The concern is addressed in the Custody section. Clawbacks do not rely on the cooperation of the Hydro committee or any other party (they are enforced programmatically). I’ve updated the summary at the top of the proposal to make the point more explicit.
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According to Hydro’s metrics, the project has earned $29k over its lifetime, with an average APR of ~15%. Simply staking 7 million Atoms would yield an annual income of 1.15 million Atoms. At a price of $2 per ATOM, that’s $2.3 million. This is ~80 times more than the Hydro project has earned over its entire lifespan (15 rounds).
It’s clear that Hydro’s project, compared to other Defi projects from other ecosystems, is showing paltry financial results. They came for a subsidy because they themselves are incapable of attracting clients.
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Even though the ask is for more than 2/3 of the CP, I think the capital is better working than sitting idle, so I am generally FOR this proposal.
The DAODAO setup of Cosmos Hub gov having an ICA that can claw back the funds automatically is reassuring, but ofc I’m assuming a real clawback proposal will actually work (have had issues with ICA on DAODAO previously 
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I don’t know if the math is mathing - will leave that to the collective analysis of Hub gov.
And just to note, I work at Range (range.org), which has a small contract with Hydro (for real-time monitoring and alerts). I am ofc commenting here only as an ATOM bag holder, and in no way representing my employer.
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Note that the metrics page you’re referring to is showing the voter rewards, not the total yield generated by Hydro’s liquidity deployments. They are the incentives paid by DeFi protocols when they place a “bid” on Hydro in order to attract votes. The 15% APR reflects the return users earned from these tributes relative to the amount of ATOM they locked to obtain voting power. This was in addition to the ATOM staking rewards they earned, since Hydro uses LSTs, so total average APR was ~32%.
Hydro’s main source of revenue has not been the tributes, but the yield generated by deploying ATOM into DeFi protocols. To date, these deployments have generated about 72,000 ATOM (with some deployments still active and pending rewards claiming).
As we explained in the proposal, the auction model has proven effective at deploying ATOM liquidity into Cosmos DeFi, but it is not optimal from a yield perspective, as Hydro has only been able to deploy into protocols that proactively come to Hydro to submit bids. Some ATOM is often left undeployed as a buffer for future deployment rounds, so the model isn’t as capital efficient as it could be.
Following the cancellation of the Hub EVM and the new Cosmos Labs roadmap, the Hydro team has been building the Inflow vaults that actively identify yield opportunities across a much wider range of DeFi protocols, both inside and outside of Cosmos, and deploys the liquidity without requiring a month-long voting process.
The ATOM requested in this proposal will only be deployed using this Inflow vault system. Also keep in mind that these CP funds are not currently being used for other purposes, so there’s no opportunity cost. This is also different from simply staking the CP, as doing so would simply create more inflationary yield and dilution for everyone else.
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Regarding profitability. Risk-free income comes from pools like stATOM/ATOM, dATOM/ATOM. The reward is for providing liquidity. The key here is that you provide liquidity, and in return, you receive income. This proposal is about transferring all remaining liquidity to a project, that cannot attract liquidity itself. Because, according to SimilarWeb, the HYDRO HAS NO USERS AT ALL.
I’d love to analyze your financials on defillama. I personally don’t enjoy browsing a site that looks like it’s 2010 (no wonder you have no users). But the problem is, you’re not on defillama.
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As an ATOM holder who has been staking since 2019, I approach this proposal with a long-term perspective on the Hub’s governance and treasury decisions.
I want to begin by acknowledging two points clearly.
First, the Hydro team has demonstrated competence and seriousness, and there is no reason to question their intent.
Second, it is fair to recognize that the Cosmos Hub has, in the past, funded initiatives with meaningful uncertainty without requiring institutional-grade validation upfront.
Even fully accepting both of those realities, I still believe this proposal should not move forward.
The reason is not that the risk is unusually high, but that the type of responsibility it introduces is fundamentally different from how the community pool has historically been used.
Most prior community pool allocations—whether they ultimately succeeded or failed—were budgetary in nature. Funds were granted, scope was defined, and the risk was finite and explicit. Governance made a judgment once, and the outcome resolved over time without requiring continuous intervention.
