[PROPOSAL] Bringing Liquid Staking and DeFi to the Cosmos Hub with Interchain Security

Change log

  • 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

Multisig Committee

Jelena Djuric, Informal Systems
Jack Zampolin, StrangeLove Ventures
Zaki Manian, Iqlusion
David Feiock, Galileo Group

Vote

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.

19 Likes

Hi Jelena,

Thanks for the write up! I think it goes without saying that we all want to get ICS usage with multiple contract and/or custom consumer chains right out of the gate in Q3, and incentivizing ecosystem adoption should be encouraged.

With that being said, can we get some context as to how much is in the Cosmos Hub Community Pool? I saw a link showing 246k ATOM, so this would account for ~60% of the pool. Please correct me if I’m wrong with these figures.

I’m also assuming you meant to say $500k worth of ATOM for 3 CW projects instead of $50k?

For voting YES, it says to “launch a custom contract chain” and for NO it says “contract consumer chain”. Is this proposal strictly to incentivize for a custom chain or contract consumer (or both)?

Will the community be given any insight as to which projects the Managing Committee is considering to fund?

Looking forward to the response.

Thanks again!

David

7 Likes

From what I can see, the community pool contains 1.06M ATOM. The requested amount would then account for ~14%

EDIT: which I think is reasonable, and far off from the previous assumed figure.

5 Likes

Hey David,

Thanks for your thoughtful questions! Responding in order:

  • There are about 1M ATOMs in the community pool right now: Grafana
  • I did mean to say ~$500K worth of ATOMs. I actually just edited it to peg it to ATOM amount, so 50k ATOMs. Thanks for noticing the error. Fixed :slight_smile:
  • The proposal is meant to incentivize contract consumer chains launching and here, the terms, “custom contract chain” and "contract consumer chain” are being used interchangeably though I will edit to use the correct official terminology: contract consumer chain. Thanks for pointing this error out (again!)

In terms of insight into projects the Managing Committee is considering - we will be sure to keep the community updated on ongoing discussions on which projects we’re keen to see leverage this grant, though to move fast we don’t plan for each funding decision to go to an onchain vote (up to 3) as this would seriously impact our ability to deploy funds.

4 Likes

I realized the data on the community pool from Figment was last synced 2.5 years ago (my bad, I knew the number I stated above seemed way off, but couldn’t find the right link). Thanks - 14% seems reasonable :slight_smile:

I agree on-chain governance is not needed here. I’d be interested in hearing from the Management Committee (MC) pre-vote what type of projects they’d like to see come to the Hub as a Contract Consumer Chain. Maybe point to projects in other ecosystems as a blueprint for what the MCs vision is for the first ecosystem development fund related to ICS. I’m imagining it’d be foundational layers in the stack that will improve Cosmos ecosystem UX and overall infrastructure.

Overall - you have our support! Thanks for putting this together and excited to see how this progresses.

3 Likes

Looking very forward to voting for this… We can also perhaps work on refining the tokenomics shortly after launch!

2 Likes

This is great. One question: will contract consumer chains also support the EVM on day one? Since you only allude to CosmWasm in this post even though I know the last blogpost by Informal Systems mentioned both CosmWasm and the EVM.

1 Like

too little information to allocate such a large budget. It is not clear from this proposal where the 150,000 atoms will go

4 Likes

Good initiative. I am wondering, though, why this proposal is specific for porting over Terra projects. I know this is an easy business development lift but has there not been specific interest of other non-terra projects to launch on ICS? Or are they simply not ready to launch in August?

4 Likes

Though I generally agree the purpose of the proposal and might be going to vote for yes, I think you should provide more details : the profiles of committee (even though I knew most of you), opportunities and risks for Cosmos Network, your responsibilities, and rough milestones.

1 Like

You know I think you’re right, I would certainly not be opposed to additional granularity here.

2 Likes

Hi @NjB - Great question - The intention of the proposal was not meant to be specific or exclusive to Terra projects. As you aptly pointed out, Terra migration was/is just one vector of business development that was/is readily identifiable as an opportunity worth pursuing given recent events. Projects migrating from other ecosystems (Solana, EVM, etc.) are also very much on the table. We should / will consider those in earnest, and will be sure to include that language in the on-chain prop.

2 Likes

Sounds like a potential good idea.

