Agoric Cosmos Hub Proposal

This proposal is to pilot an allocation of 4% of Cosmos Community Pool’s idle ATOM for liquid staking on Stride (stATOM) and Persistence (stkATOM) and use these tokens throughout the Cosmos Ecosystem to deepen liquidity while generating value for the Hub. The staked assets will deposit stATOM and stkATOM into Inter Protocol Vaults to mint IST and provide LP to numerous liquidity pools throughout the Cosmos ecosystem. This increases the Community Pool’s capital efficiency of the idle ATOM, earning a projected yield of 18-19% annually on deposited ATOM. This proposal increases ecosystem use, increases network effects, deepens liquidity in Cosmos, strengthens relationships, and earns a high net yield for the Cosmos Hub. After an initial 3-month period, an additional 6% will be allocated to achieve a 10% total allocation of Community pool to earn these ecosystem and staking rewards, deepening Cosmos liquidity throughout various appchains.

TL;DR

  • 4% of Cosmos Community Pool ATOM to be staked via stATOM and stkATOM in the first quarter as a pilot program, increasing by 6% to achieve a total 10% of Cosmos Hub Community Pool to this opportunity. Deposit 4% stATOM and stkATOM to an Inter Protocol vault to mint IST. Take the IST to Osmosis, Astrovault, Astroport, Shade, and Quasar to provide IST/stablecoin liquidity to various Cosmos stablepools. Stableswap yield is expected to remain around 10%, increasing total capital efficiency on the original ATOM by 18-19% with an estimated APY of 18-19% based on current market conditions (market conditions subject to change).

The split of minted IST to be used in Cosmos DeFi is proposed to be as follows:

  1. 30% to Osmosis IST/USDC Concentrated Liquidity pool
  2. 25% to Astroport IST/USDC.nbl pool
  3. 15% to Astrovault IST/USDC.nbl pool
  4. 15% to Shade IST/SILK pool
  5. 15% to a Quasar IST/USDC vault

Incentives on these pools will further increase the total yield earned by the Cosmos Hub assets, which will be held in the community treasury. These incentives will be paid out in the DEX’s governance token, effectively resulting in Cosmos Hub receiving a basket of various Cosmos governance tokens. On top of this, additional yield is anticipated from swap fees generated on each DEX.

Proposed Use of Funds

The funds are proposed to be allocated in the following way:

  • 90% of ATOM allocation to be staked with Stride and Persistence

    • If only stATOM is approved as vault collateral when the proposal passes, then all ATOM will be staked as stATOM at first
    • Once stkATOM is onboarded as Inter Protocol vault collateral, 10% of the ATOM from the community pool will be converted to stkATOM and the following strategies below will be carried out:
  • Deposit staked ATOM to an Inter Protocol vault to mint IST.

    • Take the IST from above to each DEX to provide IST/stablecoin liquidity to each DEX stablepool
  • The split of minted IST to be used in Cosmos DeFi is proposed to be as follows:

    • 30% to Osmosis IST/USDC Concentrated Liquidity pool
    • 25% to Astroport IST/USDC.nbl pool
    • 15% to Astrovault IST/USDC.nbl pool
    • 15% to Shade IST/SILK pool
    • 15% to a Quasar IST/USDC vault
  • Rewards and yield from positions to go back into Cosmos Community pool, more details below

With a collateralization ratio of 300%, stATOM and stkATOM can yield 18-19% annually via IST/stablecoin positions throughout Cosmos ecosystem LP positions, increasing total community pool by 60,000 ATOM (~$700,000) per year.

Rationale:

  1. Increase Cosmos Community Hub capital efficiency assets that are currently idle.
  2. Exemplify the composability and interoperability of Cosmos projects, increasing network effects among many prominent high value projects in the space.
  3. Deepen liquidity of Cosmos assets across DeFi.

Implementation Details

Multisig for Fund Management

This is the proposed plan:

  • Execution: the proposal will direct funds to an administrative 5/7 multisig. The members agree to reasonably implement the process below on behalf of the voters. However they are not responsible for the financial outcomes or correctness of the associated systems

  • Fund Utilization: Period funds will be allocated for a year by default. Governance can enact early withdrawal or extend the allocation.

  • Funds and proceeds are returned at the end of the Fund Utilization Period. That may require unbonding and so could take up to 25 days to complete.

  • The multisig will serve as custodian for the funds. After extensive consultation with Cosmos community contributors and stakeholders, we propose the inclusion of the following active and trusted contributors from the Cosmos ecosystem for the multisig:

Zaki Manian
Riley Edmunds
Dean Tribble
Josh Lee
Bart Van der Voort
Carter Woetzel
Jack Zampolin

Please note: The funds under the multisig will be deployed based on decisions made by the Cosmos Hub governance. Multisig participants will act as stewards, utilizing the funds in accordance with governance directives.

