You’re right that initially a portion of the yield will be inflationary in nature (via LST), but this portion will trend downwards, and possibly towards 0 (if inflation is reduced or cut completely via tokenomics updates) and the ongoing expansion of our strategies beyond Cosmos (see the first part of the Annex3).
If the LST adoption or Inflow yield fails to materialize, governance can reduce or end the deployment, which automatically reduces or cuts completely the funding to the team.
I appreciate the clarification, my concern is less about whether clawback or withdrawals are possible in theory, and more about how they function under real stress conditions. Governance driven withdrawals are inherently slow and procedural, while risk events tend to be fast and nonlinear. From my perspective, the community pool’s primary value is optionality and immediate availability, especially during periods of uncertainty. Allocating a very large portion of it into active defi strategies meaningfully changes its risk profile, even with conservative rules and a strong track record so far. I also think scale matters a lot here, risk does not grow linearly, and Cosmos historical challenges have often been around execution and coordination rather than intent or tooling. Because of that, i’m still not convinced that concentrating such a large amount of community pool funds into a single operational strategy is the right trade off at this stage
Voted YES (conditionally) - Need clarification on the $150k fee structure & Payment Currency
Body:
Hi everyone,
At Snow Fall, we have voted YES on this proposal. We strongly support Hydro’s technical vision and believe the Community Pool should be actively deployed to generate sustainable yield for the Hub.
However, we are maintaining our YES vote conditionally while we seek clarification on what we believe are the most critical—and underexplored—aspects of this proposal: the financial structure and the payment denomination.
Here’s why this matters:
The Math Behind the Fee StructureFixed Fee Impact:
$150k/month = $1.8M annually. On a 7M ATOM deployment (~$15M at current prices), this represents a ~2.6% flat management fee, regardless of performance.(edited )
Break-Even Reality:
For the Hub to net meaningful returns above passive staking (~10-12% APY depending on inflation), Hydro must consistently generate double-digit yields. If APY drops to 8-10%, the net benefit to the Hub becomes marginal after fees.
The “Catch-Up” Mechanism:
The proposal states: “If the yield is below $150,000, the outstanding amount will be taken out of the yield collected in the following months.”
This creates a scenario where, in a low-yield environment, the Hub could receive zero revenue for consecutive months while the provider recoups deferred fees first.
The Denomination Risk (ATOM vs Stablecoin)This is a critical point that needs transparency: In what denomination are the $150k monthly fees paid?
If Stablecoin: It means the Hub is effectively selling ATOM yield to cover operational costs. This creates constant selling pressure and forces the Hub to exit its position to pay for services.
If ATOM: The provider shares the volatility risk, which aligns better with holders, but still represents a significant outflow.
The Core QuestionWhy a guaranteed fixed fee instead of a performance-based model?
Most mature DeFi protocols use hybrid structures (e.g., “2 and 20”—2% management + 20% performance fees). This aligns incentives: the manager wins big only when LPs win big.
A fixed-fee model means Hydro gets paid regardless of performance outcomes. While we trust the team’s technical execution, this structure doesn’t inherently align long-term incentives with the Hub’s financial interest.
Our PositionWe are keeping our YES vote active for now, but we believe these financial parameters deserve a transparent discussion before the proposal moves to on-chain vote.
We would appreciate a response from the Hydro team addressing:
Fee Model: Why was a fixed fee chosen over performance-based alternatives?
Payment Currency: Are the fees paid in ATOM, stablecoin, or a mix? If stablecoin, how do you justify the selling pressure on ATOM yields?
Safeguards: What protects the Hub if yields underperform for extended periods (given the catch-up mechanism)?
Looking forward to the clarification.
Snow Fall Validator
I am voting NO.
The reason is straightforward: this proposal contains too many promises and too few mechanisms for control and accountability.
First, there is no clearly defined responsibility framework. It is not specified who is directly accountable for the results, nor are there consequences in case of missed deadlines or failure to deliver.
Second, the proposal lacks transparency. There is no clear reporting structure, no measurable KPIs, and no mandatory public progress reports that would allow the community to objectively assess performance and fund usage.
Third, the entire requested amount is effectively allocated to a single team. This creates a single point of failure and contradicts the principles of decentralization, especially without alternative implementers or a competitive structure.
The requested budget size is also concerning. Funding approximately 150 months of expenses upfront, without milestone-based payments or staged releases, is financially inefficient and risky.
Additionally, there is no pilot phase or MVP. No test deployment, proof of concept, or demonstrable results are provided to justify funding at this scale.
