Urgent Strategic Pivot: “Hemostasis” & Value Capture – A 4-Phase Proposal for ATOM

Tokenomics Tokenomics Ideas
1

:christmas_tree: Operation Xmas ATOM Rescue: A Manifesto for 2026

Date: December 25, 2025
Author: klendhaar (Snow-Fall Validator | Active Set #171)

Part 1: The Health Bulletin (For All Cosmonauts)

This section is for all ATOM holders. No complex jargon, just the truth about the situation and the plan to fix it.

:ambulance: The Patient is in ER, but the Surgeon is Here

Merry Christmas to all crypto guys & girls. On this December 25th, 2025, as we look at our portfolios, it’s time to be honest: ATOM is a patient in critical condition.

I’ve spent the past few days sifting through hundreds of messages, from the noise on Telegram to the surgical analyses on the Forum. The diagnosis is simple: the heart is still beating, but the patient is bleeding out. Inflation is diluting your value, and current revenues are not enough to compensate.

But don’t panic. A clear diagnosis is the first step to recovery. Here is the 4-step rescue plan we must demand for 2026:

1. :syringe: The Transfusion (Immediate)

The Interchain Foundation (ICF) must use its Bitcoin and Ethereum reserves to buy back ATOM. This is the only “fresh blood” capable of stabilizing the patient now.

Why? The ICF holds hundreds of millions of dollars in non-ATOM assets. This treasury is sitting idle when it could create a buy wall to absorb sell pressure.

2. :adhesive_bandage: The Tapering (Medium Term)

We will reduce inflation, but gently. No brutal shock that would kill the patient, but a programmed decrease month after month to restore a healthy economy.

Why? A sudden cut in inflation would create panic. Stakers would leave en masse, causing a crash. The solution: a gradual and predictable reduction.

3. :wrench: The Rehabilitation (The Tech)

Activate real fees on the network. Even if it’s little at first, it proves the machine works.

Why? It’s a strong psychological signal. It shows the market that “Cosmos is handling its shit.” When volume returns (100x in a Bull Run), the pipes will already be in place.

4. :office_building: The Discharge (The Future)

Stop selling “technology” and start selling “products” to businesses. That’s where the real money is.

Why? 200+ blockchains use the Cosmos SDK for free. Banks, governments, institutions pay millions to build on it. It’s time to capture that value.

:bar_chart: Visual Summary of the Plan

Phase Action Timeline Objective
Emergency ICF buys ATOM with BTC/ETH Immediate Stop the bleeding
Stabilization Progressive inflation reduction 12-18 months Avoid shock, restore confidence
Infrastructure Activate IBC fees 90 days Signal competence
Growth B2B Model + Simplified UX 6-18 months External capital injection

:speech_balloon: In Summary

We stabilize the bleeding today so we can run the marathon tomorrow.
2026 must be the year ATOM wakes up.

— Technical Cut-Off - For those who want to see under the hood —

Part 2: The Surgical Protocol (Deep Dive)

This section synthesizes the technical debates among key stakeholders (Jack Chan on Telegram, Drooo and Gregory_C on the Forum, and dev teams). This is where precision mechanics are played out.

:microscope: Context of Analysis

I’ve spent the past few days synthesizing fragmented discussions across multiple platforms (Telegram, Cosmos Forum, GitHub). This fragmentation hinders our ability to produce concrete proposals.

Meta-observation: We would benefit from a centralized document with moderation to prevent valuable ideas from getting lost in the noise. But for now, here is my synthesis.

1. The Mathematical Analysis: Why IBC Fees Are Not (Yet) Enough

We must face the numbers presented by Jack Chan (Telegram, December 24, 2025).

Raw Figures:

  • Current revenue from IBC fees: ~$600,000/year

  • ATOM inflation (10%): ~$40,000,000/year in sell pressure

The Ratio: IBC fees currently offset 0.15% of the dilution.

The Diagnosis: Relying on IBC fees to counter inflation today is like trying to put out a fire with a water pistol. The Structural Problem (Jack Chan):

“We’re moving crypto value in circles, not creating external demand. Closed system can’t create net energy.”

We are in a closed system where we recycle internal liquidity without creating net energy. Money circulates between Cosmos chains, but no fresh capital enters the system.

The Identified Solution:
We need external money (USD from businesses/institutions building on Cosmos SDK). This is the only way to inject real new buying pressure.

