ATOM needs to capture more ecosystem value

Hey guys, I think we are all here for the same reason. We love and want to support Cosmos. But lately I have been more and more fed up with the fact that even though Comsos is a great place to build and run applications, it is very bad at actually capturing the value that is created.

Here are some reasons:

  • The SDK is used by numerus big chains(like BSC) but the ecosystem doesn’t profit
  • Inflation sometimes seems uncontrolled
  • IBC is a great tech but also pushes ecosystem growth apart due to different gas on every chain(There needs to be a solution for a more corelated growth. At least for the ATOM Token itself.)
  • As an Interoperable ecosyststem not enough ressources are dedicated to smaller ecosystem chains(maybe in a future iteration of ICS)

What do you guys think? Please correct me if I’m wrong and let me know if you have some arguments or interesting updates. Let’s keep hodling!

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Why were the Allocator and the Scheduler proposed in ATOM 2.0?

The reason the allocator was proposed is that liquidity is much stickier than security and holding a significant fraction of ecosystem tokens in the Atom community pool would align incentives better.

The scheduler was intended to capture cross chain order flow in a way that has instead become something largely owned by Skip.

Security is not really a sticky property. Security is not a user facing property of a system and the devs can swap security providers without users noticing.

So what ever atom does, it needs to focus on features of the system that are user facing.

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To share some context to the readers, the “allocator” has now been revamped to the Atom Alignment Treasury (AAT) built buy Binary Builders. On the other hand the “scheduler” is in the roadmap and corresponds to the Informal research on megablocks (or Atomic IBC capability). To share some more context, here is a quote from the Informal/Hypha 2024 roadmap that we have funded via [Proposal #839]:

  • Research and development to expand the market for existing features and bring new features to the Cosmos Hub
    • Research Partial Set Security to reduce costs on the validator set, and allow a greater number of consumer chains to join.
    • Research Atomic IBC to bring lower cost operation and atomic composability to Cosmos Hub consumer chains.
    • Assistance on Mesh Security development, deployment on the Hub, go to market, and research on complementary features to give the Hub a new way to share its security and even consume security.
    • Go to market and deployment for ICS33 IBC routing to allow Cosmos chains to route IBC packets transparently over the Hub to reduce IBC costs throughout the ecosystem.

Source: [Proposal #839][ACCEPTED] Fund 2024 Hub development by Informal Systems and Hypha Worker Co-op

Analysis:

From this point of view, the Hub has a roadmap and it is extremely close to the vision shared in the ATOM 2.0 whitepaper. This roadmap is incredibly solid and offers a well balanced structure. However, within the Cosmos community, there’s a sense of confusion and stagnation. We attribute this to two main factors:

  1. The lackluster performance of ATOM relative to other crypto assets. We have highlighted the huge correlation exising between the ATOM.D charts (tracing the Cosmos Hub’s dominance against the total crypto marketcap) and the sentiment. This chart currently plots near all time low levels, transposing into one of the most bearish sentiment within the community.
  2. The absence of marketing for the Hub and the AEZ relative to the rejection of a Business Development team inside the AADAO prior to their grant allocation renewal in [Proposal #895]. Since that date, there has been no apparent work to create a BD team to coordinate and foster marketing. Consequently, we have a community that lacks understanding of the developments within the Hub.

Conclusion:

We think ATOM’s number one mission in the short term is not to capture more ecosystem value, it should be to assess the real underlying problem we face at this crucial moment.Firstly, acknowledging the erosion of confidence due to low relative performance. Secondly, recognizing the need for better communication with the community to restore legitimate investor confidence. Informing them about the products being developed is crucial in this scenario. At Govmos, we recall the days of “Cosmos Signal” Keynotes presented by @peng, and we believe that reviving such events could be beneficial. We will initiate a dedicated post to spearhead this discussion and hope to see active engagement from the community.


Thanks for reading!
Govmos
pro-delegators-sign

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Simple solution: hardcode into IBC that 5% of the fees will be distributed to ATOM stakers. If we are confident that IBC will be the dominant interchain connection protocol then with this the future of ATOM will be solid.

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I think it is short sighted and a mistake to ignore this. Both need to be done at the same time or ATOM will miss the boat (is in real danger of doing that already) and then we dont have a viable ATOM left to “assess the real underlying problem we face at this crucial moment”.

These are directly linked with a solid case of capturing ecosystem value. Not acting upon this, also in short term, will ensure ATOMs erosion of confidence which you say we have to assess as a priority.

