Should AEZ chains have their own tokens?

The Cosmos Hub is unique in the blockchain industry for its level of decentralization, especially of its development teams. The launch of Interchain Security has invigorated new possibilities and brought in an incredible new crop of contributors. This very forum has never been more active than over the summer 2023, so I’d like to share some thoughts on what the AEZ could become: a cohesive suite of tightly-integrated applications, fully-aligned with ATOM, each introducing potent new functionalities and poised to emerge as the clear focal point of the Cosmos ecosystem.

The AEZ can be visualized as a set of concentric circles

With Replicated Security, consumer chains receive periodic IBC packets containing the Cosmos Hub’s validator set, effectively replicating the Cosmos Hub’s validator set across all consumer chains.

With Opt-in Security, Cosmos Hub validators will be able to opt into running consumer chains individually. This enables the permissionless launch of consumer chains without a governance proposal, meaning a lot more scalability.

With Mesh Security, the delegators of the Cosmos Hub will be able to delegate to validators in the consumer chain’s own validator set using their ATOM. Consumer chains get to keep their own validator sets, which makes it an attractive option for existing chains

Atomic IBC will build upon the key feature of shared security (validator set overlap) so that the ATOM economic zone can combine the scalability and sovereignty of a multi-chain ecosystem with the atomic composability of a smart contract platform like Ethereum. This has long been the ultimate goal of many blockchain designers, and Atomic IBC solves it elegantly.

Technically, Atomic IBC works by having participating consumer chains share the same mempool and blocks while maintaining separate state machines. Consumer chains participating in Atomic IBC run on one chain. Even though the blocks are shared, transactions of each consumer chain are run in parallel in their own lanes unless they are part of an atomic IBC bundle. This model is comparable to a DA layer plus shared sequencer in one platform.

At the same time, there are a number of open questions on the economics of shared security, specifically whether or not the current agreements are favourable enough for the Cosmos Hub community. As we move forward into building the ATOM economic zone, I’d like to see Replicated Security chains become “core” consumer chains. By that, I mean chains providing core functionality and using exclusively ATOM for governance, transaction fees and other use cases; as they are secured by the ATOM stake, they do not need to launch their own staking token and their economy is centered around ATOM.

There would be two kinds of core consumer chains: Interchain Services and VMs.

That first means one consumer chain for each major service type (bridging, issuance, liquidity, obligation clearing, etc.). Each service chain would serve the other consumer chains and the rest of the Interchain over IBC, supercharged by Atomic IBC in the AEZ.

We’d also have one consumer chain VM for each major VM type (CosmWasm, EVM, SolanaVM, MoveVM etc.). Each of the VM chains would scale with its own rollups.

So why did the first consumer chains launch with their own tokens? The main challenge for any new product is to attract and secure a customer base swiftly. The Cosmos Hub needed to entice early adopters, gain traction and receive copious feedback. And this is exactly what happened with Neutron & Stride. However, replicated security has now proved itself. Neutron wasn’t the first smart-contract platform in the ecosystem, and Stride wasn’t the first liquid staker provider. Yet both of them are now considered the leading protocols in their respective market segments. We should naturally praise the core teams for their achievements, but also recognize that the support of the Cosmos Hub community created a very strong wind in the back for them.

In today’s crypto landscape, starting with a token simply creates more overhead and complexity which detracts development teams from their product and their users:

  • Tokens are expensive and time-consuming to launch
  • They make the product more susceptible to hacking and security breaches
  • They generally make the product experience worse for users
  • The token market is already past the saturation point

For all of these reasons, it is beneficial for the new AEZ projects to fully align themselves with the ATOM community. These projects will be given the opportunity to explore a new pattern of incentive alignment. Replicated security already supports the ability to split revenues between the Cosmos Hub and the consumer chains. We imagine shared security agreements where the share sent to the Cosmos Hub would initially be close to 100% but would decrease progressively as the consumer chain starts to generate meaningful revenues. This framework would heavily incentivize the consumer teams to focus on product-market fit.