Once there is innovated technology for this class of fund management (i.e. Covenant as built by Timewave) there will be an opportunity for the community to vote to employ the use of that technology and phase out multisig handling of funds.

Fund Utilization Period

It is proposed that the allocated funds remain within the proposed protocols for an initial duration of one year. This implies that the funds will be held within the proposed protocols for a period of x+365 days, where x represents the days until the funds are transferred to the multisig.

However, the allocation can be re-evaluated through $ATOM governance at any time, allowing for potential withdrawal at any time in the future. Once the funds are unbonded, the return process may take 21-25 days following the approval of the proposal.

Positions within Inter Vaults will be adjusted if a 50% price decrease is observed. In case of debt pay-off, debt will be paid off equally on all positions. This will occur on a quarterly basis by the multisig stewards. Rewards from various LP positions will be harvested quarterly.

The proposal begins with a 3 month pilot program with 4% of Cosmos Community Pool ATOM. Following this, an increase of 6% will be implemented to achieve a total 10% of Community Pool ATOM earning ecosystem rewards, staking rewards, and deepening liquidity throughout major Cosmos Appchains.

The community will have an opportunity to extend after 1 year via a follow on proposal.

Liquidity Provisioning on Cosmos DEXes

Liquidity providers can earn rewards through multiple mechanisms, including: LP yield, generated from swap fees within the underlying liquidity pair, and incentives that often require bonding liquidity for a specified period.

The assets can be deployed to on each DEX and left unbonded to facilitate swift withdrawal in response to governance decisions or market volatility. Alternatively, bonded positions could be chosen which would lead to larger rewards in certain ecosystems (i.e. Superfluid rewards on Osmosis). The community can vote on whether assets will be bonded or unbonded in a following prop prior to deploying assets in accordance with this proposal. LP fees and additional incentives will be harvested quarterly by the multisig.

Provide Feedback

As we move closer to consolidating this discussion and preparing a governance proposal, we invite everyone to share their thoughts. Your continued feedback and input are crucial in shaping the final version of the proposal. Please add your thoughts, feedback and comments to the discussion forum.

Thank you for your active participation, and we look forward to the final stages of this collaborative process.


Updated proposal text for the on-chain governance proposal:

DCF - Agoric Cosmos Hub Proposal

This proposal is to pilot an allocation of 4% of Cosmos Community Pool’s idle ATOM for liquid staking on Stride (stATOM) and Persistence (stkATOM) and use these tokens throughout the Cosmos Ecosystem to deepen liquidity while generating value for the Hub. The staked assets will deposit stATOM and stkATOM into Inter Protocol Vaults to mint IST and provide LP to numerous liquidity pools throughout the Cosmos ecosystem. This increases the Community Pool’s capital efficiency of the idle ATOM, earning a projected yield of ~18% annually on deposited ATOM. This proposal increases ecosystem use, increases network effects, deepens liquidity in Cosmos, strengthens relationships, and earns a high net yield for the Cosmos Hub. After an initial 3-month period, an additional 6% will be allocated to achieve a 10% total allocation of Community pool to earn these ecosystem and staking rewards, deepening Cosmos liquidity throughout various appchains. This proposal is coordinated by DCF, the Decentralized Cooperation Foundation, https://dcfoundation.io.

TL;DR

  • 4% (179,071 ATOM) of Cosmos Community Pool ATOM to be staked via stATOM and stkATOM in the first quarter as a pilot program, increasing by 6% (268,606 ATOM) to achieve a total 10% of Cosmos Hub Community Pool in the next quarter to achieve a final amount of 447,677 ATOM devoted to this effort. Utilize the 179,071 ATOM to mint stATOM and stkATOM to an Inter Protocol vault to mint IST. Take the IST to Osmosis, Astroport, Shade, and Quasar to provide IST/stablecoin liquidity to various Cosmos stablepools and increasing total capital efficiency on the original ATOM by ~18% based on current market conditions (market conditions subject to change).

The split of minted IST to be used in Cosmos DeFi is proposed to be as follows:

  1. 30% to Osmosis IST/USDC Concentrated Liquidity pool
  2. 25% to Astroport IST/USDC.nbl pool
  3. 25% to a Quasar IST/USDC vault
  4. 20% to Shade IST/SILK pool

Incentives on these pools will further increase the total yield earned by the Cosmos Hub assets, which will be held in the community treasury. These incentives will be paid out in the DEX’s governance token, effectively resulting in Cosmos Hub receiving a basket of various Cosmos governance tokens. On top of this, additional yield is anticipated from swap fees generated on each DEX.

