This is a signaling proposal for the Stride blockchain to join the ATOM Economic Zone and adopt interchain security (ICS) from Cosmos Hub.
Under this proposal, Stride would share its various revenues with Cosmos Hub as follows:
- 15% of liquid staking rewards
- 15% of STRD inflationary staking rewards
- 15% of maximal extractible value (MEV) revenue
- 15% of transaction fees
In return, Cosmos Hub would share its economic security with Stride. Also, since Stride would be part of the ATOM Economic Zone, Cosmos Hub would share 450,000 ATOM, to be provided to an stATOM/ATOM liquidity pool on Astroport’s Neutron deployment. These funds would be used to facilitate trading between stATOM and ATOM, would not be spent in any way, would remain the property of Cosmos Hub, and would always remain under the control of Cosmos Hub.
In order to be implemented, this proposal must be affirmed by both Stride onchain governance and Cosmos Hub onchain governance. It is being posted to both governance forums simultaneously.
April 13th - Created original post on Cosmos Hub and Stride gov forums
April 13th - Post signaling props on Cosmos Hub and Stride gov forums
April 20th - Onchain signaling proposal on Stride
April 27th - If Stride vote passed, onchain signaling proposal on Cosmos Hub
May 10th - Public rehearsal simulating Stride’s transition to ICS
~May 12th - If Cosmos Hub vote passed and rehearsal was successful, two separate Cosmos Hub onchain executable props: a community spend prop for the 450K ATOM, and an executable prop to onboard Stride to ICS
The following items describe the voting options and their significance for this proposal:
YES - You agree with all the terms of this proposal, the main terms being: 1) Cosmos Hub shares its economic security with Stride, 2) Cosmos Hub shares 450K of ATOM liquidity, and 3) Stride shares 15% of all its revenues with Cosmos Hub
NO - You do not agree with all the terms of this proposal. You may agree with some terms and disagree with others. But if you do not agree with all terms, vote NO
NO WITH VETO - You 1) consider this proposal to be spam, 2) believe it infringes on minority interests, or 3) believe it violates the rules of engagement as currently set out by Cosmos Hub governance. If the number of NoWithVeto votes is greater than a third of total votes, the proposal is rejected and the deposits are burned
ABSTAIN - You wish to contribute to quorum but you formally decline to vote either for or against the proposal
Stride blockchain background
The Stride blockchain launched on September 4th, 2022. As a gesture of friendship, 2.2M STRD (2.2% total supply) was airdropped to ATOM stakers. This airdrop continues to be claimed, as every month unclaimed STRD is recycled into a new airdrop to ATOM stakers.
The Stride blockchain has a single purpose: to provide the best liquid staking service for chains in the Cosmos ecosystem. Stride protocol currently provides liquid staking for seven Cosmos chains, and has over 80% of Cosmos ecosystem liquid staking market share.
With Stride’s stTokens integrated into major DeFi apps across the Cosmos, a rapidly growing TVL, and more IBC traffic than almost any other Cosmos chain – the Stride blockchain has clearly achieved product market fit.
Stride’s top priority is security; it always has been and always will be. Like the Cosmos Hub, Stride is a highly secure minimalist blockchain, with no smart contracts and no other apps beside the core liquid staking protocol. The Stride codebase has been fully audited by numerous security firms, and receives continuous auditing from Informal Systems. And the Stride blockchain is protected by IBC rate-limiting. (See appendix for further security details.) In keeping with Stride’s total emphasis on security, adopting ICS makes sense.
Like any other Cosmos chain, the Stride blockchain currently receives economic security from its staked governance token. But this means that its economic security is limited by the economic value of its governance token. With ICS from the Cosmos Hub, the Stride blockchain can get around this limitation and achieve a much greater level of economic security than it could on its own.
The ATOM Economic Zone and ICS
Interchain security from Cosmos Hub offers the Stride blockchain an enormous increase in economic security. As of this writing, the economic security of Stride is ~$22 million, while Cosmos Hub is at ~$2.5 billion. As an ICS consumer chain, the Stride blockchain would enjoy the same level of economic security as Cosmos Hub - a nearly 115x increase.
