ATOM Tokenomics Research Kickoff

Tokenomics Research Workstream
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Higher rewards often get dumped or rotated into BTC/ETH, adding sell pressure. It also heavily dilutes people who stay liquid, forcing them to stake just to keep up.
Low inflation doesn’t penalize holders. It actually respects both sides: people who want their ATOM liquid and long-term believers in the project. You are not forced to stake just to avoid dilution, and you can hold or trade without getting wrecked by high inflation.

Today, with ATOM at $2.5, 10% inflation and a 5% commission, we are looking at roughly $6M per year in commissions paid to validators that are automatically sold. I’m not even talking about all stakers.

At the same time, there is nothing really concrete coming from the team : just a 180° turn and a lot of promises. I’m not bashing them, I’m just looking at the facts, and I hope they will succeed. Just I think for now, it’s time to cut costs

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Also, I would like to add that 10% of $1B is $100M a year in rewards. That is way too much !!!

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Tokenomics designed 4–5 years ago have inevitably become outdated. In crypto, six months or a year is already a full era , and not every project even survives that long. Looking at the current market meta, it becomes clear that buybacks and burns have become standard practice and a well-established trend. Market liquidity is not sufficient to absorb the high inflation built into older models.

Cosmos tokenomics has long required an update. Old-school community members remember the attempt to gradually reduce ATOM’s inflation: three proposals aimed at step-by-step decreasing the dynamic inflation. The first proposal barely passed, and even then one large institutional validator tried to intervene during the vote and change the outcome.

Today $ATOM has high inflation, especially when compared to other fundamental projects like Solana or Ethereum. Historically, Cosmos lacked smart contracts, a DEX, and liquid staking - for a long time $ATOM simply had no clear value narrative, aside from experimental attempts to reinforce it via Interchain Security, which turned out to be ineffective and economically unviable.

After Cosmos shifted its paradigm toward B2B and institutional adoption, a contradictory situation emerged: decisions must be balanced to preserve trust within the existing community while also making the ecosystem attractive to larger players. Because of this, the updated tokenomics should be implemented gradually - in 2, 4, or even 6–8 epochs, ensuring a smooth transition and increasing the token’s value at every stage.

It is now obvious that buybacks, burning mechanisms, and other deflationary tools must become essential components of the new model, helping reduce price pressure. The main question for the new tokenomics is whether to set a maximum supply limit. If inflation is reduced to reasonable levels (Solana ~4–5%, Ethereum ~1–3%), then a strict supply cap may not be necessary — a combination of low inflation and strong deflation creates a sustainable long-term model on its own.

It’s also important to consider that lower inflation can stimulate upward price action, providing stakers (investors) with better feedback and reinforcing the incentive to stake.

Key Tokenomics Points to Consider:

1. Inflation Reduction

Transitioning to 1–5% annual inflation, depending on the chosen model.

Implementing this gradually across multiple stages (2–8 epochs).

2. Deflationary Mechanisms

Buybacks (token repurchases from the market).

Burns (based on fees, protocol activity, or ecosystem revenue).

Buybacks can also be used to accumulate liquidity directly for Cosmos itself, enabling Cosmos to gradually become a liquidity hub. This liquidity can then be utilized by the ecosystem - for example, to support liquidity pools, LST tokens, and other native liquidity primitives.

Additional deflationary tools may be implemented to further reduce sell pressure and strengthen the overall economic foundation.

3. Possible Maximum Supply Limit

Whether to cap the supply depends on the new inflation level.

With low inflation and strong deflation, a hard cap may not be necessary.

4. Increasing Token Value

Price appreciation can partially compensate for lower inflation.

It boosts staker motivation through asset appreciation, not only APR.

Makes long-term staking more attractive and sustainable.

5. Institutional Stability + Ecosystem Balance

Tokenomics must be clear and attractive for institutional and B2B partners.

Tokenomics must remain adequate and fair for the existing community, preventing staker outflow and preserving trust.

Tokenomics must stay appealing to builders — both those building on Cosmos Hub and across the broader Cosmos ecosystem. Transparent economics and moderate inflation make Cosmos a strong base for new projects.

