Rethinking Money and Tokenomics for the Cosmos Hub

Conversation
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I’d like to open a discussion about the concept of money and its potential implications for the Cosmos Hub. This is simply an idea I’ve developed after reflecting on the role of money and how monetary systems function. It’s not a proposal, just a vision that I hope can spark thoughtful conversations within the community.

The Nature of Money: A Foundational Perspective

At its core, money is the debt of the entity that issues it. When new money is created, the issuer owes a service equal to the purchasing power of that money.

A simple analogy:
Imagine a baker stranded on an island with others. The baker gives a mason 100 coupons, each redeemable for one loaf of bread in the future, in exchange for building a bakery.

  • These coupons are money—they represent the baker’s debt.
  • The baker must accept them later in exchange for bread.
  • When a coupon returns to the baker, the debt is considered repaid.

From this, two key points emerge:

  1. The purpose of issuing money matters.
    If the baker issued coupons just to give them away, it would be a donation, not an investment. Issuing them in exchange for a bakery is a strategic investment to produce more bread.
  2. Money is destroyed when it returns to the issuer.
    Once the coupon is used, the debt is repaid. The baker can either destroy it or reissue it as new debt.

Applying This to the Cosmos Hub:

  • The Cosmos Hub issues new ATOMs to pay for network security (validators and delegators).
  • ATOM is also used to pay transaction fees, creating a system where the Hub “repays” its debt by providing blockchain services in exchange for ATOM.

However, there’s a fundamental problem:

  • Increasing ATOM’s supply through inflation weakens network security.
    • A lower ATOM price reduces the economic security of staked tokens.
    • More ATOM in circulation reduces the bonded ratio (the % of ATOM staked), which makes the network more vulnerable.
  • If inflation is kept low to maintain security, the Hub has fewer resources to fund public goods.

A New Model: ATOM as a Commodity, Not Money

To solve this, we propose separating ATOM’s role as a security asset from the role of money:

  1. ATOM = A Rare Commodity for Network Security
  • Stop ATOM inflation entirely. (or keep it stable and very low !? )
  • ATOM becomes a scarce, staked asset, securing the network like a commodity.
  • This maximizes economic security by maintaining a high bonded ratio.
  1. Introduce a Second Token for Economic Activity (e.g., $OSMO)
  • This new token would be:
    • Inflationary to pay staking rewards.
    • The fee token for transactions and services within the Cosmos Hub ecosystem.
  • All revenue collected in this token would be burned, creating a natural balance against inflation.
  • Its inflation would fund public goods, acting as a dynamic monetary supply.

Why This Model Works:

  • ATOM’s value and the network’s security aren’t directly impacted by poor monetary policies since inflation is moved to the second token.
  • The second token operates like a “public money,” funding services and validators, similar to how the Hub currently operates with the Community Pool.
  • Bad investments only affect the second token, not ATOM.
  • When revenue exceeds inflation, the second token becomes deflationary, increasing its value. If inflation exceeds revenue, the system self-corrects through economic incentives.

Final Thought:

This model treats ATOM like digital gold—rare, secure, and stable.
The second token becomes the dynamic currency, designed to fund growth, pay for security, and support public goods without jeopardizing the Hub’s economic foundation.

I’m sharing this idea to gather thoughts, feedback, and perspectives from the community. I look forward to hearing your opinions!

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This reflection highlights a crucial point regarding the economic security of the Hub, which is currently declining while we aim to stimulate the growth of our ecosystem. I find the idea very compelling, and it certainly deserves deeper exploration.

Several questions come to mind:

Should a new token be created? What would be the technical and financial implications?

Should an existing token be absorbed?
P1: Osmosis or P2: Neutron seem to be the most legitimate candidates due to the network effects they already offer.
However, this would require the Osmosis or Neutron communities to agree on a unification, evolving the system to become competitive together.
This seems particularly difficult with Osmosis, as they do not appear willing to share their added value with the broader Cosmos ecosystem.

I would like ICL to provide an initial assessment of this idea, as it seems like a legitimate approach to advancing Atom’s tokenomics @Noam

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Thank you for your thoughtful feedback!

You’ve raised some key points that deserve further exploration. Here’s how I see it:

1. Should a new token be created?

Creating a new token could offer flexibility in terms of design and governance. It would allow us to structure its monetary policy from scratch, with clear objectives: serving as a fee token, funding public goods, and decoupling from ATOM’s role in securing the network.

For me, this new token should be used to fund projects that are as profitable as possible for the Hub.
The key advantage is that its inflation wouldn’t directly impact the security of the Cosmos Hub by diluting ATOM. Since its inflation wouldn’t have an immediate or direct effect on ATOM’s value or bonded ratio, we could afford to take more risks when investing in growth-oriented initiatives.

Given the rapid growth of the ecosystem, I believe now is a crucial time to invest strategically to strengthen the Hub’s position. The Cosmos Hub still holds significant influence, but we can’t afford to take the same risks with ATOM that we could with this second token. This would allow for bold investments without compromising the Hub’s core security.

However, this approach comes with technical and social challenges—launching a new token requires bootstrapping liquidity, adoption, and governance alignment.

2. Should an existing token be absorbed?

Using an existing token like OSMO or NTRN could accelerate adoption due to their established ecosystems.