Finally, there are no mechanisms to protect community funds. There is no escrow, no conditional release of funds, and no safeguards to reduce downside risk.
In its current form, this proposal does not meet reasonable standards for transparency, risk management, and accountability. It may be worth reconsidering if restructured with clear milestones, controls, and reporting requirements, but as presented, a NO vote is justified.
Your post completely collapses at the most basic level, the math.
You claim:
On a 7M ATOM deployment (~$70M at current prices),
That is simply false. At current prices $2.6, 7M ATOM is around $18M, not $70M.
This is not a small rounding error, it’s a 4x mistake. As a result, the quoted 2.6% flat management fee is wrong. The break even analysis vs staking APY is wrong and the entire argument about marginal returns is built on incorrect inputs. When the base valuation is wrong, every conclusion derived from it is meaningless. Frankly, this reads like something copy and pasted from chatgpt without even checking the numbers or understanding the content. If you can’t get a basic atom valuation right, your credibility on more complex financial structures is effectively 0% and to be blunt, anyone who has delegated their atom to a validator making errors of this magnitude should seriously consider redelegating as soon as possible. This level of carelessness is not what delegators expect when trusting someone with their stake. Before demanding clarifications from the Hydro team, you should first correct your own math, otherwise this isn’t a good faith contribution to the discussion
After careful review, Cosmos Labs does not support the Hydro proposal in its current form.
For the past year, we have communicated transparently and consistently to the Hydro team that we do not support additional major allocations of community pool resources to Hydro without additional private funding.
The disagreement here is not marginal. It is foundational. The amount requested, representing more than seventy percent of the Community Pool, is economically disproportionate and inconsistent with principles of prudent and diversified treasury stewardship. An allocation of this size would materially constrain our community’s capacity to support other emerging or potentially higher impact initiatives. While Cosmos Labs could reasonably consider supporting a substantially smaller request (for example 500,000 ATOM or less), the current proposal exceeds what we believe should be our shared concentration risk tolerance.
More broadly, we believe that projects within the Cosmos ecosystem should demonstrate independent commercial viability by securing external funding alongside any community support. We have previously shared this perspective with Hydro, but to date we have not seen an update on efforts in this direction.
In our opinion, reliance on the Community Pool as a sole or primary funding source sets a concerning precedent. The Community Pool should exist to help strong teams and credible projects accelerate existing growth - rather than as an exclusive funding backstop for projects that may not otherwise be self-sustaining.
Below we provide some additional background on Hydro’s funding to date which may help contextualize our views on the current proposal.
Funding for Hydro dates back to October 2023.
Since that time, Hydro has been supported through multiple, overlapping funding proposals and funding channels/entities, often without clear separation, attribution, or consolidated public accounting.
Hydro originated while incubated at Informal Systems under Proposal #839. That proposal authorized $5.7 million USD for 2024 Hub development, structured as 30 percent ATOM and 70 percent USDC, in addition to 100,000 ATOM in performance bonuses, priced at approximately $7 per ATOM.
To date, there is no clear or auditable breakdown demonstrating:
How much of the $5.7 million was attributable specifically to Hydro,
How funds were allocated by product line, team, or deliverable, or
What portion of shared Informal or Hypha resources were dedicated to Hydro.
This is an example of the lack of clarity that prevents the community from evaluating and approving proposals of this magnitude with confidence.
Hydro’s funding and support expanded further in 2024 and 2025 through additional proposals:
Proposal #955 re-routed Cosmos Hub Protocol Owned Liquidity deployments to Hydro.
Proposal #986 - “Funding Hydro development and integrations in 2025,” resulted in Hydro receiving:
180,000 ATOM, valued at approximately $6.50 per ATOM, and
Approximately $290,000 in surplus funds carried over from Proposal #839, explicitly described as bootstrap capital.
Notably, Proposal #986 also understated the extent of Hydro’s AADAO funding, stating that Hydro had received only $75,000. This representation is incorrect. In reality, Hydro related initiatives received more than $417,000 in AADAO funding.
AADAO Funding: During the Q4 2024 AADAO reporting period, total grant authorizations amounted to $1,899,086. Of this total, $417,882 was allocated to Hydro related initiatives, representing approximately 23%of all AADAO funds approved in that quarter. These allocations spanned the full Hydro stack, including:
Protocol level integrations,
Front end and user experience tooling such as vote aggregators,
Security and monitoring infrastructure,
Governance tooling, and
User facing applications.