Proposed Use of Funds

The funds are proposed to be allocated in the following way:

  • 90% of ATOM allocation to be staked with Stride and Persistence

    • If only stATOM is approved as vault collateral when the proposal passes, then all ATOM will be staked as stATOM at first
    • Once stkATOM is onboarded as Inter Protocol vault collateral, 10% of the ATOM from the community pool will be converted to stkATOM and the following strategies below will be carried out:
  • Deposit staked ATOM to an Inter Protocol vault to mint IST.

    • Take the IST from above to each DEX to provide IST/stablecoin liquidity to each DEX stablepool
  • The split of minted IST to be used in Cosmos DeFi is proposed to be as follows:

    • 30% to Osmosis IST/USDC Concentrated Liquidity pool
    • 25% to Astroport IST/USDC.nbl pool
    • 25% to a Quasar IST/USDC vault
    • 20% to Shade IST/SILK pool
  • Rewards and yield from positions to go back into Cosmos Community pool, more details below

With a collateralization ratio of 500%, stATOM and stkATOM can yield ~18% annually via IST/stablecoin positions throughout Cosmos ecosystem LP positions, increasing total community pool by 72,628 ATOM (~$978,980) per year.

Rationale:

  1. Increase Cosmos Community Hub capital efficiency assets that are currently idle.
  2. Exemplify the composability and interoperability of Cosmos projects, increasing network effects among many prominent high value projects in the space.
  3. Deepen liquidity of Cosmos assets across DeFi.

Implementation Details

Multisig for Fund Management

This is the proposed plan:

  • Execution: the proposal will direct funds to an administrative 5/7 multisig. The members agree to reasonably implement the process below on behalf of the voters. However they are not responsible for the financial outcomes or correctness of the associated systems

  • Fund Utilization: Period funds will be allocated for a year by default. Governance can enact early withdrawal or extend the allocation.

  • Funds and proceeds are returned at the end of the Fund Utilization Period. That may require unbonding and so could take up to 25 days to complete.

  • The multisig will serve as custodian for the funds. After extensive consultation with Cosmos community contributors and stakeholders, we propose the inclusion of the following active and trusted contributors from the Cosmos ecosystem for the multisig:

  1. Zaki Manian
  2. Riley Edmunds
  3. Dean Tribble
  4. Josh Lee
  5. Bart Van der Voort
  6. Carter Woetzel
  7. Jack Zampolin

Please note: The funds under the multisig will be deployed based on decisions made by the Cosmos Hub governance. Multisig participants will act as stewards, utilizing the funds in accordance with governance directives.

Once there is innovated technology for this class of fund management (i.e. Covenant as built by Timewave) there will be an opportunity for the community to vote to employ the use of that technology and phase out multisig handling of funds.

Fund Utilization Period

It is proposed that the allocated funds remain within the proposed protocols for an initial duration of one year. This implies that the funds will be held within the proposed protocols for a period of x+365 days, where x represents the days until the funds are transferred to the multisig.

However, the allocation can be re-evaluated through $ATOM governance at any time, allowing for potential withdrawal at any time in the future. Once the funds are unbonded, the return process may take 21-25 days following the approval of the proposal.

Positions within Inter Vaults will be adjusted if a 50% price decrease is observed. In case of debt pay-off, debt will be paid off equally on all positions. This will occur on a quarterly basis by the multisig stewards. Rewards from various LP positions will be harvested quarterly.

The proposal begins with a 3 month pilot program with 4% of Cosmos Community Pool ATOM. Following this, an increase of 6% will be implemented to achieve a total 10% of Community Pool ATOM earning ecosystem rewards, staking rewards, and deepening liquidity throughout major Cosmos Appchains.

The community will have an opportunity to extend after 1 year via a follow on proposal.

Liquidity Provisioning on Cosmos DEXes

Liquidity providers can earn rewards through multiple mechanisms, including: LP yield, generated from swap fees within the underlying liquidity pair, and incentives that often require bonding liquidity for a specified period.

The assets can be deployed to on each DEX and left unbonded to facilitate swift withdrawal in response to governance decisions or market volatility. Alternatively, bonded positions could be chosen which would lead to larger rewards in certain ecosystems (i.e. Superfluid rewards on Osmosis). The community can vote on whether assets will be bonded or unbonded in a following prop prior to deploying assets in accordance with this proposal. LP fees and additional incentives will be harvested quarterly by the multisig.

