consumer chain. […] This DAO is token-governed , and also has the authority to upgrade the contracts. This is what the token we announced is for So far, gas fees on Neutron are slated to be paid in ATOM tokens only. This drives some value to ATOM but also results in a much worse UX. Imo, a better solution would be to allow fees to be paid in any token and swap 25% to ATOM to distribute to Cosmos validators and stakers. This would result in the same amount of lasting value accrual and a much better UX, which is why I think it’s worth discussing as a community. In any case, Neutron is bringing smart-contracts and activity under the purview of the Hub, meaning it allows the Hub to capture revenue that…

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Yes, governance token. Right.
How does using ATOM as the gas token result in a much worse user experience?

A few examples

Atom only:

• Need to get ATOM + what you want to use on Neutron and bridge both to get started
• You can get stuck if you send all of your ATOMs to another wallet/chain (instead of being
• Paying fees in stablecoins is more legible and isn’t frustrating when ATOM moons

With all tokens as fee tokens:

• Just bridge whatever you want to use on Neutron
• You can transact as long as you have assets on Neutron
• You can pay fees in stablecoins, in other tokens you earn as rewards but don’t want to keep, etc.

If I was voting?

All tokens.

But there’s a bunch of decisions and code between here and there-- probably most importantly where the price feeds come from, and what to do with them.

For sure, the devil is in the details! I’m happy to ask the team for a detailed spec of how this could be implemented to present it to the community.

Happy to discuss what you think is the best way to implement too.

If it were up to a vote now, I’d vote to keep ATOM as the gas token on Neutron. That’s what proposal 72 promised, value accrual to ATOM through projects built on Neutron, needing it for gas. Trying to change it feels hella deceptive to me. Having an ATOM faucet for people on Neutron will likely alleviate the issues you mentioned. Additionally, warning or instructing people to bridge ATOM tokens over to Neutron before bridging any other token will help.

We run a Polygon validator node too and people make the mistake of bridging their stable coins over before bridging their MATIC tokens over and they get stuck. The Polygon team set up a gasless swap feature so folks who are stuck can swap their stables for MATIC and they’re good to go.

1. Warn people to bridge ATOM to Neutron before bridging any other token.
2. Have an ATOM faucet on Neutron.
3. Have a gasless swap feature

This proposal has spurred a lot of healthy debate but it’s absolutely fair to clarify this point before submitting the proposal on-chain, since it is extremely important. Looking forward for your detailed spec.

Absolutely, we have no intention of making such a change against the will of the community. I’m a bit confused as to what here can be construed as “deceptive”:

I am simply stating that I believe that there is a better solution, that is (at least) as beneficial to ATOM and the Cosmos Hub (if not more in the long term), and that I’d like it to be discussed and eventually voted on by the Hub’s community.

Proposal 72 calls for ATOM to be the gas token on Neutron. Introducing the idea to change that right after the propsal passed feels like the plan was never to use ATOM as the gas token at all and tricking the community.

Please help us understand how using any token other than ATOM for gas on Neutron accrues value toward the ATOM token.

In the current model, only 25% of the fee create lasting buy pressure on ATOM.

What I am proposing does not change that, but it gives Neutron a better UX, making it more likely to be successful, thereby increasing the fee volume itself, and hence the Cosmos Hub’s cut too.

After going through all the conversations till the end. I have the same questions as @robert.zaremba.

@jelena Can you give your thoughts on the above questions?

Spaydh, I think that this: github.com/CosmWasm/wasmd Proposal: Use osmosis-labs/cosmos-sdk as default import opened 03:08PM - 15 Aug 22 UTC ethanfrey Given the poor track record of the upstream cosmos-sdk repo: * Development on … the upstream cosmos/cosmos-sdk repo has been painful slow * QA has historically been very poor and I would wait for 4+ mainnet deployments (and a 0.47 or 0.48 release) to consider the current 0.46 branch safe * The major feature in 0.46 (groups and govs) is not so useful for CosmWasm chains and brings a very dangerous attack surface * The defence of heavy use of non-deterministic items in the repo, which they don't even see as bugs to be fixed (last 2 Juno halts were shrugged off as "expected behavior" from their side) * Lack of progress on features many chains have requested (like faster storage layer, solid orm) Given the solid track record and aligned goals of osmosis-lab's fork: * Patching a number of 0-day exploits before the upstream SDK * Making a number of performance improvements * Desire to replace all use of `map` with `BTreeMap` generic or such, to avoid random sort order *…

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Thank you for bringing this to my attention Jacob

如何看待neutron这个项目？水水水水