Deploy community pool ATOM into Hydro’s Inflow vault

Hub Proposals
44

The big benefit is that all the excess yield generated will be put towards ATOM burns, which reduces supply.

ATOM stakers also gain a new LST that charges zero fees (so they retain the full staking yield instead of paying the typical 10% fee charged by existing LSTs), with easy access to additional yield through the integration with Hydro’s Inflow vault. New users will be able to onboard from CEXs and fiat without a wallet. It will be compatible with Hub governance, so it’ll enable holders to vote directly rather than having their voting power delegated or forfeited (as is the case with existing LSTs).

The big picture is an effort to foster a DeFi ecosystem built directly on the Hub. Hydro will migrate to the Hub as part of this proposal, acting as the first Hub-native DeFi application, and we expect others to follow. I’ll note that there is no opportunity cost, as these funds would be sitting idle otherwise. The proposal puts them to productive use, and only the yield being generated will be spent to fund development of the new LST (none of the ATOM being provided by the community pool will be spent, and it can be later directed towards other efforts as needed).

3 Likes
45

Thanks a lot for the great questions.

1- We’ve based the size of the CP ask on the $150k yield target (you can see our projections sheet here). If ATOM’s price increases significantly, the amount of yield being generated will exceed that target, and we could send a large chunk back to the community pool. In the meantime, the excess yield will be put towards ATOM burns (this could be updated to use another mechanism) so the capital remains productive.

2- The Hydro committee will be responsible for determining the rate at which funds are deployed into the ATOM vault based on the availability of DeFi opportunities, risk considerations and amount of yield being generated. A portion may be held as the LSTs (e.g the Hydro LST) and ready to be deployed when an opportunity is identified. In parallel, we are working on “circuit breakers” in the form of automated claw-backs when funds are at risk.

3- Absolutely, and we will immediately make this information available and easy to find when Cosmos Labs finalizes their delegation framework. Last time we checked, it was awaiting approval from the ICF.

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46

Hey Jay, thank you again for the thoughtful follow-up, and I completely understand why you would prefer to separate the questions of mandate from the questions of execution.

The practical constraint we’re facing is that the ATOM LST is a prerequisite for many of the downstream objectives this proposal is trying to unlock. Without our own Hub-native ATOM LST, it would be harder to integrate it into the Inflow vault, and harder for the Inflow vault to generate non-inflationary yield.

That said, the proposal does include a second, explicit governance checkpoint. When the ATOM-Aligned Apps (AAA) organization is formed and voted on, the Hub will have the opportunity to reassess whether the Inflow ATOM vault deposit should continue, be modified, or be unwound.

Thanks again for taking the time to engage so deeply with the draft and feel free to message me at any point if you have ideas as to how we should report our performance results (by default we’ll continue to publish weekly updates on Telegram and quarterly reports on the forum).

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47

This is the key point, ‘to earn yield’, what experience does the Hydro team have managing and investing treasuries? I am in touch and discussing with some institutionals pioneers in managing crypto treasuries for years with proven results and interested in supporting ATOM, why are you better than them to manage the Cosmos hub treasury, what are your credentials and historical returns managing similar treasuries? Until you convince me of this I cannot vote in favour of this proposal. Without professional investment experience, the 7M ATOM invested could actually lose a lot in value, so there is a lot of risk involved here.

5 product, 1 growth, 4 part time operations, design, finance, technical reviews, where are the full-time members with professional experience and track record managing such large treasuries with proven historical returns for years?

This shows lack of investment knowledge, a drop in ATOM leading to affecting Hydro’ ability to operate doesn’t inspire confidence about Hydro’s abilities for successfully managing a 7M ATOM treasury including proven yield strategies, diversification and risk management.

Assuming a sure yield also doesn’t inspire a lot of confidence, a third point was omitted, what if the yield is actually negative which seems very possible?

6 full-time and 4 part-time let’s assume it is like 8 full-time, 72k for 8 full-time per month that’s like $9k per month salary, this is huge and reminds me of AADAO salaries.

Who will be auditing all this to make sure the money goes where it should?