12 Likes

I think that this is a great step towards stimulating stable liquidity in Cosmos, and is definitively more impactful and profitable for the Hub than how funds are currently deployed.

Easy yes in my opinion.

5 Likes

Said this last time there was a POL request. Liquidity should come at a cost. This might been LP upside should be shared but we must move on from the early POL agreements and eventually update them.

4 Likes

Can we lay out more concrete numbers and more context? One thing in favor of this is that the interest rate (stability fee) on the minted IST debt was lowered, for all collateral types (at the time, there were only two), from 2.5% down to 0.75% in January.

There’s currently over 4 million ATOM in the Community Pool. 4% of that is 160,000 ATOM, which at a price of $10 would be $1.6 million worth of collateral. At the proposed 300% collateralization ratio, that allows minting a bit over 500,000 IST.

The proposed bump upping that amount to 400,000 ATOM would allow minting a bit over 1,300,000 IST.

Is that correct? Because on top of what’s already been minted by others against stATOM, that would exceed the mint limit for stATOM collateral (the app says 1.29MM out of 2MM is available for minting against stATOM).

You mention stkATOM too but right now there are 4 types of Vaults to mint IST with: ATOM, stATOM, stOSMO, or stTIA. stkATOM doesn’t look like it’s live yet, it’s being onboarded with a proposed limit of 600,000 IST. That would add enough room for this proposal, but there would be much less room for anyone else to mint.

There’s real adoption for using stATOM as Vault collateral, they raised the mint limit to $2MM in December due to nearing the old limit.

But if Community Pool funds get staked as stATOM and deposited to mint IST, that might crowd out the more organic demand due to the mint limit. Meanwhile, virtually nobody is minting IST with ATOM. Why not use ATOM as collateral directly, without liquid staking?

The mint limits for collateral are determined by analyzing the available on-chain liquidity for the collateral assets, right? Would a proposal that also deepened ATOM/stablecoin liquidity on Astroport help Inter Protocol safely raise the current somewhat restrictive mint limits?

3 Likes

Why are we choosing IST over say SILK? Assuming the USK issue is it being closed source & CDT bc its miniscule in size.

SILK has 4,295,841 supply, $4,888,433 MC.
IST has 1.55M supply

This would be increasing IST’s supply by 33%.

6 Likes

Wait, this makes no sense. If a 50% price decrease is observed, the Vaults will have already been liquidated. If you start at a collateralization ratio of 300%, a 50% drawdown leaves the Vault at 150%. An stATOM Vault has a Liquidation Ratio of 160%. (And for ATOM the LR is exactly 150%.)

1 Like

I’m curious why there was no attempts to coordinate this with the Informal team. ATOM wars and Timewave are designed precisely to provide a proper framework for this

6 Likes

Hello Thyborg. We have of course had conversations with a number of stakeholders, for example we did speak with Bryan (Informal) at ethDenver. While we are certainly happy to see frameworks such as ATOM Wars beginning to emerge, we decided to proceed ahead with a smaller proposal to get the ball rolling. We are happy to work with you and others on both getting this out and having future revisions dovetail with broader community efforts.

3 Likes

A couple of points here to explain our thinking a bit: First, IST is the not only a bit older, but also the more open and decentralized protocol. Second, DCF and Agoric are both acting as sponsors on this, so it naturally aligns with IST. And, finally, we at DCF are quite bullish on the security model of the Agoric VM and we believe that makes IST the better option for the Hub, given the source and nature of the funds.

3 Likes

Great, let’s do that then, here’s my Calendly

3 Likes

Cool. Just grabbed us a time. Thx!

“Because on top of what’s already been minted by others against stATOM, that would exceed the mint limit for stATOM collateral (the app says 1.29MM out of 2MM is available for minting against stATOM).” This is why there is a phased approach, as mint limits can be increased by the Economic Committee

1 Like

The greatest benefit of this proposal is that it allows Cosmos Hub an opportunity to deepen liquidity throughout various Cosmos ecosystems, while at the same time increasing overall capital efficiency of Cosmos assets

4 Likes

@IPFred Do you think you can have someone enable github login for the Agoric Discourse forum?

Proposal doesn’t mention that the potential profits and risks of this proposal depend on parameters that Inter Protocol can change at any time.

The stability fee is currently 0.75%, but the Economic Committee can (and should) readjust it in response to evolving market conditions and demand for IST. If the stability fee ever rises to a level where the debt grows faster than the liquidity earns yield, the debt should be wound down by the multisig.

