No to Hydro's zero fee LST ATOM

Conversation
1

We don’t need to bribe institutional investors with a zero fee LST ATOM with voting powers. I do not believe that LSTs should be able to vote. It should be one or the other. There are too many downsides with concentration of voting power and security issues. Furthermore creating this product would be considered creating a government owned monopoly on LST ATOM ruining the free market. If they want to vote they can stake like everyone else if the want autocompounding or to use it in other defi applications or just to be liquid then no voting. The 10% fee that Stride and others charge is completely reasonable.

1 Like
2

The opposition to a zero-fee LST (Liquid Staking Token) for ATOM boils down to three main concerns: network security, market health, and long-term sustainability.

1. The “Race to the Bottom” (Market Destruction)

Critics argue that a zero-fee product creates a “predatory” environment.

  • Starving Competition: Established providers (like Stride or Quicksilver) charge fees to pay for security audits, developers, and insurance. A zero-fee LST makes it impossible for these competitors to survive, potentially leading to a monopoly.

  • Stifling Innovation: If the market leader is “free,” there is no financial incentive for new teams to build better or more secure staking products.

2. Security and Governance Risks

Allowing an LST to participate in on-chain governance is seen by some as a “governance attack” in slow motion.

  • Decoupling Risk from Power: Staking is meant to be a long-term commitment. LST holders can sell their tokens instantly. Critics argue that people who can “exit” in seconds shouldn’t be making long-term decisions for the Hub.

  • Centralization of Power: If the zero-fee model attracts the majority of ATOM, a single protocol (and its holders) could control the outcome of every vote on the Cosmos Hub, making the network less decentralized.

3. Fragility and Lack of “Safety Net”

Fees aren’t just profit; they are often used as a reserve.

  • No Insurance Fund: Most LST providers use a portion of their fees to build a “slashing insurance” fund. A zero-fee model usually lacks this, meaning users could lose money if a validator misbehaves, with no treasury to back them up.

  • Sustainability Issues: Without a revenue stream from fees, the project may eventually need to “rent-seek” in other ways or request more funds from the community, making it a perpetual drain on resources rather than a self-sustaining business.

4. Distorting the “Free Market”

Even if they aren’t using government funds currently, the intent to use them in the past has left a sour taste. Critics believe that in a true free market, a product should be able to support itself via its own value (fees) rather than relying on external subsidies or “vampire” tactics to gain market share.

1 Like