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48

Any committee members operating validators should be abstaining from the vote. It’s an obvious COI

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49

Hell no this is crazy idea. The funds in the community account should be used to stimulate the ecosystem in a neutral way. There is nothing wrong with free competition of LST services but using the community funds to do so is not the way. The community fund is for the community. There are much better ways to use the community funds. Let liquid stakers pay a fee. Fees are everywhere and fair capitalism. LSTs still need to be unstaked to get the full value of them. There is no need for institutions to need to be pampered out of paying fees. If they want liquid staking then that is free choice and is a service. Stride has been collaborative with the Hub and all the other chains and strive to be neutral as possible by only offering LST services. They have ATOM security for their chain and have been audited. If you want to support LSTs in the cosmos ecosystem then buy and stake STRD and change the fees through governance. Good day

1 Like
50

POSTHUMAN will vote NO on this proposal

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51

Who needs dApp that works for $150K per month?
This is insane!
This is just smart-contracts!
If you built dApp that is need 150K per month - you’ve built totally usless product!

For this money we will make a revolution in small country, and they will rise the flag of ATOM, and will accept ATOM as a national curensy!
Even Lido cost less per month!

1 Like
52

There are several key points here:

-Oversight/auditing committee is key as well as allowing external members to apply to join, for context: only when via forum pressure youssef finally allowed to open applications for the AADAO and @Cosmos_Nanny and others joined, it was when finally all the issues of the AADAO started to be known and this led finally to the end of the AADAO

-7M ATOM is over 70% of the CP this is huge and @Cosmos_Nanny clearly explained how complex are clawbacks with the example of 450k ATOM and here we are talking about 7M ATOM which is over 15x larger amount

-There is no lack of alternative proposals just they are in stealth mode still, for instance I’ve been in talks for months with several institutional entities experts in managing crypto treasuries and staking programs from CPs and interested in the Cosmos Hub, just they need time to discuss internally and move forward with the forum proposal. This proposal is affecting negatively the discussions with those institutionals and now making them hesitate because they are surprised the Hub governance is voting in favor of a proposal to manage 7M ATOM by a team which seems to have no investment experience at all

3 Likes
53

Friend, please, vote NO
Not abstain

150K per month for maintaining of dApp - totally crazy

3 Likes
54

After reviewing the proposal and following the discussion, I’ve reached the conclusion that I will be voting NO. While the proposal does outline a potentially valuable opportunity for the ecosystem, at this stage I see more arguments against than in favor, specifically

  1. Scale of capital involved, allocating such a large portion of the Community Pool significantly reduces flexibility for the Hub and increases systemic risk.
  2. Operational and execution risks even with low risk Defi strategies, the real risk surface remains non-trivial and Cosmos historically hasn’t always executed well on similar initiatives.
  3. Clawback uncertainty, although clawback is defined, past attempts in Cosmos to reclaim funds from multisigs, DAOs have proven difficult, making the guarantee weaker in practice than on paper.

Lack of social consensus a notable part of the community points to alternative or potentially better uses for the same capital, suggesting this might not be the right proposal at the right time. In short, despite the technical polish and theoretical upside, the risk to reward balance does not justify deploying such a large amount of treasury assets in this manner. Therefore, I’m voting NO

55

I have read the proposal extensively, and the structure of this ask raises several red flags regarding the safety of the Community Pool.

1. The Illusion of Safety via Formal Verification
The proposal relies heavily on the narrative that “Formal Verification” and audits (Quint/Informal Systems) guarantee safety. While these are excellent tools, they are not a silver bullet.

  • Verification ≠ Economic Security: Formal verification proves the code matches the spec, but it does not prove the spec itself is economically sound against black swan events or oracle manipulation.

  • Composability & Bridge Risk: The proposal mentions deploying capital into EVM chains (Base, Sei) and using various money markets. Auditing Hydro’s contracts does not protect the 7M ATOM from exploits in those external protocols, bridge hacks, or bad debt accumulation on lending platforms. The risk surface here is massive.

2. Why the Community Pool?
This proposal effectively asks the Cosmos Hub to act as a Venture Capitalist and Liquidity Provider, bearing 100% of the risk.