Achieving the same level of economic security as the Cosmos Hub would represent an affirmation of Stride’s total commitment to security. Whales, institutions, and DAOs would likely be more comfortable liquid staking large amounts of ATOM and other Cosmos tokens with Stride protocol. Furthermore, other Cosmos blockchains and DeFi apps would likely feel more comfortable integrating with Stride protocol and supporting stTokens.
Joining the ATOM Economic Zone would also benefit the Stride blockchain. The ATOM Economic Zone is a special group of Cosmos blockchains that work together to help and support each other in order to achieve mutual benefits. If the Neutron and Stride blockchains are both granted access to ICS from the Cosmos Hub, then those three blockchains would be the founding members of the ATOM Economic Zone.
If this proposal is approved, the Cosmos Hub would share 450,000 ATOM with Stride, to be provided to an stATOM/ATOM liquidity pool on the Astroport DEX on Neutron. (See appendix for Astroport details.) This action would provide mutual benefits for all three potential founding members of the Economic Zone.
For Neutron, this stATOM trading liquidity would likely increase trading volume, which would generate transaction fees and create MEV revenue. Also, this liquidity may help attract more app developers to Neutron.
For Stride, this stATOM trading liquidity would increase the usefulness and popularity of stATOM. This is because in order to achieve more and bigger integrations, stATOM needs deeper and deeper trading liquidity.
For Cosmos Hub, there would be many benefits. Since this would increase revenue for both Neutron and Stride, ICS payments to the Cosmos Hub would increase. And this liquidity would further cement liquid staked ATOM as the best collateral token in the Cosmos, which would likely increase demand for ATOM.
All these mutual benefits would come at a very low cost. The 450K ATOM would simply sit in a liquidity pool, facilitating trading between stATOM and ATOM. These funds would not be spent in any way, and they would always remain under the complete control of Cosmos Hub. And it bears noting that at the current Cosmos Hub community pool tax rate, 450K ATOM represents just five weeks of tax revenue.
Stride blockchain’s transition to ICS
No live blockchain has ever adopted interchain security. Stride blockchain will potentially be the first. There would be a few minor changes, but the average user of Stride protocol likely wouldn’t notice any difference.
Stride blockchain’s current set of one-hundred validators would become “governors,” and would retain their current STRD delegations. A governor does everything a validator does, except validate transactions.
STRD holders would be able to stake with a governor of their choosing. By doing so, STRD stakers would be compensated with inflationary STRD rewards and Stride protocol revenue, as they are now. Governors would be able to set an optional commission, and would vote on behalf of delegators (delegators will still be able to vote themselves, if they want).
In order to attract delegations, governors may choose to run relayers, provide endpoints, provide analytics, create educational content, actively participate in governance discourse, and so on. Just like validators normally do. Anyone can become a governor: becoming a governor is a permissionless process, as is operating a validator today.
Inflationary STRD staking rewards would remain. But since staking STRD would no longer be vital to the economic security of the chain, there would be a special inflationary staking reward halvening when ICS was adopted. According to the STRD tokenomics, STRD staking rewards are reduced by 50% every year on September 4th. That halvening schedule would remain in place, but in addition there would be a special 50% staking reward reduction when ICS was adopted. This is designed to make the STRD tokenomics more sustainable.
Stride blockchain revenue sources
The Stride blockchain is offering to share more revenue with the Cosmos Hub than any ICS applicant ever has before. Also, since Stride is an existing blockchain and already has momentum, it would be able to share significant revenues with the Cosmos Hub on day one.
The Stride blockchain would share 15% of each following category with the Cosmos Hub: liquid staking rewards, inflationary STRD staking rewards, transaction fees, and MEV revenue.
While the Stride blockchain does not currently collect transaction fees or MEV revenue, these will both be significant sources of revenue within roughly three months. Once turned on, transaction fees will target an average of five cents. Stride contributors are actively working with Skip to build an auction module for instant stToken unbonding. (See appendix for MEV details.)
