Create & Formalize Sustainable Hub<>Consumer Chain Models to Maintain Sustainability for the Hub

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!


More than the Hub, it is the Cosmos Hub validators who are subsidizing consumer chains. Imagine a new Cosmos chain launching with negligable revenues for validators, it would be hard to convince any validator to join, especially not top validators from the Cosmos Hub, this created a competition amongst new Cosmos chain since validators were doing due diligence of costs and revenues before deciding to validate any chain.
Now the situation is different. A new chain just puts a governance proposal here, gets approved and then enjoys most Cosmos Hub validators paying additional large infrastructure and other costs from their pockets, receiving in exchange negligable revenue, and since nobody seems to complain they have little incentives to start providing revenue to validators.

We should discuss more about the different stakeholders in the Cosmos Hub and the incentives of each to have any meaningful discussion here:

-ATOM stakers: they want as many CCs to join as possible, because they have 0 additional costs for this but potentially some additional revenue, they don’t care that validators cover all the costs from their pocket or that they need to stop operations. Maybe ATOM stakers should also contribute to this subsidizing of CCs? Could be a CC tax similar to the Community Pool tax, but only for ATOM stakers. Moreover, the distribution of this tax would be for validators not the community pool. And in addition, the distribution won’t be proportional to stake but the same for all validators from the 1st to the 180th, why? Because the costs to run CCs are the SAME for all.

Either adding a new CC tax directed to validators or reduce a bit the current CP tax and this becomes the CC tax. This CC tax would start smaller and adjusted as more CCs join or as the revenue from CCs increase. There would be some oracle/real time data input about the number of CCs, the revenue from each CC etc., and the CC tax adjusted accordingly with some agreed formula. Or this CC tax could be a combination from the Cosmos Hub and each consumer chain, so each CC will pay a tax from their treasury or community pools for example and the amount of this tax will be determined depending on the revenues they provide to the Cosmos Hub and other variables, this makes a lot of sense, CCs get huge value from the security of the Cosmos hub, while they provide negligable revenue in exchange for this security they should pay a tax to pay for this security until their revenues to the Cosmos Hub offset this CC tax.

-Consumer Chains (CCs): they want to join quickly the Cosmos Hub to benefit from a huge security increase and the best validators in the ecosystem. They don’t really care about validators covering all extra costs from their pockets or having to stop operations, beyond the 5% soft opt-out, but this was an idea from Jehan from Informal Systems it seems, not from CCs. Also, they won’t wait until they are able to provide significant revenues to validators before joining as CCs, because so far this doesn’t seem to be a requirement to be approved. An idea similar to Polkadot could be implemented, before joining they need to buy a certain amount of ATOM and stake this with a fair process to validators, this could easily provide better revenues than the current revenues CCs are providing to validators.

-Large Cosmos Hub validators: the costs to run additional CCs is negligable compared to their huge revenues, so even if the revenues from CCs are almost 0 they don’t care. Moreover, given their voting power, CCs being approved depends largely on them, meaning that CCs providing negligable revenue will continue to be approved unless we do something via governance. For example, the CCs revenue could be distributed proportionally to the smaller validators so the smaller the validator the more CCs revenue share they receive, then large validators/ATOM stakers will think better before approving new CCs.

All the Cosmos Hub stakeholders mentioned above, ATOM stakers, CCs and Large validators have large incentives to approve as many new CCs as possible even the revenues they provide are negligable. Unless we change these incentives, the trend here is clear.

Medium/small validators: the 5% soft opt-out was implemented because these stakeholders had clear incentives not to approve CCs providing negligable revenues so that they don’t ‘fight’ against new CCs being approved. However, at any moment a validator can go above the 5% and then they will need to run all CCs nodes. Given that most small/medium validators in the Cosmos Hub are already struggling in terms of revenues/costs without CCs, adding huge additional costs without any revenue is clearly a recipe to put out of business quickly many validators in the Cosmos Hub.

Do ATOM stakers, CCs or large validators care if small/medium Cosmos Hub validators go out of business? No they don’t care. Large validators are happy since they are competitors. CCs don’t care since this doesn’t really have any impact on them. Also, ATOM stakers don’t care, since they can just easily redelegate.