  • If the business model and the LST product are commercially viable, why has external funding (VCs) or the ICF not stepped in to cover the OpEx?

  • The request uses the Community Pool as “easy capital.” VCs would require equity and strict oversight. The ICF would require alignment with public goods. This proposal asks the Hub to provide the liquidity and pay $1.8M/year in salaries from the yield. It feels like non-dilutive financing at the expense of token holders.

3. Missing Metrics and Scalability
You mention managing 3.5M ATOM previously, but where is the granular data?

  • We need to see a detailed P&L statement, Sharpe ratios, and Maximum Drawdown figures from previous deployments.

  • Yield Scalability: Arbitrage and DeFi strategies do not scale linearly. Strategies that work for 100k ATOM often collapse due to slippage and lack of counter-party liquidity when deployed with 7M ATOM. There is no evidence provided that the current Cosmos DeFi market depth can absorb this capital without diluting the APY significantly.

4. Misaligned Incentives
tying the team’s operational budget ($150k/mo) directly to the Vault’s yield creates a dangerous conflict of interest. In a bear market or low-volatility environment, if yields drop below the threshold, the team is incentivized to engage in riskier strategies (leverage, newer/untested protocols) just to generate enough revenue to cover their own salaries.

Conclusion
Requesting 7M ATOM ($30M+) for a single protocol with manual multisig interventions is an unjustified concentration of risk. If this moves forward, it should be a fraction of this amount as a pilot, with OpEx funded separately, not extracted from yield that belongs to the Hub.

1 Like
56

Without the delegation policy being set, unfortunately we have to vote for now. We’re with you in spirit, but feel the proposal is too early to go on-chain.

57

Hydro is deploying ATOM into low-risk DeFi strategies. This is what we’ve been doing for the past year since it launched. Inflow simply enables more strategies, which we’ve described in Annex 2 & 3. The Hydro committee will continue to provide oversight into the strategies to ensure risk and security practices are followed, but we won’t be “investing” the capital. We won’t be selling or investing any of the ATOM “principal”. We use market-neutral strategies, so market shifts do not present a large risk of losses. Most strategies are also implemented using LSTs so things would have to go very wrong (exploits or hacks) to get a negative APR.

About the cost you’re referring to, note this is not just salaries but our total operating cost. Do you have some reference points for the going market of senior blockchain developers? According to Glassdoor, the average base wage is 130k to 150k per year.

58

I understand this point of view but the LST has several features that cannot easily be developed on a separate chain, most importantly the integration with the Inflow vaults and the ability to participate in Hub governance. So zero fees is not the main part of the value proposition. Please keep in mind that the community pool also gets the principal back in full.

59

This budget is for a new ATOM LST, the Inflow ATOM vault, the integration between the two and Hydro’s migration. $150k is the upper limit, in the event that the vault is able to generate that much in profits. After the first set of LST audits is done, costs will go down and the excess will be burned. We will continue to document everything in our quarterly reports on the forum. If these reports are unsatisfying, Hub governance has the ability to clawback the principal, in full, at any time. No part of the ATOM “principal” will ever be spent (only the yield).

60

Thanks a lot for taking the time to review it. I’ll try to respond to each of your points:

Scale of capital involved, allocating such a large portion of the Community Pool significantly reduces flexibility for the Hub and increases systemic risk.

Yes this is a shift in how the community pool is managed, but we believe it is a significantly more productive approach. If higher-priority uses for community pool funds are identified, Hub governance can withdraw the required amount from Hydro’s vault and redirect it to those initiatives at any time. Until such a need arises, the funds would actively generate yield and support the development of a Hub-native ATOM LST, rather than remaining idle.

Operational and execution risks even with low risk Defi strategies, the real risk surface remains non-trivial and Cosmos historically hasn’t always executed well on similar initiatives.

We take risk management very seriously and have a strong (so far perfect) track record managing ATOM from the Hub community pool over a year. Of course risk can never be eliminated entirely, but we use very conservative rules to minimize it as much as possible.

Clawback uncertainty, although clawback is defined, past attempts in Cosmos to reclaim funds from multisigs, DAOs have proven difficult, making the guarantee weaker in practice than on paper.