Proposal #991 (March 2025) the Hub authorized an additional deployment of Community Pool USDC via Hydro. An “excess” allocation of 57,530.40 USDC from the Cosmos Hub Community Pool was again directed to Hydro.
*If any of the amounts or figures above are incorrect please do rectify.
Hydro has been afforded repeated and substantial opportunities to establish sustainability, operational discipline, and independent viability. To date, those outcomes have not been demonstrated as evinced by their current proposal and for that reason, we cannot support it.
We share these views in the spirit of constructive discussion and with respect for the community’s governance process. As always, we encourage open dialogue and thoughtful consideration from all ATOM holders.
Where is Cosmos Labs independent commercial viability?
I’ve never seen so many bots praising the money-grabbing scheme of six guys from Informal Systems. First, they took over a million dollars for developing a product no one uses. Then they took all the USDTs that were in the community pool (they set the trap, so to speak). And now they want to take 70% of the ATOMS from the pool to generate ATOMS and funnel the profits into the order book so they can pay themselves salaries at $200 an hour.
Subject: Re: Hydro Funding Proposal - Snow-Fall’s Position: Yes to Innovation, No to Financial Hemorrhage
As a validator and committed investor, transparency guides my decisions. Initially, I welcomed the Hydro proposal with great enthusiasm. The Hub desperately needs bold DeFi initiatives to regain its relevance.
However, upon reviewing recent financial analyses and Cosmos Labs’ position, my perspective has evolved out of economic pragmatism.
Here is my current position and the conditions for my vote:
1. Vital Diagnosis: The Patient is in Danger
Let’s face facts: the Hub is in “intensive care.” In this critical state, what will save it is Value Accrual and revenue generation—not draining what little liquid assets it has left.
Cosmos Labs has just validated what Snow-Fall has been advocating for months: the Community Pool cannot be an exclusive funding source without external revenues. We must think in terms of a “Revenue Module”: every outflow of funds must have a clear perspective of inflows.
2. The Acceptable Compromise: The “500k Path”
I am prepared to vote YES, but only if the proposal is recalibrated to the suggested threshold of 500k ATOM.
This is a step toward Hydro that respects the Hub’s financial health. It’s reasonable seed capital for a proof of concept.
3. The Ultimatum: ROI or Nothing
My support is conditional. Hydro must “show its credentials.”
This deal must be a genuine WIN/WIN. It’s not just about funding Hydro—it’s about guaranteeing that the Hub derives tangible and measurable benefits.
What is the exact compensation model for the Hub?
How does the Hub capture the value created by Hydro?
If Hydro can demonstrate a sustainable business model with clear revenue streams back to the Hub, I will maintain my YES vote.
However, if I am not convinced by Hydro’s compensation model and the ROI for the Hub—which MUST generate income—I will be forced to change my vote to NO.
Conclusion
If the proposal remains as is (excessive request without ROI guarantees), I will be compelled to vote NO, against my initial desire to support innovation.
The Hub can no longer afford asymmetric bets where it alone assumes financial risk. If the profitability model for the public treasury is not ironclad, my responsibility as a validator is to protect the reserves.
The Hub desperately needs initiatives like Hydro. But what will save the patient is value capture, not draining the little liquidity it has left.
Olivier | Snow-Fall
It would be helpful to know who at Cosmos Labs authored this post.
For context, @Mag recommended last October that I coordinate this proposal with @RoboMcGobo who reviewed multiple iterations of the proposal.
I will make a few brief comments on the “funding history” below, but the key point is that, in the absence of support from Cosmos Labs, we do not wish to move forward with this proposal.
Hydro was designed and built as a tool to manage the community pool, which we believe should be in service of Cosmos Labs’s roadmap. To move forward, we would appreciate guidance on what Cosmos Labs would and would not support.
On the funding history:
Informal funding: I wrote the litepaper in my free time, and Jehan Tremback wrote most of the technical specifications largely in his free time as well. 1 FTE was assigned starting in August 2024, and the project was also the focus of a hackathon during the Informal retreat, with the goal of shipping an MVP by Cosmoverse. The total budget was likely in the $50K to $100K range.
Prop 955: The Hydro team received the equivalent of $975,000, including funds returned from Informal. In practice, this amounted to less, as only 70% was sold and ATOM subsequently declined in price. An additional $350,000 was allocated to other teams via grants (engineering, data indexing etc.). All of this has been documented in the quarterly progress reports posted on this forum.
