I wanted to start a conversation about the current models we are seeing for Interchain Security (ICS), as well as possible agreements to create formal models to ensure long term alignment and sustainability for ICS.
For the Atom Economic Zone (AEZ) of Cosmos Hub to attain long-term success, it is crucial to revisit and adjust the current Consumer Chain (CC) model. Currently, there is no formal structure outside of the initial onboarding proposal which does not create any predictability following its passing. The Hub is largely subsidizing consumer chains while taking the majority of the risk without the corresponding upside. Yes, it is important to help onboard CC’s and entice some of the most promising chains to onboard, but the Hub also needs to have the proper long term incentivization with ALL CC’s. The Cosmos Hub should have meaningful ownership in these consumer chains and/or receive a portion of on-chain revenues beyond gas fees to ensure that incentives are appropriately aligned across all stakeholders. The current model, where the Hub subsidizes the costs for development and security without a balanced incentive structure, is not sustainable and introduces undue risk. This does not mean the Hub should control and make all the big decisions for consumer chains, but it is incentivized to see through the best outcome for these zones.
The Hub should be selective about the consumer chains it chooses to support, and it is equally vital for those chains to provide some reciprocal value to the Hub. There’s potential for a balanced relationship where the Hub provides substantial support, and consumer chains not only pass on the risk but also the rewards of success. CC’s will always put themselves first, rightfully so, so it is important to have a mutually agreed upon model as the relationships are initially formed. While the Hub should participate in the upside of consumer chains’ native tokens when available, the risk associated with high-inflation tokens and pre-launch valuations should not be largely shouldered by the Hub and ATOM holders while also providing the substantial service of security.
At a high level, there should be a hike in fees charged to consumer chains beyond the present model as the current revenue is negligible, and does not have the proper alignment with the Hub & CC’s to see any meaningful long term upside compared to the investments and risk. It is important that there is some predictable structure when considering the long term relationship so that consumer chains are not permitted to unilaterally alter the agreed-upon structure and fees, as was exemplified in the Stride implementation, where the agreed-upon revenue share was unilaterally changed after the consumer chain proposal was passed. Agreeing upon a minimum timeframe in which a CC has to remain in the ICS model and abide by certain agreements would be beneficial from a chain not leaving abruptly or changing the terms to their favor at their own will.
A few ideas for more balanced fee models might propose directing half of the fees to stakers/validators and the remaining half to the Hub Treasury for strategic initiatives such as protocol owned liquidity. It may be wise to experiment with one of the optional models that would resemble Polkadot’s parachain slot leasing mechanism, with the staked ATOMs coming from the founding team, community, validators, or even the Hub community pool. Consumer chains that have their own tokens and low fee sharing should be obligated to stake a predetermined quantity of ATOMs and provide the Hub with an initial allocation of tokens. Those consumer chains that do not have their own tokens should stake a lower quantity of ATOMs and provide the proper revenue sharing. A model that suggests the Hub be an investor should be for a meaningful stake, somewhere from 15-25% depending on the upside and complexity of the zone. There should be different ways in which a consumer chain can onboard to the AEZ, yet very clear as to the expectations from both sides.
A critical requirement should be for all consumer chains to use and/or accept ATOM as their default gas token, including for IBC transactions. However, mandating ATOM as the required denom for chains outside the AEZ may not be the best approach. Instead, these chains could opt-in voluntarily to make ATOM their base denom for IBC, creating a more flexible and adaptable ecosystem.
After writing this, I found the post by @pupmos that suggests similar things such as a security deposit and chain specific validator commissions. There are multiple ways to achieve this goal with consensus from the Hub and consumer chains as well.
Ideally, there would be multiple models that a consumer chain can choose from that include creating a new native token or exclusively using the ATOM token for their consumer chain with different token allocation and revenue sharing breakdowns. This will give onboarding zones the opportunity to choose their preferred model while properly aligning with the Hub. However, these terms should be consistently upheld and immune to arbitrary changes post-agreement. This is not meant for the Hub to impose its will on consumer chains, but to make responsible long term decisions as any business or investor would. While consumer chains should indeed pursue strategies for their own success, they must also honor their obligations to the Hub without post-agreement alterations. The sovereignty of consumer chains cannot justify undermining the Hub’s interests. This will ensure a more sustainable and equitable Atom Economic Zone.
Any and all feedback is appreciated!