  • Osmosis (OSMO): While Osmosis has strong network effects, I agree that the willingness of its community to integrate more deeply with the Hub could be a challenge. Osmosis thrives as an independent economic zone, and sharing value with the Cosmos Hub might not align with their current incentives.
  • Neutron (NTRN): Neutron seems more aligned with the Hub’s vision, especially with its role in smart contract deployment. It might be more adaptable in terms of governance and collaboration. However, its current scale might not yet be sufficient to serve as the Cosmos-wide “interchain money.”

3. Governance and Incentive Alignment

Whether we create a new token or integrate an existing one, the key challenge will be aligning incentives between communities. This isn’t just a technical or economic issue—it’s also about social consensus and governance compatibility.

4. A Dual-Layer Model

Conceptually, this would position ATOM as the security layer and the new token as the economic layer for the Cosmos Hub’s ecosystem.
The economic layer will act as a consumer chain by paying security to security layer

  • ATOM would remain scarce, bonded, and focused on securing the Hub.
  • The new token would be inflationary (within reason), with mechanisms to burn fees and finance public goods—creating natural cycles of expansion and contraction based on ecosystem activity.

It seems that ICL is currently working on tokenomics. I’m not claiming this is the path to follow, but through this discussion, I’m exploring a direction that may not have been considered yet…

Looking forward to hearing more thoughts from the community!

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This is kind of close of what our founder was inspired and still trying to implement it on his new project with the photon token. Which make me wonder why it wasn’t pushed and implemented on the Hub when he was still active here, seems like he got all the time those past years but I couldn’t find any meaning full post or proposal in this way.

Pretty supportive of the idea but seems like a big thing that will require huge effort in deliberation, design and implementation.

At this stage and with the new leadership I feel we need some roadmap and insight on what’s the direction we are taking to even know if this proposal can gather enough support to be push into our long and slow governance process

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This is an idea that involves enormous fundamental changes, medium- to long-term work, and significant resources. What I do know is that we must collectively improve cross-chain collaboration within the Cosmos ecosystem, enhance economic alignment between chains, and ensure better value capture for our flagship token, ATOM.

All of this could lead to a much better UX/UI overall essentially an all-in-one app experience.

To achieve this, we need to coordinate efforts, build working teams, incentivize them, and mobilize the community to reach a socially adopted consensus.

We must collectively take risks and work harder and faster to restore our reputation and compete directly with the biggest ecosystems.

We have the capability, the talent, and the community now we need to unite to dominate more effectively.

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If I had to point out some drawbacks of a dual-token model — with ATOM for security and a second token for fees — I’d mainly highlight the added layer of complexity.
There’s also the fact that we haven’t seen a network successfully adopt a two-token model yet.

That said, the Cosmos Hub’s ICS already introduces this complexity by accepting any token as a form of payment.
This means it’s already somewhat accepted that staking ATOM can result in earning different types of tokens.

On Atone, the photon isn’t inflationary, whereas Atone is.
This differs from what I’m envisioning, but there’s also the intention to separate roles.

The photon is the mandatory fee token for all consumer chains, which I imagine should simplify ICS revenue since it will be exclusively in photon.

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I agree, it’s a radical change and probably difficult for the community to accept.
We could imagine a transition period during which ATOM’s inflation gradually decreases to make room for this new second token.

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The problem is… there is many discussions on the forum and on X lately from individuals like you two and I have never seen any response or interest from any validators/Dev/existing Team/Foundation. Without support and participation from those bigger entities I don’t see how something that big could be implemented. Without their support and participation we are just 5 small holders speaking for nothing in forums posts. There is nothing we can do with our 0,0001% power vote and 300 followers on X.

Entities in charge, with Dev already working on stuff I figured they don’t really care about community propositions. They will design something, work on it, push it to the community with their influence and they never look around or take ideas/leads on anything els.

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ATOM has a market cap of 2.2 billion and currently has a 10% inflation rate, i.e., a $220m security payment a year and earns presently ~$1m in revenue a year.

Any secondary inflation token would need a value proposition of some kind to be able to support this if unchanged. NTRN and OSMO are both mentioned here, but NTRN already gives 25% of its revenue to the hub (if I recall correctly) and Osmosis’ revenue is around 6.5m a year. Neither of these tokens could compete with the level of emissions ATOM offers sustainably, and a newly created token would face similar issues without a substantial new revenue source.

The payments for security are far too high on the Cosmos Hub, and rather than trying to offload these to an alternative token, the actual amount of inflation should be re-evaluated.
The last time this was discussed was incredibly contentious, with the inflation min being heavily rejected and the inflation max only passing narrowly and being blamed for a drop in ATOM value so I doubt this will ever happen.

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I understand what you’re saying, and it’s definitely an important point. However, what I’m discussing here is not the way to generate revenue with this new token. I’m simply saying that the inflation of a second token will be a tool to generate revenue, but it will be up to the community to decide how to use it. Additionally, the inflation of the second token will likely be a less sensitive issue because it won’t involve Atom inflation, but rather the “money” token.

But you’re right, the numbers you’re sharing are problematic.
The ICL seems to be working on Atom’s utility, and I believe this is a crucial point for reducing inflation. Right now, Atom will likely be much less desirable if inflation decreases.

If Atom becomes useful for other purposes, then inflation can be reduced without risking a massive unbonding.

In my opinion, we should probably push for the adoption of LSTs because they allow staked Atom to be used for purposes beyond just staking.

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