AADAO funding: Is it being suggested that the Hydro team was responsible for these funds? We did not authorize any payments to third-party teams, and much of it was wasted due to AADAO mismanagement. We only supported whenever we could.
Props 955 and 991: These funds are deployed. Hydro has not spent or lost any of them, and they will be returned in full to the community pool if Hydro winds down.
Every initiative supported by the community pool should be fully auditable and measurable in terms of its real impact on the ecosystem. From what we hear, Hydro has not met this standard. Therefore, our position should be clear. Hydro should not be funded from the community pool until they demonstrate clear, measurable results from their previous projects and undergo a full audit of their accounts. We can still collaborate in the role of a technical partner, share knowledge, and promote tool adoption, but no further funds should be granted to hydro until a minimum level of transparency and real impact is achieved. As a member of the community, I believe this is the only way to ensure that the community pool serves all participants of the hub, not just a few individuals. Perhaps we should start a discussion on verification, auditing, and scaling mechanisms for initiatives, so that in the future, funding decisions are made solely based on real impact on the ecosystem, not individual interests
Hi Olivier, I appreciate your activity and willingness to analyze the hydro proposal, but I have to be honest, your previous posts strongly undermine your credibility. Just over a dozen hours ago, you valued 7 M atom at $70 M, with a market price of $2.6 , and you sign off as a validator while presenting strategic recommendations. Unfortunately, if you can’t properly edit content generated by chatgpt, how are we supposed to take your opinions or suggestions seriously? You sign off as a validator, so are matters regarding multisig security, key management, alerting systems, or slashing risk also being handled by chatgpt also? Your posts mostly make reasoned discussion harder. It’s worth focusing on facts and precise analyses then comments will be helpful, not misleading
Credibility & Role Separation - A necessary clarification
Hi @l.malkowsky,
You caught me red-handed on the valuation error, and I fully accept the “Mea Culpa.”
To be transparent: I was rushing to share my analysis before the voting deadline while simultaneously prepping for a major crypto event starting tomorrow. In that haste, I focused heavily on structuring my arguments and, as a non-native speaker, I used AI to help with translation and formatting. Unfortunately, I missed the outdated price assumption ($10 vs current market) left in the draft during the editing process. That is entirely on me.
However, let’s be crystal clear regarding your concerns about security.
As I have stated previously, I am the Front Office lead (Governance, Marketing, Client Relations). I do not handle the technical operations.
My partner, who is the technical expert, manages our infrastructure.
Absolutely no AI touches our keys, multisig security, or slashing protection. These are critical systems managed by humans with strict, proven protocols. Conflating a drafting error in a governance forum post with our node security is a leap that does not reflect our operational reality.
I accept the critique on the lack of rigor in that specific post—it won’t happen again. But let’s not let a typo distract from the core debate: the financial sustainability of the Hub.
Back to work.
Olivier | Snow-Fall
Why would ATOM need a no fee LST that allows voting power? How would that even be possible? It doesn’t seem likely that people would be able to vote with a liquid staked token. That seems like a pipe dream to me. It is not a business model to use a mass amount of community funds to fund a fee free token indefinitely. Even if you raise money from the initial money it still a never ending service that costs money to maintain. LSTs are a niche service. I believe it is usually something like 15% or so of the supply of a chain that may be liquid staked at any one time. The only reason to have it liquid staked is to use it in defi and earn additional yield and to autocompound for a higher yeild. Creating this LST ATOM would ruin the free capitalism market in the cosmos. Creating a monopoly for LST ATOM. I don’t believe it is in the best interest of the ecosystem for the Hub to finance this LST atom. Let institutions buy the atom and stake it like the rest of us. The hubs business is to support and facilitate the ecosystem not to provide free LST services to institutions. The hubs business is the technology and development of the stack.
I’ve always wanted to see applications on the Hub, but requesting 70% of the community pool feels like too large an ask. Even if it could be clawed back. That effectively removes the potential for other teams to deploy. How many users does Hydro currently have, and how much revenue does it generate for the team at the moment?
You mentioned Mars Protocol, which had a $1M exploit. Since your post came AFTER the incident, was this an oversight? This raises concerns about teams that still choose to use Mars.
Before Hydro, I’d like to see a DEX on the Hub. You guys are clearly talented. Would you be open to deploying and maintaining a DEX there or a different product?
Just focussing on the technical issue of “How could LST holders vote in governance?”, it’s not too complicated. A bit simplified:
When an LST holder votes, we just query the LST balance across anywhere the holder can have it (can e.g. also include the balance in an LP pool, in a protocol that locks the LST up for some benefit, etc).