The Economic Committee also has the ability to raise the Liquidation Ratio, so it would help if the proposal included discussion of what each collateral’s LR currently is, the possibility of the LR being changed, and a provision that either commits to not raising the LR for 1 year, or commits to providing substantial advance notice before it does get raised.

Can you explain where you’re getting these numbers from and why anyone would expect them not to change over the next year? (Why the passive voice, ‘is expected’ by who?) Pool 1220 on Osmosis doesn’t show a 10% annual yield, not even after you add on the current extra +5.8% from the artificial OSMO incentives. Pool 1224 earns even less in swap fees. The liquidity in Astroport-Neutron’s USDC.axl - USDT.axl stable pool dried up very recently and doesn’t seem to be earning that kind of yield naturally, it has ASTRO incentives boosting the APR by +22.43% right now.

What would make providing liquidity for a IST/USDC.nbl stableswap more profitable than minting IST and swapping it for bridged sDAI?

It looks like IST isn’t listed as an asset by Astroport on Neutron. (Neither is BLD.) You’d need to submit a pull request adding your tokens to

This proposal should probably be explicit about: a) how many of these DEXes currently list IST, and b) what efforts are being made to add IST to the DEXes that don’t.

That said, is 5 different DEXes essential to the proposal? DEX aggregators should allow selecting the best route regardless of where the liquidity lives, and a previous proposal about liquidity on Osmosis had a lot of discussion that leaned towards favoring a Neutron-based DEX:

Something like this proposal might make sense, but ideally

  • it’s mutually beneficial, and shows how it’s more beneficial than alternatives.
  • it thoroughly documents all the risks, including risks of liquidation and unprofitability, and includes provisions that mitigate them.
  • it requests a specific amount of ATOM in either dollar terms or ATOM terms, not some percentage of whatever the Community Pool holds right now.
  • it doesn’t result in owing a debt of more than 20% of the total supply of IST.
  • the debt doesn’t exceed 50% of the mint limit for ATOM collateral.
  • the debt gets paid down if it ever exceeds those limits (or whatever debt limits get decided on).
3 Likes
  1. According to this quote, you are going to LP IST with USDC. Where will you get these USDC to LP them with IST?

  2. I don’t think it’s possible to compare the risk/potential profit. Most of the profits come from staking, not from the stablecoin’s yield. Why don’t you specify the risks, for example, the possible liquidation of the vault if the collateralization rate drops below the liquidation rate?

  3. Why should the Cosmos Hub support Inter specifically? Agoric is not a consumer chain and does not provide benefits to the Cosmos Hub itself.

3 Likes

Potential profit is 18-19% based on a collateralization ratio on the overall position of 350 - 440%, which is a very conservative position.

The yields at different collateralization ratios (that the Hub can choose) are as follows:

  • 350% : 18.5% APY
  • 400% : 18.19% APY
  • 440% : 18% APY

These calculations take into account the collateralization ratio, liquidation ratio (160%) and Inter Protocol vault fee.

The net yield is shown in the APYs above.

1 Like
  1. We have an incentive budget to incentivize the Osmosis IST/USDC pool which would increase depth to the point that it could sustain this swap. This has been the favored option. Alternatively, if the Quasar pool is set up by the time of implementation here, that is another option.

  2. The largest risk is liquidation. Thus, in these estimates the collateralization ratio has been set to a conservative 350-440% range. The Hub would decide exact params of the position with a following prop. If ATOM price decreases by 25% or more, the multisig signers and community will adjust or close the position based on risk tolerance.

  3. Agoric is greatly aligned with Cosmos in that it locks up ATOM and increases the utility and capital efficiency of the asset. All of this helps the greater Cosmos ecosystem, increases ATOM demand, and favorably impacts the ATOM token economy.

1 Like

Nice idea!
We will support this proposal with the POSTHUMAN validator!

2 Likes

Looks good, but the imbalance between Stride and pStake is somewhat concerning.

This would amplify the dominance of stride. No one wants a new Lido situation.

6 Likes

Sounds like a great proposal to put some idle ATOM to work! Really interested in the potential to earn more on our community pool. One thing I noticed is the split between allocating IST to Stride (stATOM) and Persistence (stkATOM). While I appreciate the diversification, a 50/50 split might be more fair. Just thinking out loud, maybe we could even base it on market cap or TVL of each project? Another option could be to let the community vote on the final percentages but I personally favor a fairer spread on both providers.

Also, it would be awesome to see a plan for managing risk, like having stop-loss limits in place. Transparency on fees would be great too, so we know exactly what we’re getting into.

Overall, this seems like a really positive step for Cosmos Hub. Looking forward to seeing how it plays out!

5 Likes