  • Current IBC fees TAM: $600k

  • B2B market TAM (businesses + institutions): +$200 Billion

2. Phase 1: External Liquidity Injection (The Role of the ICF)

Since internal revenues are currently insufficient, survival depends on external capital inflow.

The Target: The Interchain Foundation (ICF) treasury.
ICF Context:

  • Non-profit organization (Switzerland)

  • Holds hundreds of millions of dollars in assets (ATOM, BTC, ETH)

  • Funds the development of the Cosmos ecosystem

Proposed Action:
Strategic diversification of the ICF treasury: progressive sale of BTC/ETH to buy back ATOM at a fixed, non-discretionary rate.

The Objective:
To create a non-speculative buy wall to absorb structural sell pressure while the economic model pivots.

Why this is critical:
This is the only sufficiently powerful leverage available immediately. Other solutions (IBC fees, B2B model) will take months/years to deploy.

3. Phase 2: The “Tapering” Theory (Response to Drooo)

On the forum, Drooo raised a critical medical point: the principle Primum non nocere (First, do no harm).

The Identified Risk:
Many validators and stakers have complex strategies (Delta-Neutral: they hedge their ATOM position and sell rewards as “free money”).
If we abruptly cut inflation to 0% or impose aggressive vesting overnight, we risk hypovolemic shock: a massive capital outflow and a price crash.

Drooo’s Quote:

“Adjusting inflation rates is popular and important but it should be done on a schedule instead of all at once because yes, the patient is critical but ‘First, do no harm’ still applies.”

The Snow-Fall Solution: Programmatic Tapering
Instead of an abrupt cut, we propose an algorithmic reduction of inflation (example: -0.5% per month over 18 months).

Advantages:

  1. :white_check_mark: Predictability: Financial markets hate uncertainty. A clear schedule reassures.

  2. :white_check_mark: Adaptation: Gives economic actors time to reposition their strategies.

  3. :white_check_mark: Smooth Transition: Avoids abrupt shock while clearly signaling the end of the high-inflation era.

Expected Result:
A controlled transition to a “Real Yield” model (real revenues > inflation).

4. Phase 3: Value Capture and Infrastructure (IBC Fees + Dashboard)

On Activating IBC Fees:
Even if the current ~$600k/year is symbolic compared to $40M/year in inflation, activating the mechanism now is strategic.

Why?

  1. Psychological Signal: It proves to the market that “Cosmos handles its shit” (Drooo’s quote).

  2. Preparation: When volume goes 100x in a Bull Run, the pipes will already be in place to capture that value.

  3. Principle: You build the aqueduct before the rain comes.

Transparency Dashboard (Gregory_C’s Proposal):
Implementation of a real-time public dashboard:

  • Real cost of network security

  • Real incoming revenue

  • Required residual issuance

Proposed Mechanical Formula:

Required_Issuance = Max(0, Security_Cost - Real_Revenue)

This transparency allows for data-driven governance, not emotion-driven.

5. Phase 4: B2B Adoption and User Experience (Intents)

The Great Pivot: From Tech to Product
How do we go from $600k in revenue to $600M? By capturing the institutional (B2B) market.

The “Red Hat” Model:

  • Red Hat sells support and services on Linux (open-source)

  • Cosmos must do the same: sell services and security on the Cosmos SDK

But there’s a missing link:
The Key Innovation: Atom Intents (Qclusioninc/atom-intents)

What is it?
An abstraction layer that allows users (or institutions) to express an intent (“I want to swap X for Y”) rather than managing technical complexity (gas fees, IBC channels, routing).

Why is it vital for B2B?
Institutions don’t want to:

  • Manage seed phrases

  • Understand IBC channels

  • Pay gas fees in 15 different tokens

With Intents:

  • The user expresses a simple need

  • The protocol manages the complexity in the background

  • ATOM becomes the invisible fuel of the operation

The Future Model:
“White Label Chains” deployed in 1 click by banks or enterprises, secured by ATOM via Consumer Chains, without technical friction.

Real-world examples:

  • Figure: $9.9 Billion in tokenized credit on Provenance (Cosmos SDK)

  • Ondo: Manages multi-billion dollar treasuries

  • SWIFT: Experimenting on Cosmos infrastructure

The Real TAM: +$200 Billion (vs. current $600k)

6. Friction Points and Open Questions

Governance Question (My Stance):
Regarding buyback mechanisms and vaults, I asked: “Who holds the keys?”
This is not rhetorical. It is the central question of any decentralized financial system.