Avoiding shock changes and maintaining predictability for all ecosystem participants.

This is the first draft of thoughts that seem highly relevant. I would be glad to read your feedback

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Inflation is low given the higher risk of staking ATOM, just APR is higher because the inflation is distributed to a lower staking ratio. It is not penalizing so much those not staking but rather rewarding well those taking the risk to stake since inflation is shared by a smaller group.

High staking ratio means less tokens liquid not being traded/sold and a more expensive +2/3 attack. The target staking ratio is 67%, but the current staking ratio went much lower already below 60% after the max inflation halving, and the lower the staking ratio goes the less secure the protocol is and security is its main value, like for bitcoin.

The only argument to cut inflation is for ‘token pump’, give me any example of a project where this worked. The whole point to cut inflation is the hope to pump token, but if reducing inflation would actually dump the token price then you would not suggest it. You are just trying to think oh this I think is the reason why not token pump, let’s change that then the token should pump. Show us clear data, show us examples of projects where after reducing inflation the price pumped, I have countless examples covering years of data to show that the opposite happens, the price dumped after lowering inflation.

You oversimply all, higher rewards you say more sell pressure, but you forget many other variables. Higher yield means many will choose to restake so less sell pressure, also more buying pressure to buy ATOM to stake, less sell pressure if higher staking ratio, if you cut inflation you say less sell pressure from rewards but actually more sell pressure from users unstaking and selling amounts larger than the rewards!

For higher yield:
Sell pressure: more rewards
Buy pressure: buy ATOM to stake, restake part of rewards, keep tokens staked, higher staking ratio
Here more buy pressure overall

Cut inflation:
Sell pressure: less from rewards, but large sell pressure from major unstaking and selling
Buy pressure: less since not buying ATOM to stake, less restaking of rewards, lower staking ratio
Here more sell pressure overall, that’s why instead of ‘pumping’ the price cutting inflation actually lowers the price, there is data about this from so many projects and yet people keep suggesting the same flawed ideas

Let’s look at several examples proving my points above with clear data:

dYdX:
-Buybacks started earlier in 2025 cutting rewards for stakers, after around 6 months the price dropped around 50%
-Then even the data was clear, it was suggested a further 50% cut in staking rewards by increasing buybacks, and again as expected there was no token pump but again a lower price
-Following this clear data, now the dYdX community is suggesting to return again 95% of rewards for stakers and showing a lot of numerical data, graphs, etc. to prove their point: DRC to return DYDX token's yield utility [Discussion] - Proposals - dYdX Community Forum - Governance, Proposals, and Chain Discussions

Injective:
-During end of 2023 and most of 2024, because of the lower block time more rewards were being distributed and this was not calculated correctly by explorers. Because the rewards are set per block and the block time became lower on Injective a lot more rewards were being distributed per year
-Savvy investors and stakers noticed this even though not correctly displayed on explorers, this led to a price explosion of INJ towards the end of 2023 and during 2024. Then around September 2024 they noticed about this, changed the blocks per year parameter and cut inflation by over 50%
-Since then INJ price went from around $20-45, to around $5

Celestia:
-In July 2025 inflation was reduced by over 30%, since then the price dropped from around $3 to below $0.8
-Around two weeks ago the inflation was further reduced by a whopping 50%, and since then the price dropped even more below $0.6 and now many validators can’t even cover the infra costs and a solution is being discussed

The examples above are relevant because these projects are very close to Cosmos hub and the best possible comparison. Comparing Cosmos hub with Ethereum and Solana is very incorrect, because Ethereum, and Solana are much bigger and established projects carrying lower risk and hence this lower risk justifies a lower reward, but Cosmos hub is much smaller project and higher risk so a higher reward is needed, because nobody is interested in a high risk low reward opportunity.
Increasing the token value is always the same unfulfilled promise to justify cutting inflation. Show me any data or examples where cutting inflation led to any price pump, don’t tell me bitcoin because not only it is not a valid comparison but in addition bitcoin is not even PoS and there is no staking ratio and the security is not derived from the staking ratio but rather the hashrate.