The LSTs Cosmos Hub address (that ultimately holds the native delegation the LST represents) casts a weighted vote based on how the LST holders voted and their balances.
For that, we would also submit a change to the Cosmos SDK (adding the option to have part of a weighted vote be “No Vote”; right now, the best that can be done is abstain, which still counts against the quorum, vs No Vote would mean part of the voting power of the weighted vote just literally doesn’t vote).
The most difficult part is getting the data on how much of the LST each holder has onchain in a trusted way. An oracle built on e.g. WAVS https://www.wavs.xyz/ is probably the best option, making that process of getting the data onchain decentralized while still easy to adjust to e.g. add new places that users are holding the LST in.
Why this matters. I want to briefly explain why this matters to me. A validator is not just a forum participant or a content creator, a validator is an operator of financial infrastructure. A validator manages private keys securing funds that can amount to millions of dollars, is directly responsible for slashing events that result in real financial losses for users, also votes on governance proposals on behalf of delegators. At this level, there is simply no room for sloppiness. When incorrect financial data is publicly presented, and the error is not caught before publication, no one on the team flags it, and the content appears to be copied or lightly edited from chatgpt without proper verification, this is not a minor typo. It is a risk signal, not a personal attack. In traditional finance, publishing incorrect numbers in an official context would immediately raise concerns about internal review processes, operational discipline, and overall risk management. Crypto infrastructure should not operate under lower standards if anything, the bar should be higher. That is why a fair question naturally arises are operations secured by robust procedures, or by unchecked ai generated text? A validator who cannot verify a text before publishing it does not inspire confidence that they can verify systems holding delegated funds. For me, this is sufficient reason to reassess delegation risk, calmly, rationally, and without emotion. I consider this matter closed from my side
I will keep my statement short:
Pros:
Cons
In the proposal’s current state, CrowdControl will vote NO. Proposals with an ask of this size must have a better project plan, including milestones that trigger the release of funding tranches.
I will be direct to close this “trial” on form and return to the substance: the actual proposal.
1. Total transparency on my method
Yes, I use AI, and I will continue to do so.
French is my native language. To participate in these international debates with the necessary precision, I write down my raw thoughts and use AI for formatting and translation. It is an indispensable tool for me to ensure I am understood clearly by the community.
Criticizing me for using tools to overcome a language barrier or for a one-time lapse in proofreading is a distraction. The error was validating a post too quickly during a major crypto event where I was personally involved. It was noted and corrected. But do not confuse a “translation tool” with an “absence of thought.”
2. Stop the slippery slope generalizations
Linking an editing error on a forum to private key security or financial management is a classic slippery slope fallacy. It is a rhetorical argument, not a rational risk assessment.
My infrastructure is secure, and my technical validation procedures are strict. This forum is a space for the exchange of ideas, not a server administration console—which I am not, let me remind you.
I would rather be the one who speaks up, uses the tools at his disposal to dialogue, and attempts to build, than stay in the comfort of the silent majority who never justify their votes.
3. My position on Hydro #1022: Constructive ABSTAIN
Let’s return to the topic that actually matters. I refuse to kill this proposal out of dogmatism, but I cannot accept it in its current form.
I am voting ABSTAIN.
Why? Because the technical foundation is useful and necessary for the Hub. Call me crazy, but I still hope to help it evolve so it can become productive. My abstention is an invitation to the Hydro team to refine their copy and include the missing safeguards:
The addition of clear milestones for funding tranches.
Precise and measurable KPIs.
Conclusion
If you have the energy to criticize, use it to audit the Hydro proposal and suggest amendments with the same rigor you used to audit me. Let’s build the Hub instead of tearing each other down.
Thanks for the reply. I just want to clarify one point to avoid misunderstandings, my previous post was neither a personal attack nor a judgment of your competence. It was a reference to facts and communication style in the context of governance, because in these processes details matter. If now you changed your position from YES to ABSTAIN, that’s also information, but it actually reinforces my point , if that change came from reading the proposal and the discussion, then it shows even more clearly that communication, precision, language and presentation of information are key in governance votes, because they influence the final decisions. I’m not going to stretch the side topic further because I don’t see a reason to go down auxiliary axes of the discussion. I stated my position, you stated yours and that’s sufficient. For me the side topic is closed, and ultimately what matters is the outcome of the proposal and the substantive arguments around Hydro and and proposal #1022