The Stride blockchain is already growing faster than almost any other Cosmos chain, and it is expected that membership in the ATOM Economic Zone and adoption of ICS would further accelerate this growth. In other words, with the help of security and liquidity from Cosmos Hub, Stride’s existing revenues would likely increase in a substantial and sustained way, which would be very beneficial for Cosmos Hub.
In order to make the economics of ICS more favorable for Cosmos Hub validators, validators in the bottom 5% of vote power in the Cosmos Hub validator set would be given the option to opt-out from validating for the Stride blockchain. This translates to roughly the bottom sixty-five validators.
With regard to the 450,000 ATOM from Cosmos Hub, it will be handled by a multisig. But creating a new multisig won’t be necessary. As it happens, a trusted Cosmos Hub community multisig already exists, namely the ATOM Accelerator DAO. (See appendix for AA DAO details.)
After consultations between Stride contributors and the ATOM Accelerator members, the ATOM Accelerator members agreed to steward this 450K ATOM. This means that they would control it on behalf of Cosmos Hub governance. To be absolutely clear, the ATOM Accelerator would use these funds only as explicitly directed by Cosmos Hub governance. Insofar as it pertains to these funds, the ATOM Accelerator would not take direction, guidance, or advice from any entity except the Cosmos Hub, as expressed through onchain governance.
The current signaling proposal you are reading contains instructions that specify exactly what the ATOM Accelerator is to do when it receives the 450K ATOM. If this signaling proposal is approved by governance, a follow-up community spend proposal would be used to release the 450K ATOM to the ATOM Accelerator’s multisig address.
Here are the instructions they are to follow:
As soon as possible after receiving the funds, the ATOM Accelerator DAO will liquid stake 225K ATOM with Stride protocol, resulting in a certain amount of stATOM.
The ATOM Accelerator DAO will then provide the certain amount of stATOM it just minted along with 225K ATOM to a liquidity pool on Astroport’s Neutron deployment.
The pool will be the stableswap pool type, with the swap fee set at 0.05% and the amplification factor set at 3. (Astroport contributors have approved these parameters, and believe they are prudent.)
By providing this liquidity, the ATOM Accelerator DAO will receive a certain amount of LP tokens from Astroport. It will hold them, and not bond them in the Astroport generator contract.
This proposal does not specify a term for the 450K ATOM liquidity position. This is because it is a good idea to keep blockchain governance as simple as possible, and not enter into complicated agreements. To be clear, this proposal instructs the ATOM Accelerator DAO to provide funds as liquidity, but it does not bind Cosmos Hub from then moving the funds whenever it may wish. After the funds are in the liquidity pool, Cosmos Hub is completely free to pass a new signaling proposal instructing the ATOM Accelerator DAO to move the funds.
However, it is important to remember that even after potentially adopting ICS, Stride will always remain a sovereign chain. This proposal does not bind Stride to always share its revenue with the Cosmos Hub; if it wishes, Stride may forgo ICS and leave the ATOM Economic Zone. Hopefully, Cosmos Hub will indefinitely share its security and liquidity, and Stride will indefinitely share its revenue.
The future of the liquidity position
The ATOM Accelerator DAO members have agreed to steward the 450K ATOM liquidity position as described above until October 1st, 2023 at the latest. At that time, if Cosmos Hub has not passed a signaling proposal to establish a new solution for the liquidity position, then the ATOM Accelerator will begin the process of returning the funds to the Cosmos Hub community pool. This process would involve using the Stride app to unbond the stATOM side of the position, which would take approximately three weeks. Therefore, in this scenario the ATOM Accelerator would return the 450K ATOM in the liquidity position to the Cosmos Hub community pool no later than November 1st, 2023.
Hopefully Cosmos Hub governance will establish a new solution for the 450K ATOM liquidity position before that happens.
One potential solution is a new suite of secure smart contracts being jointly developed by Timewave and Stride. These smart contracts would allow a Cosmos chain to directly utilize its community pool funds onchain. (See appendix for Timewave details.) So a Cosmos chain could provide liquidity directly through governance, without using a multisig as an intermediary.