It is also interesting that akomartin writes as being an expert involved for so long in the Cosmos hub forum, some we have been in Cosmos since 2017, but for akomartin is his first ever message in the Cosmos hub forum, welcome to the Cosmos hub forum akomartin, you can start by saying hi and introducing yourself

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You should talk about Hyperliquid and the others

In July, the price was already about $1.5, and it had dropped from $20 to $1.5 before that.

Inflation doesn’t make a token pump by itself. High inflation just amplifies the existing trend. If the token is already in a downtrend, it makes the decline worse. If it is in an uptrend, high inflation makes the move even sharper, and in that case, it starts to look very close to a ponzi.
Based on the fundamentals of the Cosmos Hub itself, it doesn’t really make sense to distribute rewards by taking value from non-stakers, in particular LP providers…

$5M to validate mostly empty blocks, you have to admit that is a bit too expensive…

We need a cost-killer !!

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You should check the PoG idea at Celestia, validators do much more. First of all, some validators participate actively in governance and help drive research and decisions. Some validators also run relayers and other infra which is expensive. Validators need to be ready and quickly do emergency updates and fixes. Compared to all this what do stakers do? Nothing really, most don’t even vote and leave that governance decision to validators. So Celestia is suggesting PoG, basically the current staking rewards received by validators split it equally amongst all the validators and entirely remove the rewards for stakers, maybe you should study these ideas from Celestia: Proof-of-Governance as the Endgame for LSTs - Research - Celestia Forum

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I am speaking about the Hub not about Celestia. And I’m not criticizing validators at all, I know many of them do a lot more than just run a node. What I’m questioning is the cost of validating on the Hub. That is a different issue.

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So you are finally admitting that high inflation is a problem….

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Agree here.

There is no concrete proof that reducing inflation is necessarily better.

Take a look at OSMO and NEAR. Both of them have reduced inflation but when markets are down, everyone is dumped almost the same.

By reducing inflation, price will increase but market cap (price*vol) remains same in either case. By staking, people choose to retain the same value of tokens. Whether they sell the rewards or not is totally up to them.

There is no guarantee that just because you reduce inflation, someone is not getting to sell.

In fact, the number of stakers is going to come down if you reduce inflation.

Someone make a comment saying staking ratio is down - you never considering people like Jae or ICF who are constantly dumping tokens.

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It seems you didn’t read the research, Cosmos hub and Celestia are based on the same PoS design, so those ideas presented by Celestia are totally applicable to the Cosmos hub

You complain about the costs of validating while admitting that validators do a lot more than just run a node. However, you don’t complain about a much larger cost which is the cost of rewarding stakers while they do mostly nothing? I recommend that you take some time to read the Celestia research so that we can have proper discussions here

I didn’t admit that ‘high inflation is a problem’, I just shared a research from Celestia that focuses on rewarding more validators who do a lot of work for the network while rewarding less passive stakers who mostly do nothing

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I’m not against cutting inflation to 5%, and I’d be totally fine with validators doubling their commission to keep their revenue

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This is not what the Celestia research says, but I will explain it here in simple terms for you and others to understand.

Celestia, based on previous research linked at the beginning of that forum post for reading, claims that the security in PoS comes actually from fees paid to validators and not by staking/slashing because most stake is delegated and not self staked.

Celestia then says that with LSTs and when the bonding rate is 100% ‘then the staking APY isn’t actually the issuance rate; it’s actually zero, since new issuance is paid to all stake proportionally!’ While net issuance to token-holders is zero, validators are paid real issuance from their commission on delegations. Reducing the issuance to stakers to zero. Issuance would then only and solely go to validators, for the service they provide to the network.’

The research then shows an example that with 5% inflation at Celestia, and assuming 5% fees of validators and 100% bonding ratio, the inflation could be reduced to 0.25% by a factor of 20 if only going to validators and validators would still maintain the same revenue and they call this Proof of Governance

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This research is a very good initiative . Initially, the most obvious strategy would be for the foundation to offer buybacks! With Atom at $2.50, it’s clear the foundation must be buying Atom through its secret deals! Otherwise, there’s a real problem with the team’s economic expertise?
@Mag ??

