- 2022-05-23 Created initial post
- 2022-06-20 New version of this proposal based on community feedback & partnership with P2P
- 2022-06-20 Updated title to focus on liquid staking and DeFi use case of Interchain Security
[PROPOSAL] Bringing Liquid Staking and DeFi to the Cosmos Hub with Interchain Security
The Cosmos Hub is the central chain in the Cosmos ecosystem, providing a stable on ramp and coordination point for Cosmos’s interconnected blockchains. It is the most secure and decentralized public blockchain in the ecosystem, boasting a market cap of ~$2 billion at current prices, and is secured by staked tokens worth ~$1.2 billion, providing an extremely secure proof of stake environment.
Even under volatile market conditions, the bonded supply of ATOMs staked on the Cosmos Hub relative to non-bonded supply is at approximately ~10:1, demonstrating strong incentive-alignment on behalf of ATOM delegators to keep securing the Hub and earning inflationary rewards.
This community spend proposal will be used to fund blue chip CosmWasm projects coming to Cosmos from other blockchain ecosystems by collaborating with P2P to attract projects to Cosmos. This proposal will focus on smart contract applications that take advantage of liquid staking and which can cement the Hub’s role as a leading provider of liquid staked assets in the Cosmos ecosystem. This initiative will support projects that use Interchain Security by aligning incentives between their development team and the Cosmos Hub validator set and delegators from the beginning.
What is Interchain Security?
Launching on the Cosmos Hub August/September 2022, Interchain Security will emerge as the premier method for projects to get the highest level of security in Cosmos by leveraging the entire 175+ Cosmos Hub validator set. Interchain Security works by allowing the Cosmos Hub to secure any number of “consumer chains” in a parallel execution environment.
This proposal addresses the “Contract Consumer Chain” use case in which developers can get to market quickly by deploying their smart contract application as a Cosmos Hub secured blockchain. At launch, each independent contract chain will need to be approved by a governance proposal on the Hub, though permissionless deployment is on the roadmap so that smart contract applications will have the opportunity to freely run without complicating validator operations.
Key Attributes of a Consumer Chain
- Standardized chain binary: The underlying binary that runs a consumer chain is always the same. Teams building on a consumer chain do not need to spend time working with low level blockchain code that is unrelated to their business logic.
- Majority of gas fees go to developer DAO: On this type of consumer chain, gas fees are paid in Atoms. For example, 25% of the gas fees are sent to the Cosmos Hub validators and delegators for securing the chain, and the remaining 75% go to a DAO supporting the development of the consumer chain. This mechanic supports truly sustainable development. This DAO is token-governed, and also has the authority to upgrade the contracts. As an analogy, consider the UNI token. It is a governance token for the Uniswap exchange on Ethereum. Users of Uniswap pay hundreds of millions of dollars in gas fees, but none of it goes to the UNI DAO. If Uniswap was built on a hub-secured consumer chain, the UNI DAO would be getting 75% of those gas fees, thereby supporting long-term sustainable development.
- Support for CosmWasm available at launch: We will support smart contracts written in CosmWasm.
Deploying a consumer chain should be as seamless as deploying a smart contract on a platform such as Ethereum, while instilling a high degree of assurance in users that functionality and security won’t be compromised in the process.
Key Reasons to Launch as a Consumer Chain
- Your project demands the highest level of security in the Cosmos ecosystem
- Your project would benefit from immediate incentive-alignment with the ATOM community
- Your team is comprised of seasoned CosmWasm/ smart contract developers that want the flexibility of having their own appchain
- You are considering migrating your project from a different chain
Working in partnership with liquid staking partners
Bringing Interchain Security to market for feature launch will require the Cosmos Hub to work with liquid staking partners. A prominent partner to carry out on this vision is the P2P development team. P2P is a reputable validator and non-custodial staking platform that supports a number of layer 1 projects, including Cosmos, and a core contributor to Lido, for which it runs Lido on Terra and Solana. P2P has been a contributor to the Cosmos Hub since genesis. It was a participant in the ATOM fundraiser; among the earliest testnet participants in Cosmos; an incentivized testnet winner in both Game of Stakes and Game of Zones; the creator of the first NFT ICS standard and the creator of the first MVP interchain NFT marketplace.
To bring liquid staking to market leveraging Interchain Security, P2P intends to build out a “DeFi Hub” (naming TBC) secured by the Cosmos Hub that will serve as a launch environment for smart contract DeFi applications. The DeFi Hub will feature full support for Interchain Queries at launch thanks to P2P’s custom implementation. A portion of this funding proposal will be leveraged to fund P2P’s work and to support projects launching on this consumer chain. This consumer chain will also host the Lido liquid staking protocol, though this is contingent on a vote by the Lido DAO.
Overall, given P2P’s expertise, reputation, and commitment to the Cosmos Hub, they are a well positioned partner to both carry out the development of their own consumer chain, and work to build an ecosystem of smart contract applications that would benefit from Interchain Security, Interchain Queries, and liquid staking.
We also plan to work closely with Quicksilver to identify projects complementary to both liquid staking offerings, with the aim to ensure Cosmos Hub Interchain Secured chains become the premier venues for liquid staked asset issuance.
Funding the Ecosystem
This proposal is requesting 150 000 ATOMs from the Cosmos Hub community pool (USD 950 000 at current prices) to fund smart contract applications that are looking to leverage Interchain Security and the liquid staking feature.
1/3 of funds (50 000 ATOMs) will go towards the development of the DeFi Hub, a premier consumer chain built by P2P that has decided to leverage Interchain Security. 2/3 of funds (100 000 ATOMs) will go towards CosmWasm and smart contract projects that either decide to launch on the DeFi Hub, or as their own appchain. The Managing Committee will vote on which projects to fund on a case by case basis.
As part of the 100 000 ATOMs proposed allocation, community pool funds will go towards funding teams that carry out the development. This is estimated to give teams 2-3 months of runway before launching their project as either 1) smart contract application on top of the DeFi Hub, or 2) an independent consumer chain. Post-launch, we expect teams to bootstrap a developer DAO that will continue to fund their operations as a consumer chain long-term. These funds will be used to transition projects to the Cosmos Hub and will cover headcount for: engineering, marketing, product development, business development, etc.
Funds will be distributed to teams in two installments on-chain. The first portion (50%) will be sent once the Funding Committee votes to support the project, and the second portion (50%) will be sent at a maximum 2 weeks after the project enables Interchain Security.
Managing Community Pool Funds
Jelena Djuric, Informal Systems
Jack Zampolin, StrangeLove Ventures
Zaki Manian, Iqlusion
David Feiock, Galileo Group
By voting YES you agree that 150 000 ATOMS should be used to fund CosmWasm development teams to launch the DeFi Hub, a smart contract application on the DeFi Hub or a contract consumer chain.
By Voting NO it means you do not believe that CosmWasm developers should be compensated by the Cosmos Hub community pool to launch the DeFi Hub, or a smart contract application on the DeFi Hub, or a contract consumer chain.
By voting ABSTAIN, you formally decline to vote either for or against the proposal.
Voting NOWITHVETO expresses that you would like to see depositors penalized by revocation of the 64 ATOM deposit, and contributes towards an automatic 1/3 veto threshold.