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This isn’t possible. You seem to forget that IBC (and the cosmos SDK by extension) is an open-source protocol. There is no way to impose such a tax on others. This is the reason why Cosmos will succeed where any other Ecosystem failed so far. You can’t capture value in the web3 without bringing utility. Additionally, to secure enduring revenues, a project must be “unforkable,” meaning it must have a significant headstart against any potential competitor that could fork the code and deploy it in parallel. The primary path to become unforkable is to be the most decentralized (fully diluted supply with a variety of competing actors participating) and deliver real value (bringing utility requires constant work to remain competitive). Combining these two factors leaves potential competitors with too high a hurdle to try and compete. Essentially, they will start to cooperate instead of attempting to recreate everything from the ground up. However, if you try to extract too much revenue from the value you deliver, they can start to compete on the margins. The only way to remain in charge is to maintain decentralization and reasonable margins.

Allow us to quote the roadmap one more time!

Now, regarding IBC value capture, this proposition from the roadmap is a perfect example of our previous statement. It provides utility and will be able to charge a relatively small revenue for the service, using the credibly neutral position and the decentralization of the hub to lead in this routing niche. We believe this type of service is perfectly suited for the Hub and will bring sustainable revenues. On the contrary, trying to force a high margin on the routing would destroy our capacity to capture any revenue at all, as competitors would immediately jump in to provide the same service (less decentralized, but still) at a fraction of the cost.

With this example, we hope we were convincing in explaining some of the complexities involved in bringing durable revenue to a crypto project. Using venture capital money (basically debt) is the way to create fast & cheap products. Of course, they compete on margins, but decentralization is their weak point. Thankfully, the hub has a 5-year history, making it the most decentralized blockchain in the Cosmos, therefore being the most suited chain to capture value, only if we are not greedy enough to shoot ourselves in the foot.

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Interesting idea! I think the comment from Govmos actually points out the main concern with this pretty well. But i still think that a tax like that would be pretty logical(if not the only way) considering the Architecture of Cosmos(acting like a L0 compared to other L1s) and IBC. I don’t think a fork is to big of a threat atm… Please correct me if I’m wrong.

IBC is a public good that no one can own, making this interoperability proposal the best because it involves no third-party risk or value extraction.

But how does Atom position itself in this transparently built ecosystem?

The answer is simple: the only way to survive is by collaborating and offering the best value proposition possible. For the Cosmos Hub, this clearly means promoting its validator set through ICS no need to look further. This makes Atom unforkable, a five-year-old infrastructure with governance that has stood the test of time. Thus, the Hub must COLLABORATE with the chains emerging around it, not merely to generate revenue but to offer a functional ecosystem at a lower cost. In my study, I refer to this concept as ‘State.’ Do you think a State makes immense profits? No, and yet they are the most crucial infrastructure in our modern society.
The consumer chains of ICS v1 are already specializing in this spirit of collaboration; Stride is already extracting value from the entire Cosmos with its liquid staking, and Neutron will likely offer services that extend beyond retail use, featuring products marked by Atom’s security. I could even go further by suggesting that CyclesMoney will enable debt clearing across the Cosmos ecosystem. And I haven’t even mentioned partial set security, which will increase the number of consumer chains significantly…

So, will Atom become a high-yield asset? I don’t think so. The Cosmos Hub’s mission is to build a fair system around its validator set and governance to enable ICS chains to offer the best specific services securely and without competing against each other. Atom, in all this, will be the army that protects its lands and will correspondingly be valued as far as they extend.

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@Quentin, I think you have some points not correct here.

  • When Atom is not a yield asset that can keep up with the other tokens in Cosmos then the validator set in short time will be woth nothing including the ICS/security derived from it. ATOM only providing security to other tokens wont keep it alive.

  • I agree completely that ATOM should function in cosmos as a state => a state asks among other things taxes to be able to do two specific things: security (ICS) and keeping the infrastructure (IBC) running.
    So, I want to thank you for your support to tax IBC.

Does ATOM need to become a high yield asset? no
Does ATOM need to survive and thrive in cosmos and play a meaningfull role? Yes, also for the succes for Cosmos as a system.

For this more ecosystem value capture is vital. With other Cosmos tokens having more marketcap and with the marketcaps of coins connected through IBC ATOM I think will miss the boat big time with only having Security (ICS/Mesh etc) to offer. This effect we are seeing already taking shape. See: Bitcoin security to Cosmos with Babilon post

I thought that a couple of months ago we got rid of this small thinking: “ATOM needs to be as small and insignificant and minimalistic as possible” attitude. Think BIG!

From where was IBC set up, developed AND FUNDED? Keeping IBC running and developing is NOT job for only voluntary non paid work. I think it is very much justified and there will be no problem to implement a small tax.

Will IBC be forked when small tax of fees? No, a fork would need the devs and validators of ALL the tokens/coins, ALL the coins/tokens/apps/rollups etc on every chain connected and IBC devs to switch over…IBC is solidly integrated. a fork is not going to happen. And if it does, no problem. Then the situation is back as it is now, but then we have to rethink how IBC is funded.

ATOM can not protect its lands without propper and sustainable funding/yield. IBC small tax is one way to do that, ICS is an other, but beside those two there need to be more for ATOM to have a meaningful role in Cosmos. At least, that is my opinion.

