This topic has been bothering me lately and I want somebody who knows better to provide me with some guidance.
As I understand the situation, Jae is against liquid staked ATOM because in his mind ATOM is purely a staking token and if some validator misbehaviors the ATOM is going to be taken away and burned (ie slashed). This prospective penalty is what keeps validators in line. Simultaneously, Jae doesn’t seem to think that ATOM should have a stable value in fiat despite validators needing fiat to buy computer equipment and pay for electricity costs. With 7% to 20% inflation and a projected long term average of 14% vs fiat aggregate monetary supply increasing at about 4% on average this means that ATOM will be trending towards zero overtime losing about -10% per year in a slow rug decline as validators spend their ATOM rewards for fiat to stay in business. In addition to that we have the fiscal spending via the community pool tax of Ethan supporting 3 or 4 groups of coders to maintain the Cosmos SDK and develop other features. This is also a very significant source of selling pressure for the token. These 2 selling pressures have resulted in the ATOM token losing value this year (even with staking rewards included) vs a Top 10 crypto portfolio that is up around 50% this year.
If ATOM price declines towards zero overtime given current inflation setup, clearly slashing ATOM is not a financial penalty but network participation penalty. As such Jae foresees Cosmos Hub being secure at any market map level even at zero market cap level. In other words, unlike other blockchains, Cosmos Hub can be a secure blockchain and thus IBC hub even at zero market cap because the ATOM tokens overtime will migrate from validators and stakers that don’t buy into Jae’s vision to ones that do. From weak hands to strong and trusted hands with good character. As such ultimately the final validators of the Cosmos Hub will be finance agnostic - they are not in this to make money but simply to support Jae’s vision. As such holding ATOM here with its current inflation and technical implementation is equivalent to paying a religious tax. From what I know about the world, the people that have the cash to sponsor such a religious tax are the same people who can spend a fortune on rigging the political process in America and other Western countries. The very people Jae wants to avoid from taking over the Cosmos Hub. So I am not sure how successful Jae will be from separating the Cosmos Hub from Wall Street in the end. You still need cash to buy computers and pay for electricity and over time ATOM will end up in the hands of those capable and willing to sponsor such activities. Blockchains by definition are all about lack of trust so an incentive model that transfers the ATOMs to “trusted” hands doesn’t make a lot of sense because you never know when a trusted validator all of a sudden becomes untrustworthy even after a lifetime of good behavior. There are plenty examples of people with perfect reputations becoming mega scammers later in life (Madoff). In fact, establishing trust in the beginning is a prerequisite to pulling off a big scam.
To go back to the slashing and liquid staking - what happens if you have a liquid staked ATOM and then ATOM gets slashed? The collateral for the liquid staked ATOM disappears. Many here envision stATOM as a money in which debt in the Cosmos interchain will be underwritten. Given ATOM’s 14% inflation, ATOM is worse money than fiat (such as the US dollar which has long term inflation target of 2%) so it absolutely makes sense that people will want to take on debt in ATOM since their liabilities will erode over time. The question is who will underwrite and hold that debt in an asset that not only has 14% inflation (or 10-12% in excess of fiat inflation) but also has catastrophic risk with ATOMs being slashed? As a former Wall Street/hedge fund guy, this is exactly the type of asset I would want to put a long term short on. Not only I am guaranteed 10% per year from inflation but also a catastrophic financial crisis is also brewing at any point in time and my credit default swaps could spike and make me a lot of money.
I want the people pushing the vision of stATOM as interchain money to address:
How ATOM slashing would affect all the financial instruments denominated in stATOM?
Who will underwrite debt in a currency depreciating on average 14% per year?
There was a multi-month decentralized selection process from July-October to select the new Stride Cosmos Hub Host Chain validator set. The process started in July with applications open for community members to be part of the evaluation committee and with Cosmos Hub validators submitting applications.
From all the applications received to be part of the evaluation council, Stride recommended 5 community members to the Cosmos Hub governance for approval: EffortCapital, Lexa, Damien from Simply Staking, CryptoCakir from Stake&Relax and Long from Notional. The Cosmos Hub governance approved this evaluation council. The coordination of this delegation program was done by RoboMcGobo.
