Written by: Tia, Techub News

Cosmos is also about to start the ATOM War. I couldn’t help but feel sad when I first saw it.

Sigh, although I personally think this is actually a desperate move, a good project should develop its advantages rather than change the status quo by forced financing. The last project that hard-financed the ve token economic model, Balancer, did not make much splash after the release of the ve token economic model. But we should always have hope, right? What if it succeeds?

The narrative of Cosmos is sovereignty. Its one-click chain-launching function allows applications that are not adapted to the "native" chain environment to have the right to launch their own chains. Applications no longer need to rely on sovereign chains. Cosmos directly gives them the right to set up their own businesses. Therefore, it was once considered the habitat with the most crypto spirit, and many developers also love Cosmos. The founder of Celestia also said on Interchain Travel that Cosmos is his spiritual home.

Although the Cosmos ecosystem is strong, many great projects have launched chains through Cosmos. However, ATOM, the governance token of the Cosmos Hub, has not gained any benefits from it (it is also a trade-off made to give economic sovereignty to projects that launch chains on Cosmos), and was even ridiculed as a meme coin. But as a project that is still being updated, Cosmos cannot just be a public good that is not profitable. Cosmos Hub and ATOM are the first and largest source of funds for the development of IBC, Cosmos SDK, CometBFT, and the rest of the Cosmos stack, and the community funding pool has been underfunded for many years. The Cosmos Hub needs to find a way to get some of the benefits from the ecosystem to support its continued development.

ATOM War

The term "ATOM War" comes from the Curve War on Ethereum. In Curve, liquidity providers can get two types of incentives: the transaction fee of the pool and additional CRV incentives. The CRV incentive is determined by voting. In order to get the highest CRV incentive for their pool, they will be forced to buy governance tokens CRV to lock them up in order to get higher voting rights. As the demand for locking CRV increases, the price will rise, which will increase the APY of the pool and attract more liquidity providers, thus forming a flywheel effect.

ATOM War is a continuation of Cosmos 2.0 in a sense. Since the liquidity staking module has been developed, ATOM stakers can convert the staked ATOM into "DelegationShares" through the liquidity staking module, and then obtain hATOM by locking "DelegationShares" to the new governance platform Hydro to enjoy voting rights. Different lock-up periods can obtain different levels of Voting Power.

Usually, the Cosmos ecosystem has a demand to request liquidity from the Hub. Taking Proposal 853 as an example, pSTAKE Finance requested the Hub to allocate 600,000 ATOMs. This part of ATOM is mainly to provide stkATOM/ATOM LP to the Cosmos ecosystem DEX. 300,000 ATOMs are used to pledge to obtain stkATOM, and then form stkATOM/ATOM LP with the remaining 300,000 ATOMs. There are two places where income can be generated. One is to pledge ATOM to obtain stkATOM, and the other is LP income. pSTAKE promises to share 15% of the income with the Hub and waive the 5% protocol fee.

Therefore, the Cosmos community came up with the idea of ​​ATOM War, which is to let all parties with funding needs for ATOM compete for funds. Of course, the initial liquidity comes from the Hub community pool. According to the proposal, the initial funds are 1 million ATOM (about 1/3 of the current community funds).

Projects that need liquidity support must register on the Hydro platform’s whitelist and describe in detail the purpose of the funds, the revenue shared with the Hub community pool, and the bid for hATOM voters (i.e., the amount the project is willing to pay to its hATOM supporters in order to win the auction). hATOM holders then vote based on this information, and the project with the most votes will receive liquidity from the community pool.

However, bidding can easily lead to a disadvantage, which is that it can easily lead voters to support "high-yield, high-risk" projects. The Curve USDM stablecoin pool is a lesson learned. Therefore, Hydro has added an "Incentives alignment" mechanism. If a project does not manage funds well, the voters who support the project will be punished accordingly; and if a project makes good use of the funds it has obtained and ultimately performs better than expected, the voters who support the project will be rewarded.

The relationship between Cosmos Hub and Cosmos ecological projects is actually very subtle. On the one hand, Cosmos grants ecological projects the highest authority of freedom - economic freedom, but on the other hand, Cosmos Hub is still responsible for the development direction of each component of Cosmos and plays a decisive role. Hub leaves economic issues to itself. Ecological projects do not have any tax system after enjoying various convenient services of Cosmos. But Hub should find a way, because this involves not only financial and economic issues, but also governance. Ecological projects are stakeholders of Cosmos. Regardless of whether ecological projects are aware of it or not, as Hub, it is obligated to let the ecology participate in governance, whether actively or passively.

Hub has been talking about enhancing ATOM's ability to serve as a reserve currency. ATOM War can help achieve this goal to a certain extent, but is it really a good idea to economize governance tokens? I think that before ATOM War, it may be more important to find the Hub's positioning and the significance of its existence than ATOM War itself.