This proposal represents a meaningful departure from that model. It does not simply spend community funds; it keeps them in motion. It asks the Hub to treat its treasury as a live balance sheet, deployed into evolving DeFi positions whose risk profile shifts over time, across chains, protocols, and market conditions.
That distinction is not semantic—it is fundamental.
When capital is continuously deployed rather than conclusively spent, governance responsibility does not end at approval. It becomes ongoing. Decisions shift from whether to fund something to when to reassess, how to interpret changing risk, and whether to intervene mid-stream. This is not a question of trust or execution quality, but of mandate.
Some have suggested that these concerns could be addressed through clearer reporting, stricter thresholds, or more explicit clawback criteria. While those measures would improve transparency, they do not resolve the core issue. Clawbacks are inherently reactive, not preventive. And improved reporting does not change the fact that decentralized governance is not designed to perform continuous financial oversight or real-time risk management.
It is also true that leaving community funds idle carries its own costs—inflation, opportunity loss, and inefficiency. But those risks are passive and systemic. The risks introduced here are active, operational, and path-dependent. They require judgment under uncertainty, often at moments when delay or indecision itself becomes costly. That is a qualitatively different burden to place on Hub governance.
This is why precedent matters. Not because experimentation is undesirable, but because normalization has consequences. Once the community pool is treated as deployable financial capital, future proposals will be evaluated against that baseline. At that point, the question is no longer whether the Hub can manage capital, but whether it has consciously chosen to redefine its role as an ongoing asset manager.
I do not think the Hub has consciously made that choice, nor do I believe this proposal is the right vehicle to make it implicitly.
None of this is a rejection of DeFi, of experimentation, or of Hydro’s broader vision. It is a statement about sequencing and responsibility. These strategies can mature through voluntary participation, observable performance, and market validation without requiring the Hub to assume that role prematurely. If and when that maturation occurs, the Hub can engage from a position of clarity rather than assumption.
For these reasons, even while recognizing the strengths of the proposal and the legitimacy of concerns about applying strict standards, I believe voting “no” is the more responsible outcome for Cosmos Hub governance at this time.
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Thanks for putting this proposal together, it’s encouraging to see concrete, well-articulated efforts to explore new ways of putting ATOM to work in a transparent and accountable manner.
We think initiatives like this are valuable precisely because they move the conversation from abstract narratives to measurable mechanisms, assumptions, and trade-offs. Hydro’s approach around inflow vaults and yield-burning is an interesting direction, and it’s good to see it discussed openly with clear parameters.
In that spirit, we recently published a public https://atom.silknodes.io/ that models directional effects of different tokenomic levers, including Hydro-style deployments, starting from live on-chain supply and under explicit assumptions. The tool isn’t meant to predict outcomes or advocate for any single path, but to help the community reason more clearly about how different designs might interact with supply dynamics, burns, and the security budget over time.
We believe tools and proposals like this, taken together, can help raise the quality of tokenomics discussions and decision-making across the Hub. Looking forward to continued dialogue and iteration as this proposal evolves.
Silk Nodes
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As a general principle, I am in favour of making use of community pool funds rather than letting them sit idle. I applaud the Hydro team for putting together such a details proposal with clear intent to do something beneficial with the funds.
I saw some concerns regarding the ask being 70% of the community pool but I do not see this as an issue personally. What I think would be beneficial in general is knowing what sort of strategies the funds are being deployed into so we could all collectively debate and see if the funds are being properly utilised to generate yield.
In general, when this proposal goes live, we intend to vote as a YES.
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Hey Jay, thanks a lot for taking the time to review the draft.
You’re absolutely right that continuous oversight is required for these funds, this will be the role of the Hydro committee. Just a few highlights:
Phil_RX has 15 years of experience in financial risk management; Carter Woetzel (Shade) and Johnny Wiles (Osmosis) have developed the exact kind of DeFi applications that Hydro deploys into; Andres Monty (Range) currently provides real-time security & risk monitoring for blockchains; RoboMcGobo (now Cosmos Labs) was previously at Stride expanding their LST.