In summary, it is ATOM stakers/CCs/Large validators vs medium/small validators in terms of incentives, and it is clear which group is winning. Let’s consider an example:
Imagine 100 CCs are approved with negligable revenues, this is possible because ATOM stakers have incentives to vote yes, CCs incentives to join and large validators also incentives to vote yes. What happens in this case with medium/small validators?
-Can they raise their fees? No, because then they lose delegations and not eligible for delegation programs, and even this won’t be enough at all to cover the additional costs
-Could the soft opt-out % be increased? Yes but not indefinitely because it would affect significantly liveness, this is not a sustainable solution
-Can the validators pay all the additional costs from their own pockets? Yes but for a very limited time, this is happening already

Now imagine what the Ethereum, Solana or other communities would think. Most Cosmos Hub/ATOM stakeholders quickly putting out of business many of their best validators who shaped the Cosmos Hub since the genesis block and before, and who add huge value in different areas, they would laugh at us. So I think it is important we have a discussion here and decide together a governance action plan to fix this ASAP. @ChorusOne-Research @pupmos @Noam @Spaydh @jaekwon @ebuchman @jtremback @lexa @waqarmmirza


all consumer chains have to accept Atom in the AEZ.

I’d like to express our genuine excitement about the ongoing efforts to onboard more consumer chains into the Atom Economic Zone (AEZ). The expansion of the AEZ is undoubtedly a crucial step towards achieving our long-term goals and fostering a thriving ecosystem.

That being said, it’s imperative that we approach this expansion with a balanced perspective. While we wholeheartedly support the idea of welcoming more consumer chains, we firmly believe that a thoughtful and discerning approach is essential. Quality should always take precedence over quantity, and it’s vital that we focus on those chains that truly align with our vision and contribute significantly to the AEZ’s growth.

In light of this, we propose the development of a comprehensive scoring system. This system would consider a range of factors, including economic viability, utility, and overall impact within the ecosystem. By establishing a passing threshold based on these criteria, we can ensure that the consumer chains we bring on board not only benefit from the AEZ but also contribute meaningfully to its expansion.

Moreover, as you rightly pointed out, the current ICS model poses challenges. It’s crucial that we address this concern to create a more sustainable and inclusive ecosystem. We appreciate your perspective on this matter and believe that exploring ways to enhance the model’s viability for all validators is of paramount importance. we share your enthusiasm for AEZ’s growth and recognize the need for a strategic, forward-thinking approach to consumer chain onboarding.

I agree with most of the things stated. I have been vocal since the start that the model is not feasible for the smaller validators. At the time we were discussing how to support the small/medium validators.

But a quarter has passed nothing on that front. The core teams don’t really care about the small/medium validators it seems. A few things happening and I commend in this regard are

  • Setting minimum commission so smaller/medium vals don’t have to offer attractive offers to compete.
  • Stride is reassessing how to stake Atom to the vaidators.

But, this doesn’t mean we should not find solutions. I am not a core tech person so I don’t know but in theory, it seems in favor of validators to have the flexibility to adjust the commission on CC from chain to chain.

So have I.

I would speculate that there are some possible reasons why no one reacts really:

  1. The beneficiaries of the current model (or expectations of it in the future) are too many

  2. The current proposed model is so far a failure, and usually hopium takes several months - years for everyone to admit it was wrong OR it will become better

  3. There are no viable solutions (I would say that this is untrue) to be implemented today

Its kinda of coming to a point of survival for most smaller validators. One another thing NOT to forget is that most bigger names (especially the ones that had projects beyond validators) are struggling to survive too (their tactics are a fail, alas, there are lots of new players in the field - that came in the last cycle - and they are still learning what works). This is not to defend anyone, but yet another theory to the above - they are also busy with surviving.

I think some possible solutions could be simple to implement and we are discussing this already with @FelixLts, @Damien and others:

-CC tax for ATOM stakers: they benefit from CC rewards without any contribution to the costs. Either reduce part of the current CP tax for this CC tax, or add a new CC tax. This tax will be variable, depending on the number of CC and the revenue each brings, this should be simple to implement

-Tax for CCs: they cannot benefit from the security of the Cosmos Hub for free being subsidized fully by Cosmos Hub validators. So they either need to buy X amount of ATOM and stake it with validators or a variable CC tax is implemented, decreasing as the revenues they provide increase. Regarding staking with validators it will be mostly the same for each validator with a multiplier for great uptime and governance participation, this should also be simple to implement

This is important because in the current structure, ATOM stakers/CCs have all incentives to increase the number of CCs since they have no costs but good rewards. We cannot expect the whole Replicated Security idea to be sustained by Cosmos Hub validators paying all the infra costs of each CC from their own pockets!

In what way is Stride reassessing their delegation program? I dont think the current delegation to 36 chosen validators is optimal.

This is very interesting idea

But they will get slashed when the validators is slashed. This is unfair. Prop 818 already showed how slashing affects a larger portion without getting any revenue from consumer chains.
Either the Hub need to Own the ICS Chain or the slashing mechanism needs a lot of changes.

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