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I support the research initiative. I think it will bring in incredible value.

However, I do think the outcomes of this research, rather the implementation should be split into multiple proposals: so that voters get to decide which ones to pass or not.

For example: please do not mix up changes in usage/utility of ATOM with changes in inflation rates.

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Hi everyone,

I just wanted to share a thought about ATOM’s tokenomics; I hope it makes sense (I’m not a crypto professional).

My idea is quite simple: what if, when a client requests support from Cosmos Labs for the design and maintenance of a new Cosmos blockchain, they could obtain a discount on Cosmos Labs’ fees if part of their IBC fees are paid in ATOM?

For example, let’s say client A receives a Y% discount from Cosmos Labs in exchange for agreeing that X1% of the IBC transfers on its blockchain will be paid in ATOM for a period of X2 months.

I don’t want to interfere with Cosmos Labs’ commercial strategy though; this is just an idea.

I see several advantages:

  • From a marketing perspective, each time a new blockchain agrees to use ATOM for part of its IBC transfers, a communication could be released to promote ATOM’s growing utility without needing complex explanations.

  • As I understand it, Cosmos Labs could recover part of the discount through a potential increase in ATOM’s value, in addition to treating this as a normal commercial incentive during negotiations.

  • I don’t think this goes against Cosmos’ original philosophy, since any other company could offer similar services to support its own token. Cosmos Labs would simply benefit from the legitimacy of its established track record.

  • The more blockchains use ATOM, the more it could strengthen its role as a store of value.

  • To my understanding, it has a very limited impact on the client’s sovereignty over its blockchain.

Best

(@cryptoassassin @totalspud for link-posting permissions)

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Atom is the governance coin of the cosmos ecosystem. It has value for that reason. We do not need to invent value or become something we are not. We value the whole ecosystem and it’s technology and the decentralized nature of it. You can converse with AI and the answer is simple. We need to reduce inflation. Now is the time we are near all time lows. With the nature of ATOM being a PoS chain we will always need inflation. Inflation to secure the network. I propose we reduce dynamic inflation by half but we set a date in the future. If it is 20 to 7% then it would be 10 to 3 1/2%. If the max inflation is already at 10% then it would go to 7% the low end could be 2%. I do not believe we need to be deflationary to succeed. I do not believe we need a maximum supply to succeed. The other thing we can do is propose to require all cosmos chains to allow the option to pay fees in ATOM. I believe that we need to make ATOM an institutional investment. We want people to buy every month as part of there retirement. Now is the time to announce and pass a proposal that reduces inflation . Set around 1 year in the future to allow a rush of investors trying to get the highest interest while they can. In general just giving everyone time to process the situation.

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Also we can burn on chain fees to help keep inflation low

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Also at this point there will not be a sell off if we lower the inflation rate. Anyone still holding ATOM benefits from being an early adopter. ATOM at a reasonable inflation rate and with on chain fees being burned and the inflation being a yield for the stakers and it being decentralized is a powerful asset. I would rather have than fiat. We need to act. There is too much good news coming in the next 6 months not to be excited for defi. Now is the time

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I have trouble seeing how this is different from simply having a single treasury and deciding on set allocations for Growth, Core, Market Ops. as described. It seems simpler to have a single treasury and then allocate in a transparent way.

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A single treasury with intended allocations sounds simpler, but in practice it creates three problems:

1. Allocations can be changed easily through governance.

If everything sits in one pool, future proposals can reshuffle funds with minimal friction.

Three separate treasuries make allocations structural, not aspirational.

2. Clear separation reduces conflicts of interest.

Operational spending, growth funding, and market operations each have different mandates, risks, and time horizons.

Separating the treasuries ensures each has its own rules, oversight, and accountability.

3. Better auditability and predictability.

With one treasury, it’s hard for the community to track how much is truly available for each purpose.

Three treasuries give transparent balances, predictable budgets, and cleaner financial reporting.

So it’s not about complexity, it’s about stronger guarantees, clearer governance, and reducing the chance of opportunistic reallocations.