I do understand this concern, which is why we built DAO DAO tooling to grant the Hub “god-mode” over Hydro’s DAOs long before this proposal was even considered. The Hub retains full control over community pool funds at all times.

1 Like
61

From a Cosmos holder’s perspective, I think it’s useful to clearly separate market salary references from how Cosmos actually funds development, because those two things often get conflated.

You’re right that in the US tech market, senior engineers can earn this amount, and sometimes more. That said, broader global and crypto-specific surveys show a much wider distribution, often significantly lower outside the US. Crypto ecosystems also recruit globally and remotely, so a single US benchmark doesn’t necessarily reflect the full labor market available to Cosmos.

The more important point, however, is not the absolute salary number, but where the money comes from.

developer funding is not coming from revenue in the traditional sense. It mainly comes from: community pool spending, continuously minting new ATOM and staking those treasuries.

As a result, compensation is often paid in tokens or token equivalents, not from externally earned cash. In practice, this means that ATOM holders are the long-term funders of development through dilution.

From a developer’s perspective, this is rational: skills are benchmarked to external markets, and compensation is structured to remain competitive. From a foundation’s perspective, this enables continuity and long-term planning. From a holder’s perspective, however, it raises reasonable questions about incentives and accountability.

The concern isn’t whether developers “deserve” good pay, nor is it about blaming individuals. It’s about recognizing that Cosmos operates closer to an inflation-funded public infrastructure model than a revenue-driven startup. In that model, token price declines — even large ones — do not automatically trigger cost discipline.

So the discussion, in my view, isn’t “are these salaries real?”, but rather:

  • How do we define sustainability when funding comes primarily from inflation?
  • How should compensation, scope, and priorities evolve if adoption and usage don’t grow accordingly?
  • And how can governance ensure better alignment between builders and the holders who ultimately fund the system?

Tagu

2 Likes
62

I am 100% against this. There is no need for this zero fee LST ATOM. There is no need for Liquid stakers to be able to vote. Only a small percentage of ATOM will ever be Liquid staked at one time it is a niche service not something that is required for ATOM to be adopted by institutions.

63

Hi whitebear555555, thanks for your feedback on this. I’ll respond to each of your points:

1. The Illusion of Safety via Formal Verification

It is true that smart contract risk can never be fully eliminated, and we do not claim that audits or Quint verification provide a guarantee of safety. They are simply preventative measures that strengthen the security of the LST. The same is true for EVM deployments. DeFi risk will always be non-zero, but it can be assessed and managed. The Hydro committee has spent the past year evaluating the risk and security profile of every venue Hydro deploys into, and will continue to do so. We will also leverage tools such as Range Security for continuous monitoring, alerts for suspicious activity, and automated triggers that can rapidly withdraw liquidity when necessary.

2. Why the Community Pool?

Under our proposal, the community pool would bootstrap the LST and the vault because it benefits the Hub, but we expect a lot of other depositors too. The funding comes at minimal opportunity cost to the pool, as it relies on yield generated from otherwise idle funds that would not exist without this deployment.

3. Missing Metrics and Scalability

Hydro has been managing around 1.7m ATOM from the Hub community pool (3.5M is roughly the total amount of ATOM we’ve deployed throughout the last year, from that 1.7m ATOM). However, that deployment model relied on Cosmos DeFi protocols coming to Hydro to request liquidity, with ATOM holders voting on where funds should be deployed. While effective for bootstrapping protocols and providing deep liquidity for certain pools, this approach did not generate optimal yield. Deployments were constrained to protocols that actively requested liquidity and to the limited set of yield opportunities available within the Cosmos ecosystem at the time. Under this proposal, community pool ATOM would instead be deployed into Hydro’s new Inflow vaults. You’re absolutely right that some strategies do not scale to 7m ATOM, which is why we intend to use a wide range of strategies (see Annex 2), and this won’t be limited to Cosmos protocols (see Annex 3).

4. Misaligned Incentives

The amount of yield generated would not influence Hydro’s risk tolerance or the strategies selected. Risk parameters and strategy approval are determined independently by the Hydro committee. The Hydro team cannot unilaterally alter these decisions.