Once the Timewave contracts have been built, audited, and thoroughly tested - which will be in roughly four months - Cosmos Hub governance may or may not wish to instruct the ATOM Accelerator to transfer its 450K ATOM liquidity position to a Timewave smart contract controlled directly by Cosmos Hub.
Alternatively, Cosmos Hub governance may or may not wish to establish a new multisig to steward the liquidity position.
To clearly summarize, it is being proposed that the Cosmos Hub release 450K ATOM to the ATOM Accelerator DAO, to be provided as liquidity on Astroport Neutron according to the instructions above. Furthermore, on October 1st, 2023, if Cosmos Hub has not passed any new proposals regarding the funds, the ATOM Accelerator DAO would begin the process of returning the funds to the Cosmos Hub community pool, and that process would be completed by November 1st, 2023 at the latest.
Hopefully, Cosmos Hub will establish a new solution for the liquidity position before it is returned by the ATOM Accelerator, so that Cosmos Hub indefinitely shares its security and liquidity, and Stride indefinitely shares its revenue.
The Stride blockchain is already live, has a validator set, has product market fit, generates significant revenue, has more IBC traffic than almost any other chain, and is growing rapidly.
Some may ask: if it’s already so successful on its own, why does Stride blockchain need to share 15% of all its revenue with the Cosmos Hub?
The answer is: if Stride shares its revenue with the Cosmos Hub, in return the Cosmos Hub will share both its ample security and liquidity. And this huge boost in security and liquidity would supercharge the Stride blockchain, accelerating and amplifying the success it has already achieved on its own.
Fundamentally, isn’t sharing and cooperation the core ethos of Cosmos? IBC means blockchains in the Cosmos ecosystem don’t have to be lonely islands - they can work together. The ATOM Economic Zone and ICS build on both the technology and philosophy of IBC.
By sharing resources, Cosmos Hub, Stride, and Neutron can form the most secure and most liquid zone in the Cosmos, creating mutual benefits for all three chains. Security and liquidity will attract users and developers, making this zone exciting, interesting, and hopefully very successful.
The whole is greater than the sum of its parts.
…Now we discuss! Please contribute to this important discourse with comments or questions (:
Keep in mind, in order to fully implement this proposal, it will take several onchain votes on both the Stride and Cosmos Hub blockchains. (You may wish to refer to the timeline section at the top of this post.)
Also, keep in mind that this is the first ever Cosmos gov prop forum post to be cross-posted on two different governance forums. Although there is considerable overlap, please try to keep discussion about Stride on the Stride governance forum, and discussion about Cosmos Hub on the Cosmos Hub governance forum.
Appendix / FAQ
In general, what are the risks and benefits of liquid staking?
With appropriate safety measures in place, liquid staking can be made very safe. The recently posted Cosmos Hub forum post to add the liquid staking module seeks to add these safety features to Cosmos Hub.
Specifically, the LSM proposal would cap the total amount of ATOM that can be liquid staked at 25% of total staked ATOM, and would introduce a requirement that validators who receive ATOM delegations from liquid staking providers self-bond a certain amount of their own ATOM. Additionally, in selecting which Cosmos Hub validators to delegate to, the Stride DAO distributes its ATOM across the active set, thereby increasing the Nakamoto Coefficient of the chain.
Liquid staking makes ATOM more useful, as it allows it to be used in onchain activities in an economically viable way. Examples are: use in trading on a DEX, use as collateral for a money market, use as backing for a CDP stablecoin, use as a currency for trading NFTs, and use as a constituent token in an index token. If using unstaked ATOM for these onchain activities, forfeited staking rewards prevent these use-cases from scaling. Only through liquid staking is it economically viable to use ATOM for these onchain activities. Thus, liquid staking increases the usefulness of ATOM, and thereby increases demand.
Considering the mitigation of liquid staking risks and the significant benefits that liquid staking provides, many prominent Cosmos thought leaders agree that liquid staking is good for Cosmos Hub.