Once the evaluation council was approved by the Cosmos Hub governance, applications received by validators were filtered regarding the eligibility requirements which included a minimum of 99% uptime for the last 3 months. Then, the eligible top performant validators were scored by each evaluation council member regarding their community and engineering contributions to the Cosmos Hub for the previous 6 months. The 5 scores received for each validator were averaged to give a final score. Then, validators were organised by voting power in 4 quartiles, and the top 8 by average score in each quartile were selected.
Then, a governance proposal was submitted to Stride governance to approve the suggested host chain validator set for the Cosmos Hub.
This minimizes the slashing risk that you mention for stATOM, since the validators selected by Stride are the top performant in several metrics from all the active set validators in the Cosmos Hub.
Thanks. That still sounds like a reputation (ie trust) based system for selecting validators. As a risk manager thinking about worst-case scenarios, I basically have to assume that these people can collude and perform an attack simultaneously and what ATOM is allocated to them will disappear. I know this type of attack doesn’t make sense - why would people lose a lot of money on their own - but people often times make decisions that don’t make sense. They make them for non-economic reasons, etc. If it is possible, I have to figure out how to deal with it. So I have to assume 25% of ATOM supply can go poof into thin air and then ATOM governance has to scramble to plug the hole (ie issue the missing ATOM) and preserve the integrity of the stATOM money based system.
How is data regarding uptime of validators for the last three months a ‘trust/reputation’ metric? There is nothing subjective here, the whole point of blockchain tech is being trustless without trusted 3rd parties, all based on math and numbers, and the uptime metric is also data that you can see for yourself from several sources.
Do you know that there are two possible slashings in the Cosmos Hub?
Downtime slashing: 0.01% slashed
Double sign slashing: 5% slashed
See the parameters here for yourself: Mintscan
From where are you getting these ideas that suddenly all the ATOM you have staked can ‘disappear’ or that 25% of ATOM supply can disappear?
Going back to your question about slashing risks of stATOM. As I explained in my previous message, the downtime slashing risk of 0.01% is minimized by Stride since they selected the validators with the best uptime and performance in the Cosmos Hub, and this minimum risk is spread across 32 validators. If you stake just with 5-10 validators your personal downtime slashing risk would be higher. If you stake with 32 validators but they have worse performance than those selected by Stride, your personal downtime slashing risk is higher.
Now, regarding the double sign slashing risk of 5%. Since the launch of the Cosmos Hub in 2019 I can maybe recall in 4 years only one double sign event in the Cosmos Hub back in 2019 I think. A double sign event means the death of a validator, it is tombstoned and game over, so you can be sure validators are doing all they can to bring this risk as close to zero as possible. And again, if you are worried about this risk, your best bet to minimize this risk would be copying the Stride selected validator set, since your risk would be very spread and decentralized in the most performant validators in the Cosmos Hub
I don’t know the technical details of Cosmos slashing in their minutae and thank you for educating me.
I will maintain the position that some validators doing well for the past 3 months does not mean that they will do well for the next 3 months. I see validators coming in and out of various chains all the time. I don’t know - the guy gets hit by a bus and can’t maintain his servers anymore. Stuff happens. What also happens is collusion inside a trust based system. Fraud always involves the establishment of trust which can later be abused. As such I like crypto (and Bitcoin) because it is a zero-trust environment
The only thing I take away here is that if validators misbehave in the worst way, the penalty is 5% of the ATOM gets slashed. So if 25% of ATOM is liquid staked and every validator in that LST set misbehaves, then the hit is 1.25% of total ATOM (25% * 5%). This is much smaller amount of ATOM to print in this unlikely risk scenario, so I am happy. Thanks.
The 25% global cap limit refers to staked ATOM, not total ATOM supply, so you did a mistake in your highly unlikely hypothetical scenario of 32 simultaneous double signs of the top performant validators. It should be 25%*66% → 16.5% of total amount of ATOM liquid staked, not 25% as you mentioned. Then 16.5%*5% → 0.8%
