With active pipelines of new features, the Cosmos Hub now includes the Inter-Blockchain Communication protocol (IBC) and the Gravity DEX protocol that enables DeFi across multiple chains. As the Cosmos ecosystem continues to grow, it is clear that the Cosmos Hub will benefit from attracting more delegators and increasing user adoption. Therefore, a generalized incentivization mechanism for the growth of user activities on Cosmos Hub is necessary.
Many modern blockchain ecosystems and decentralized applications distribute rewards to provide incentives to their platform users. The distribution of these rewards is based on user activities that help bootstrap the growth of the user base. Generally, this incentivization methodology is called “farming”. The source of the farming rewards is various, but the most popular way is to utilize the native tokens for current and future platform users.
To achieve this growth, the Tendermint team is building these modules for the Cosmos Hub:
- Budget Module: To define and execute budget plans of ATOM inflation for multiple objectives
- Farming Module: To define and distribute incentives for various utility users on Cosmos Hub.
The budget module manages a list of budget plans that describe each proportional distribution of ATOM inflation to different destinations. The budget module distributes ATOM inflation according to the existing list of budget plans.
The list of budget plans can be added, removed, and modified by a parameter governance proposal.
A farming plan is a definition of a reward distribution plan with two types:
- Public Farming Plan
- Creation: A public farming plan can be created only by the governance process
- Farming Pool Address: The source of a public farming plan is an existing module account
- Private Farming Plan
- Creation: A private farming plan can be created by anyone who submits a transaction
- Farming Pool Address: A new farming pool address is assigned to the farming plan. Anyone can fund this farming pool by sending tokens to this address. Projects that wish to fund liquidity mining programs can send their own tokens to this address for farming distribution.
A farming plan defines a list of staking token weights that are used to calculate the proportional distribution of rewards to each farmer. From the total reward distribution, each staking token gets the weight proportion defined in the weight list. Then, each farmer who staked this token receives the amount of corresponding rewards based on their proportion of the staked token amount from the total staked amount.
A farmer can harvest (withdraw) accumulated rewards anytime they want. Rewards are calculated based on a predefined epoch, therefore farmers can harvest rewards accumulated until the last epoch.
Staking Tokens as Pool Tokens
Staking tokens in a farming plan can be defined as a group of pool tokens to distribute the farming plan rewards to pool token holders. Because every liquidity provider on Gravity DEX gets pool tokens as evidence of liquidity providing, this methodology naturally provides the Cosmos Hub with a way to incentivize liquidity providing on Gravity DEX.
Two governance processes are required to activate Gravity DEX liquidity incentivization:
- Budget: A governance process to decide
- percentage of ATOM inflation to be used for Gravity DEX liquidity incentivization
- time period of the budget plan created by this governance process
- Farming: A governance process to decide
- list and weights of staking tokens (pool tokens) to be incentivized
- time period of the farming plan created by this governance process
Gravity DEX liquidity incentivization use case is just a possible future use case of Budget/Farming modules, and such decision making process is not related to “this” signal proposal. Practically it requires several more governance procedure to actually decide and execute the liquidity incentivization.
For detailed specs, see:
- Budget Module: https://github.com/tendermint/budget/tree/master/x/budget/spec
- Farming Module: https://github.com/tendermint/farming/tree/master/x/farming/spec
We look forward to Cosmos Hub’s community vote to approve these features. By voting yes to this signal proposal, the voter agrees to adopt the budget module and farming module on Cosmos Hub to allow an incentivization mechanism for user base growth on Cosmos Hub. After this signal proposal passes, the budget module and farming module will be included in a future Gaia upgrade when both of the modules are ready to be deployed. If the signal proposal does not pass, it implies that the Atom delegators do not want two new modules to be adopted on Cosmos Hub.