Let’s clarify the Contract Consumer Chain:

  • a simple, hub like Cosmos SDK app with Interchain Security, IBC and CosmWasm module - with only one smart contract.

Sounds like too much overhead: to create an app chain for a single smart contract. Why not:

  • using Juno (and Juno community pools)?
  • create a sister Hub chain for bootstraping CosmWasm projects. It will be like Juno. But it will act as an accelerator for high quality projects. This way we remove the overhead of setting up multiple chains.
7 Likes

Thank you to everyone for the thoughtful feedback and questions! I wanted to share a brief update before we share the next iteration of this proposal. I will address (hopefully all) of the concerns brought up here with some high level comments:

EVM/CosmWasm compatibility: While EVM compatibility is on the roadmap, we are prioritizing CosmWasm projects since this is where a lot of the demand is being generated right now in the ecosystem.

Kinds of projects this proposal would fund: This is a good point which we will clarify in the next version of this proposal to narrow the scope to focus on the liquid staking application.

Is this specifically for Terra projects?: It is not and we will incorporate more general/high level language to be more inclusive of non-Terra projects.

Overhead of deploying 1 smart contract per app-chain: We are working with an ecosystem partner that would support smart contract applications launching without having to be their own app-chain, while ensuring that the Hub is in the driver’s seat when it comes to voting on applications that are deployed (governance gated process).

Stay tuned!

1 Like

EVM will be available upon launch, but the strategy here is to incentivize CosmWasm chains as the native smart contract environment of the Cosmos.

Great proposal Jelena!!! IS is going to be an exciting time chapter for The Hub. I support initiatives like this that will be a catalyst for innovation. I wrote this a bit ago but never sent it, so apologies if you answered some of this stuff. I’ll edit out if I find.

A few questions I have:

-do you already have an idea of projects to leverage this with & will they be largely Terra projects?

-how do you see mergers/acquisitions playing in tandem with IS, and even projects that get community pool funding from initiatives like this?

-what are the expectations and means of accountability for projects that get funding as far as staying on the hub? What’s to stop them from leaving and becoming their own completely sovereign chain shortly after those 2 weeks?

-what are your plans for transparency reporting on projects being funded and potential projects in the pipeline being funded?

-I love love love me some Zaki & Jack [[ Z is a great letter :wink: ]], but would it maybe be a good idea to add some more diversity to this multisig? We’re getting to a point where all these multisigs look the same if not compromised of mostly the same people. Maybe we think about expanding these multisig signers, even if it’s after this one.

4 Likes

Hi everyone! We’ve incorporated comments and suggestions into a new version and updated the top level post. This new version answers some key questions including:

  • The kind of project this proposal would fund (P2P’s proposal for a DeFi Hub, which would also host the Lido liquid staking protocol subject to a vote by the Lido DAO)
  • Type of projects funded (liquid staking, defi)
  • More information on g2m plans for Interchain Security feature launch (working in partnership with liquid staking partners) and how this proposal dovetails with those plans
1 Like

Is the defi hub by p2p aiming for similar thing like osmosis? A permissioned cw chain focusing on defi. Basically Terra, without the UST.

1 Like

Hey there,

I think a fundamental difference is that the main focus of the Osmosis Zone is making the Osmosis DEX the best possible product, whereby the DeFi Hub will focus on being the best possible platform to launch on for financial protocols, public goods (e.g. Name services, DAO tooling, etc.) and any other project which relies on synchronous execution.

In that regard, I think Interchain Security will be a huge plus. Osmosis is amazing, no doubt. It’s economic security is much lower than that of the Cosmos Hub, though, $1.27bn compared to $0.110bn, and the Hub benefits from a more credibly neutral positions within the Cosmos eco.

Judging from ambitious interchain protocols like Delphi’s Mars, Interchain Queries support is also quite a big deal, at least until the official release. While Delphi Labs certainly has the capacity to develop its own custom implementation, that is probably not the case for every project, which is another way P2P’s hub can provide value.

Lastly, Lido happens to be a great first protocol to deploy on the DeFi Hub: it’s likely to draw TVL, activity and attention to the zone, it’s very well connected within the broader DeFi galaxy, it’ll help decentralize and secure the Cosmos Hub (and thus the DeFi Hub too), and its liquid staking derivatives will be great base assets for the zone’s economy.

1 Like