Our relationship with them over the past year has been very productive, and the Hydro team gives them significant credit for Hydro’s ability to carry out 78 deployments without losing a single ATOM.
We’ll also be bringing additional people onto the committee to provide more oversight of the community funds involved in this proposal. The main Hydro committee DAO will focus only on contract upgrades, hold admin rights over the other DAOs so it can step in if something goes wrong, and hold the Inflow vault shares until they are transferred to the AAA.
I completely agree with your point about the need to observe performance and allow strategies to mature and be validated by the market, but we believe that Hydro’s track record over the past year of deploying community pool liquidity already provides meaningful data. In addition, the Inflow vaults have been running in private beta for the past three months and have performed well. Delaying this further would prevent us from building the ATOM LST, which we need to export ATOM outside of the Cosmos, as Cosmos DeFi opportunities have been shrinking over the past couple of years, and especially over the past 6 months.
You mention that the Hub has to consciously make the choice to redefine its role as an ongoing asset manager, but if not through a governance proposal like this one, how should this decision be made? We’re definitely open to your suggestions.
The objective of this proposal is to let Hydro act as the vehicle through which community funds are productively managed and eventually allocated towards other projects. That’s why the funds can be automatically clawed-back and the custody of the funds will be transferred to the ATOM-Aligned Apps (AAA) organization when it’s formed.
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The main problem with this proposal is that Informal Systems wants to take 7+ million Atoms from the pool to stake and spin them in liquidity pools. From the resulting income, Informal Systems will pay itself salaries at a rate of $100-200 per hour, or more than $300,000 per quarter.
I believe that with 7+ million Atoms, any fool can multiply them. As long as inflation persists, this is easy. But Informal Systems, by multiplying them, will regularly sell the profits, devaluing the Atom.
Questions to the community:
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Why should we give Informal Systems the last of the pool’s money when they can’t make any money themselves? When they took $1.1 million, they promised they would earn money and pay themselves salaries. But they didn’t keep their promise and are once again trying to leech their way into the community pool, and this time for real (they want to take almost everything there is).
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Why should we hand over almost all the money from the pool to Informal Systems when Informal Systems is developing Malachite, a direct competitor to CometBFT? To me, you’d have to be an idiot to sponsor a competitor.
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why are you against Informal ? you could stop this war before it starts.
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Strong support from me! Putting those idle funds to use is finally productive for the community pool. 70% feels like a good amount to become productive
We should do the same with IBC ATOM escrow’s too & an adjusted rate limit (probably just the osmosis IBC channel). That’s a future option as well but would require an gaia upgrade
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How it will benefit atom stakers ?
I edited the draft to mention that no significant amount of CP funds will be deployed into the vault until the first official audit is completed (which should happen in two weeks).
The Hydro vault also started participating in liquidations this week. I’ve added it as another market-neutral, scalable strategy for non-inflationary yield to Annex 2.
I am generally in favor of this proposal and enjoy the discourse. Thank you Hydro for all the thought and effort.
We firmly believe in the ICF’s plan to focus on institutional adoption and think the zero fee LST thesis makes sense.
It was a lot to read so apologies if I missed something that was explained and ask about it here. I just ended a long weekend of travel and am running on empty.
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Since 70% of the CP is a sticking point for many, can the job be done for less?
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Is the 70% being distributed in traunches with clear circuit breakers to stop distribution if certain conditions aren’t met? What are those conditions? If circuit breakers stop a traunch from being disbursed, how can we be certain the previous disbursements won’t be negatively affected and put repayment of those funds in jeopardy?
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As a validator, we would obviously want to have the ATOM used to mint the LST staked with us and would like to see a detailed description of that process. We felt the previous govmos forum prop to stake idle CP funds was detrimental to small validators and further centralized the chain, so we’d want a Hydro LST staking policy to avoid that.
Thanks team!
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Patrick, thanks for the thoughtful and detailed reply. I appreciate you engaging directly with the substance of my concerns.
To be clear up front, I recognize that the committee you’ve outlined is highly experienced, and that the operational track record Hydro has demonstrated so far is both real and meaningful. Executing dozens of deployments without loss is not trivial, and I don’t discount that data. I’m not questioning whether Hydro can manage these strategies competently.
