Intro
A huge thank you to Binary Builders for this thoughtful and detailed post!
We are strongly in favor of the three stated objectives in this post, namely 1) growing the ATOM Economic Zone through liquidity deployments, 2) financial alignment with consumer chains, and 3) increasing the decentralization of Cosmos Hub voting power. We are also broadly in favor of the strategies suggested to achieve these objectives. Now that ICS and the AEZ exist, Cosmos Hub governance should be more active and assertive than it has been in the past.
Start small
But what concrete steps should Cosmos Hub take today?
We believe it would be best for Cosmos Hub to begin by taking small, simple, well-defined steps - and then gradually progressing to some of the more advanced strategies described by the original post above. Beginning with small steps is the best way to build consensus.
Taking a quick look at the history of Cosmos Hub, the recent proposal to deploy 450K ATOM was the first Cosmos Hub DeFi proposal to achieve consensus. Previous Cosmos Hub DeFi proposals, such as the Osmosis proposal from 2021 and the ATOM 2.0 proposal from 2022, did not achieve consensus. The lesson here is clear: when it comes to Cosmos Hub actively participating in DeFi, small, simple, well-defined proposals have the best chance of success.
We believe that after taking a few small steps - and once it has been proven to everyone that Cosmos Hub can participate in DeFi in a safe, efficient, responsible way - then Cosmos Hub will be ready to pursue the full range of strategies discussed above.
Proposed actions
So again, what specific steps should Cosmos Hub take today?
1 - Deploy a meaningful amount of NTRN/ATOM liquidity to Astroport Neutron. Note that ATOM and NTRN already exist in the community pool, and Cosmos Hub already has experience deploying liquidity to Astroport Neutron.
2 - Deploy additional ATOM to the stATOM/ATOM pool on Astroport Neutron, to make the AEZ an even more attractive destination for upcoming LSTFi applications.
3 - Conduct a token swap with Stride, and deploy the resultant liquidity to an STRD/ATOM pool on Astroport Neutron.
4 - Persuade the Neutron DAO to combine its NTRN/ATOM and NTRN/USDC pools into a single USDC/ATOM pool.
Justification
These four steps would create this pool architecture on Astroport Neutron:
USDC/ATOM (owned by Neutron)
NTRN/ATOM (owned by Cosmos Hub)
STRD/ATOM (owned by Cosmos Hub and Stride)
stATOM/ATOM (owned by Cosmos Hub)
wstETH/ATOM pool (maintained with liquidity incentives)
In this pool architecture, ATOM is the common denominator for each pool. This gives ATOM continued relevance in the AEZ, and contributes to its quality of being money. Also, with ATOM as a common denominator it makes for efficient pool routing, as traders can do any trade with at most one hop.
In general, these four simple steps would add a huge amount of liquidity to the AEZ and would establish the AEZ as the proper place to trade all consumer chain tokens. With deep liquidity over a diverse array of interesting tokens, many more users and builders would be drawn to the AEZ.
These four steps would achieve the three objectives above in a simple and easy way:
| Objective | How it’s achieved |
|---|---|
| Grow AEZ through liquidity deployments | A huge amount of liquidity is added to the AEZ, all of it paired with ATOM |
| Financial alignment with consumer chains | A token swap between Cosmos Hub and Stride, giving CH a stake in Stride. Would test the token swap idea in production. (Cosmos Hub already owns 5.5% of Neutron.) |
| Decentralize Cosmos Hub voting power | Stride protocol spreads the ATOM backing stATOM equally across the Cosmos Hub val set. So by providing liquidity to the stATOM pool and generally promoting stATOM, Cosmos Hub vote power becomes more decentralized* |
| Bonus objective: keep it simple! | No ATOM is sold, no ATOM liquidity incentives, all steps are clearly defined. |
*For more info on this, check out this Stride forum post about host-chain validator selection. This other post is helpful, too.
Details
One big question is: how much liquidity should Cosmos Hub deploy with these four steps?
We believe most of the ATOM currently in the community pool should be deployed, as it is getting rather large and the current tax parameter of 10% is quickly filling the pool. For context, at the current rate, the community pool is filling at roughly 4M ATOM per year. Determining how much should be deployed to the various NTRN/ATOM, stATOM/ATOM, and STRD/ATOM pools still needs to be determined.
Another question is, what technical implementation should be used to deploy the liquidity?
In proposal 800, Cosmos Hub tested the method of using a multisig to steward protocol owned liquidity (POL). This method has proven to work very well. On the other hand, Timewave Labs has recently instantiated its Covenant smart contract system on Neutron. Covenant has been designed to allow the Cosmos Hub to deploy and manage POL without an intermediary. This is another strong option. Or perhaps a combination of both methods can be used.
Final thoughts
Despite being structured like one, this post is not a proposal! This post continues the conversation begun by the excellent post above by Binary Builders.
We expect this conversation to continue for the next few weeks, both on this forum and probably on X / Twitter Spaces. We look forward to continuing to participate in the conversation.
The awesome thing about Cosmos Hub is that it has always been comprised of many capable and diverse groups, making it seriously decentralized. With the advent of the AEZ, there are more Cosmos Hub-aligned groups than ever - which is certainly a good thing. It’s a pleasure to be a part of this decentralized decision-making process. We’re confident that if all groups contribute ideas and communicate, we can achieve consensus and continue to move the Cosmos Hub forward (:
All feedback on this post is certainly welcome. Let’s continue the conversation.