We have now the ideas proposed of: ICS and IBC for capturing ecosystem value. I dont want to hijack this conversation with only focussing on ICS and IBC. Pls also contribute with more/other/ creative ideas for ATOM to capture more ecosystem value.

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I agree with taxing IBC like the comos sdk should be taxed since atom has served and still serves as a technology and testing incubator and pays for the broader development of the interchain. The cosmos hub has a role of prior order in maintaining the cosmos technical stack and to remain so must create income.
@Govmos @Youssef need opinions. thx

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True, there is so much dev activity in Cosmos whith the SDK but once the chains are deployed there is no value for the ecosystem anymore.

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@Guinch_Roze @Mojo

Indeed. I see ATOM as the development and maintenance hub for all system wide functions in Cosmos. This is the role it has had in the past for Cosmos and this is the role ATOM needs to fulfill in the future. This is ICS , IBC etc.

@Govmos => IBC/SDK and ICS etc ARE the utility that ATOM brings.
To function properly and to keep funtioning and developing in the decades to come Cosmos needs ATOM to fulfill this role.

IRL the develpoment and maintenance of infrastructure like roads, train tracks, electricity, water, sewersystem and services like hospitals, fire department, police, army etc are commisioned and paid for by the hub/“state” @Quentin . It can only do that because the users of those facilities and services pay for it in the form of taxes.

The future of Cosmos system as a whole is as strong or as weak as the Cosmos system is at sustaining ATOM.
At the moment Cosmos is failing to sustain ATOM. This is weakening Cosmos as a functioning and developing system. This is a problem for the whole of Cosmos.

The connected chains/tokens can focus on their projects because ATOM takes care of the systemwide infrastructure and security. Without ATOM hub doing this Cosmos ceases to florish or even exist very quickly. As Cosmos is very interdependant the partner chains/tokens will have no problem in a small reasonable tax for the system wide services ATOM provides.

To take it one step further:
Connections with coins/tokens/chains through IBC outside Cosmos in this way will bring in much needed value for ATOM and Cosmos from the whole crypto ecosystem. With the superior tech of IBC being implemented outside Cosmos ATOM can become the utility development and maintenance hub for crypto as a whole… Do we realy want to provide that utility for the whole crypto world out of ATOMs pocket for free without the users paying a small fee tax for it?

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micro tax from the cosmos hub on the cosmos large technical stack, AND free use of the cosmos stack if the chains are part of ICS.

huge

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a tax on open source software? what are y’all smoking?

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I understand the desire to be compensated for the infrastructure that has been built. However, the code is now open source, and anyone can use the Cosmos SDK and IBC to communicate with any blockchain in the Cosmos. These tools are already public goods. Indeed, there is a maintenance cost, but it’s challenging to charge users due to the open-source nature of this technology. We might consider airdrop mechanisms as a token of appreciation for the products built. Returning to the importance of not imposing these general-interest mechanisms indirectly financed by Atom, why do you think a chain like dydx chose Cosmos over Polkadot or Avalanche for building its L1? It’s because it owes nothing to anyone and comes to do its business like everyone else in this FREE marketplace that is Cosmos technology and that is clearly not the case of Avalanche an Polkadot.

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would dydx go the other way if it wasn’t free? In addition we see avalanche and polkadot clearly outperforming the hub. In the case of megablock, the txs and ibc will go through atom only?

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the less constraint there is in launching and maintaining a cosmos chain… the less useful the hub is in the end. cosmos may be too open and fair for the hub to survive. Giving without return is always unpleasant for investors, and airdrops are too random to be satisfied with a “return” for the hub. New cosmos chains does not have to airdrop Atom hodler.

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If you’re looking to capitalize on value extraction, Atom may not be suitable for you for several reasons. Firstly, Atom is decentralized, inherently slow, and politically complex. Additionally, the tools built here are open source, meaning anyone can replicate and potentially capitalize on your expected gains. Thus, with its transparency and decentralization, Atom can be incredibly tedious and frustrating, especially without VC funding to propel it to greater heights. In essence, Atom embodies the purest sense of a blockchain. While some claim to be blockchains, they operate centrally with VC money, making them even more centralized. As regulations evolve and reclassify many entities as securities, true blockchains that have always worked for the common good will stand out. Meanwhile, about 90% of what we call crypto are actually businesses. Atom aims to differentiate itself by creating its own system that promotes collaboration. If it’s not Atom, then another entity will take up this role and I will be there as an actor of this. If it’s a pseudo-blockchain that is actually a centralized business, then I have no interest in investing in an entity that plays the same monopoly games as Web 2.0. In that case, I would no longer invest in what you all call crypto.

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Yes, indeed we are building something different with Atom/Cosmos. Unfortunately, without the users contributing to the work ATOM does the equation gets very one sided and the building of something different will stop…
Then everybody will lose. That is the opposite of building something different.
Both need to be done.

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