Interchain liquid staking already exists today. By adopting interchain security, Stride can bolster its economics security and secure stATOM through alignment with the Cosmos Hub.
What specific, technical steps is Stride taking to maximize its security?
Security always has been, and always will be, Stride’s #1 priority. Specifically, Stride’s approach to security is
- Be a minimal blockchain. No complex apps built on top of Stride that could compromise security. For example, Stride doesn’t support CosmWasm or permissionless app deployment.
- On chain safety checks. The Stride protocol has safety checks built-in: IBC rate limiting (like Axelar and Osmosis to protect against bridge hacks), isolated zone failures and blockly invariant checks that protect against bugs like infinite mints.
- Rigorous testing and launch process. Stride has hundreds of unit and integration tests that are run before launching new LSTs.
- Extensive point-in-time auditing: Stride has already been audited 4 times (CertiK, Oak, Informal Systems 2x).
- Continuous auditing. Stride receives quarterly audits from Informal Systems on an ongoing basis.
For a thorough explanation of Stride’s complete security strategy, refer to this Stride blog post.
What is Astroport?
Astroport is a high quality DEX supported by Delphi Labs. Since its original launch in December of 2021, the Astroport smart contracts have securely facilitated over $10 billion worth of trading volume. Astroport has received over ten audits by reputable security firms. All critical Astroport smart contracts are controlled directly by the Astroport DAO via onchain governance.
Stride contributors have consulted with Astroport contributors. Astroport contributors have agreed to provide technical guidance and support to the ATOM Accelerator, to ensure the accuracy of the onchain messages used to provide the 450K ATOM as liquidity. They have confirmed that Astroport will be live on Neutron’s mainnet in early May.
How will Stride’s MEV mechanism work?
Stride is building a novel MEV capture mechanism, which involves instant redemptions of stATOM for ATOM on Stride.
Here’s how Stride works today: stATOM/ATOM pairs trade around the interchain, often with stATOM trading at a slight discount (due to the liquidity premium). If stATOM is trading at $0.95, it can be redeemed for $1 of ATOM with Stride by burning the stATOM and waiting the unbonding period (3 weeks).
Instant redemptions will allow for stATOM to be redeemed instantly with Stride, allowing arbitrageurs to close the arbitrage loop more quickly - buying stATOM for $0.95 on a DEX, redeeming it for $1 of ATOM on Stride, selling for $1 of ATOM and pocketing the $0.05 all in a few blocks. Because the Stride protocol owns the instant redemption mechanism and there are only a limited amount of instant redemptions that can be processed each day, Stride can auction off the right for an arbitrageur to use the feature. It’s not yet known how much arbitrageurs will pay for this right, however on Ethereum searchers typically pay ~40% of their profits to miners. On Ethereum, MEV revenues to miners is in the hundreds of millions, with 99% of that coming from arbitrage.
What is the ATOM Accelerator DAO?
Created by Cosmos Hub proposal ninety-five, the ATOM Accelerator DAO was entrusted with 588,000 ATOM from the community pool. Its current mandate is to distribute that ATOM as grants to grow and develop the Cosmos Hub and the general Cosmos ecosystem. The ATOM Accelerator DAO is a multisig made up of trusted Cosmos Hub experts and community members. Here is its website.
What is Timewave?
Timewave is an organization founded by long-time Cosmonauts Sam Hart, Udit Vira, Max Einhorn, and Sacha Saint-Leger that builds solutions for long-term alignment across blockchains. The first protocol Timewave is creating is the Interchain Allocator, which will facilitate protocol-to-protocol dealmaking. The Timewave team has experience shipping in Cosmos; its members have worked on some of the largest projects in the space such as Skip, Hypha Coop, and the ICF funding program.
What are governors and how are they different from validators?
Governors do everything validators do except for validate blocks. Governors can educate the community, review code and run RPC/relayer infrastructure to attract delegations. Governors also vote on proposals on behalf of their delegators. Becoming a governor is permissionless, just like becoming a validator. From an end user’s point of view, governors are equivalent to validators; end users will delegate to governors they think most benefit the network through Keplr or another wallet.