The economic model I see for Atoms is as follows.
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Users stake their Atoms to validators.
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Validators opt into running a Zone. The send a transactions on the Hub opting into running a CDP issuance zone. This CDP issuance zone will also have a set of slashing conditions on the HUB. Opting into the CDP issuance zones also mean the validator and their delegators are slashable for these additional slashing condition.
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The validators who opted in run the CDP issuance zone and distribute fees to their delegators back on the hub. The obvious way to do this is via IBC back to the F1 fee distribution pool for the validator. @sunnya97 and I have been trying to figure out a strategy to allow these fees to be paid in layer 2 to enable zones that don’t have any native notion of value transfer to easily use this mechanism.
There are many strands of work that will come together to enable this reality.
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The base layer IBC protocol needs to be implemented
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The evidence handler module needs to be implemented and then extended with some kind of programmability. WASM looks like a good fit.
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We need to specify an application layer protocol on top of IBC that provides specific messages that chains that can operate in this Interchain Staking mode need to support to operate in this economic system.
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Multi-chain layer 2 technologies need to be improved up via Interledger or something something similar for fees.
Economic Analysis:
In this economic model, ATOM holders and validators are bidding with other token holders to collateralize distributed secure computations.
Why would a user choose to work with ATOM collateralized zone vs a zone with it’s own sovereign token?
ATOM collateralized zones can be optimally collateralized. The total slashable amount be equal to 100% of bonded stake or greater than or the worst cases slashing can be greater than total amount delegated to the validator and users may chose to accept this. Each zone that requires it’s own native collateral pool will be less capital efficient.
How large can fee becomes in this model?
By delegating to validators that are participating in the Interchain Staking model, Atom holders are taking on new risks form consensus faults but also zone specific faults like for instance mis managing pegged assets in a tBTC style peg zone. For these new risks, additional fees will accrue to Atom holders who delegate to validators who wisely pick zones to run.
This creates a number of virtuous feedback cycles. Delegators will be gauging the risk reward choices of validators, increased fees will increase the value of ATOM collateral, and this will increase the market value of having computations collateralized in ATOMs.
Fees should be some rake on the margin earn by participating in the system rather than scarcity of transactions/block space. Effectively, there is infinite block space in this system.