Naturally, this system doesn’t prevent future AEZ teams from raising money from private investors. They can do so using standard contracts like SAFE and SAFT agreements, or a combination of both. Investors (typically professional entities) would receive these agreements from the new AEZ projects with the expectation of receiving tokens or equity once the project is fully functional, has found product-market fit and is already beneficial for the Cosmos Hub.

It should be noted that some of the best teams in the space started without a token.

  • Uniswap launched in November 2018. Uniswap Labs chose to focus on building a great product and community before introducing any financial incentives. It’s only in September 2020 that UNI was introduced as a governance token and distributed to users and liquidity providers.
  • Arbitrum was announced in 2019 by Offchain Labs. It launched in August 2022 without a token, and still managed to attract hundreds of thousands of users and billions of TVL. The ARB token airdrop only happened in March 2023 to eligible users and DAOs

In fact, it appears the most-promising new ETH L2 (Base, zkScroll, Aztec etc.) are launching or have decided to launch without their own native token.

In Cosmos, launching tokenless proof-of-stake app-chain was essentially impossible until the launch of replicated security in March 2023. Shortly after that option was made available, the Duality team wrote in the onboarding proposal: “[…] we believe that it is more important to first create value (and a lot of it), before capturing any. This starts with building something that people want to use and own because it improves upon the current paradigm, as well as learning from users’ experiences and improving iteratively. We also believe that any form of meaningful value capture in the long-term will be best accomplished through building a brand and culture known for building open-source, impact-driven software.

ATOM was born in 2019 with the launch of the Cosmos Hub. It funded the development of the Cosmos SDK, IBC, Tendermint and the overwhelming majority of the free and open-source software used by every other Cosmos chain. And for most of its life, ATOM had no other purpose. For most of its life, the Cosmos Hub didn’t even have a dedicated team. In 2023, the Cosmos Hub is teeming with activity, opportunity and growth. With renewed energy from the AEZ contributors, it needs to continue to lead the way for the entire Cosmos ecosystem


Let me copy/paste an exchange I had with Spaydh from Neutron ( :


  1. Would the Hub be ready to give Neutron millions of ATOM to incentivizes builders and growth?
  2. If the requirement to launch on the Hub is 100% of everything goes to the Hub, no good project will launch/stay on Replicated Security.


  1. No, because it doesn’t own enough equity in Neutron + the ICF are the ones with the atoms and they don’t care about Hub value accrual.
  2. I think Duality is on track to be a good product, 100% is not a requirement but owning very little isn’t either.

I meant if Neutron doesn’t have a token. Will the Hub fund everything, the hundreds of millions that it’ll take to get it done?

Creating a token and selling it to VCs to raise funds seems like a better deal to me.

Exactly my point, which is one of the reasons why Neutron has a token. Either the hub is ready to cover the cost of making successful consumer chains, or consumer chains need to be empowered to do that lift themselves.



there is something i want to ask,

(sorry for my poor english skills)

in that scenario, if/when Noble is part of ICS’d « AEZ », would Atom validators forced to censor transactions Circle decides to censor?

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chains need to have their own token ! yes ! different degrees of alignment we can see . full aligned no token needed

Oh wow. We came to the IBC tokens I was suggesting 3-4-5 years ago =)


If they do more than serve the hub - yes!
ex. Stride (dont want stSTARS governance decided by ATOM)

if they are just a single product for within the AEZ - no!
ex. Duality (can take fees to pay devs and perform just as well having ATOM or ATOM subset decide emissions etc.)

If they are a product without need for governance - no!
ex. Noble (the issuers on the chain determine what happens with their respective RWAs)

The AEZ should fully align only with SUCCESSFUL AEZ chains. Chains need to launch with their own tokens and bear the full market/business risk. The AEZ should be aligning itself fully only with the best projects that prove to have a good product market fit and to be a significant value add for the AEZ.