The distinction I’m trying to draw is between operational capability and institutional responsibility. This isn’t a question of trusting or distrusting DAO governance. It’s a question of whether DAO governance has been explicitly designed and mandated to bear the outcome responsibility of continuous asset management. Simply naming a responsible entity doesn’t fully resolve this; for that responsibility to be meaningful, its scope, limits, and consequences need to be clearly defined. At a minimum, that would imply explicit boundaries such as loss tolerances, stop conditions, reauthorization requirements, and clear accountability if those thresholds are breached.
I agree that continuous oversight is required, and I understand why a specialized committee is the only practical way to provide it. However, even with delegation in place, the community pool remains a collectively owned asset, and ultimate accountability still rests with Cosmos Hub governance. In that sense, the core question isn’t whether the Hydro committee is qualified to make ongoing decisions, but whether the Hub has consciously decided to assume a role that requires continuous judgment in the first place.
Hydro’s prior deployments and the private beta performance of the Inflow vaults provide encouraging operational signals. They show that the strategy can work in practice. What they don’t fully resolve is the governance question of whether the community pool should, by default, be treated as continuously deployed capital rather than as conclusively allocated funds. Formalizing that model through this proposal would establish a reference point for how future community pool deployments are evaluated, and it’s that precedent—more than execution risk—that gives me pause.
You’re right that leaving community funds idle also carries costs, and I agree that exporting ATOM via LSTs is strategically important, especially given the contraction of Cosmos-native DeFi. Still, strategic pressure alone doesn’t answer the question of mandate. Urgency can justify experimentation or pilots with capped scope, but it can also lead to role changes being made implicitly rather than deliberately if governance boundaries aren’t defined first.
You asked how such a decision should be made if not through a proposal like this one. My view is that a shift of this magnitude deserves its own clearly scoped discussion—one focused specifically on governance responsibility, delegation boundaries, and long-term accountability—before being embedded in a concrete execution strategy. I’m not arguing for indefinite delay. I’m arguing for separating the question of mandate from the question of execution, so that when the Hub does move, it does so with shared clarity rather than implicit assumptions. At a minimum, such a discussion could be time-bounded and focused on defining the Hub’s mandate, delegation limits, and explicit stop-conditions, so it informs execution rather than delaying it. For example, a mandate-focused proposal with a defined timeframe and a clear off-ramp, concluded by a single governance vote, could provide clarity without entrenching precedent prematurely.
None of this is a rejection of DeFi, of Hydro’s broader vision, or of the work already underway. I think these strategies should continue to mature through observable performance and voluntary participation, and I’m glad that experimentation is happening. My hesitation is specifically about asking the Hub to cross a governance boundary implicitly through an execution-focused proposal whose success is largely evaluated on delivery rather than on role definition.
For that reason, even acknowledging the strength of the team, the safeguards you’ve described, and the strategic rationale you’ve outlined, I still believe this proposal moves toward a role transition in the absence of explicit community agreement. From a long-term governance perspective, I think it’s healthier for that decision to be made directly and deliberately, rather than set through precedent. If the community ultimately decides to take on that role explicitly, I’d prefer to see this kind of execution follow that decision, rather than precede it.
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does the actual DAO delegation follow this framework ?
Do you mean the Hydro committee DAO? The Hydro committee will not be staking any funds itself, but will just custody the funds that are deployed in Hydro’s ATOM Inflow vault.
EDIT: I missed the DAO link the first time around. The DAO you linked is doing allocations of the ATOM that is within the Inflow vault outside of the automated strategies (e.g. in this case, staking some ATOM). I expect that once we launch the LST, if the Inflow vault wants to have exposure to staked ATOM, it could just hold the LST, as with no fee on it there’s no strong reason to not hold it over natively staked ATOM, which means the vault also follows that distribution for its stake.
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I’m part of the Hydro committee but my following comment is purely my opinion.
I think Hydro is one of the few if not the only revenue generation product for the Hub, although I’m a little concerned with cost it is the only product that is worth funding for the hub considering the only value proposition for now for ATOM is staking. LSTs are an integral part of this vision so it makes sense for this deployment to fund it.
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