Acceptable Answers:

  • :white_check_mark: An audited, non-upgradeable smart contract

  • :white_check_mark: A mechanical system based solely on verifiable oracles

Unacceptable Answers:

  • :cross_mark: A team with a 3/5 multisig

  • :cross_mark: A discretionary system that “sells when it goes up / buys when it goes down” (that’s trading, not protocol)

Agreement with Drooo:
Any “market timing” mechanism associated with the protocol turns Cosmos into a hedge fund and undermines security, regardless of transparency.

7. Success Metrics

Open question to the community:
What is the minimum viable metric that would prove we have stabilized the patient?

My Proposal:
30 consecutive days where Net Validator Buys > Net Validator Sells.
If we cannot reach this low bar, no sophisticated licensing model will save ATOM.

Conclusion: A Call for Unity

The fragmentation of our debates (Telegram vs. Forum vs. Twitter) slows us down.
As a node operator (Snow-Fall, Active Set #171), I see brilliant ideas being lost in the noise.

For 2026, my wish is simple: Let’s centralize our forces. Let’s turn these debates into concrete governance proposals with:

  • A single working document

  • Clear milestones

  • Identified owners

The plan is there. The patient is robust. All that’s missing is the surgeon’s will.

Merry Christmas. Make ATOM Great Again. :christmas_tree:
klendhaar - Snow-Fall Validator | Active Set #171 | Pro-decentralization, anti-fragmentation

:books: References and Links

This article represents a synthesis of hundreds of messages and reflects the author’s personal opinion. It does not constitute financial advice.

6 Likes
2

Thank you for the quality of your work.

Hope icf and cl will take it into consideration.

3

Thanks for laying out the phased proposal so clearly. I have a clarification question to better understand your framing.

In Phase 3, you introduce the notion of Security Cost through the formula

Required_Issuance = max(0, Security_Cost − Real_Revenue), which I see as a central element.

How do you think about defining or bounding this Security Cost upstream? In other words, do you see it as something that can only be estimated after a stabilization phase, or rather as a reference signal (based on validator viability, participation, decentralization, etc.) that could already inform earlier phases and inflation-related decisions?

More broadly, I agree that the discussion would benefit from more structure to reduce noise. To me, this doesn’t mean reducing the diversity of viewpoints, but rather clarifying scopes, time horizons, and the metrics being used, so that different proposals can be meaningfully compared and debated.

2 Likes
4

Quick note to avoid potential confusion: In klendhaar’s proposed plan, the inflation adjustment is phase 2. It’s numbered “3.” but it’s the second phase.

Phases 1 (ICF selling BTC, ETH) and 2 (inflation reduction) of the plan are not really dependent on each other can be executed simultaneously. Maybe they get proposed and go through the governance process sequentially though so things are focused.

It seems we (someone, probably not me due because math) need to calculate the necessary security budget and include that in the proposal for debate. It could be adjusted going forward as well.

5

It also strikes me that Phase 1: ICF selling non-ATOM assets can be proposed separately from tokenomics proposals.

Maybe we can draft and proposed a governance proposal for that. I’ll start by researching the mechanisms for community gov proposals and the ICF. If anyone who is more OG than me knows about that process or history, please inform me.

6

A note on transparency:
As is my habit, I utilize my AI assistant to help structure my thoughts and put my ideas into a coherent page layout (my mind sometimes runs faster than my hands!). I want to be completely transparent about this process. However, I rigorously review and correct my “secretary” to ensure the output perfectly reflects my analysis. These are my genuine ideas, simply organized for clarity.

1. My Conception of Security Cost

Your question touches on a fundamental point: Security Cost cannot be arbitrary if we want the mechanism to be coherent and avoid recreating the problems it claims to solve.

Anchoring in Observable Metrics

I see it as derived from tangible signals:

  • Validator operational cost: Hardware, energy, bandwidth, maintenance

  • Capital opportunity cost: Minimum expected return on stake (comparable to risk-free rates + network risk premium)

  • Target decentralization level: Minimum number of economically viable validators

  • Economic security depth: Stake/TVL or stake/market-cap ratio deemed secure

Evolution by Phases

Phase 1-2 (Transition):

  • Security_Cost remains implicit in existing mechanisms

  • We observe real data: validator costs, participation rates, profitability

  • We build reference dashboards

Phase 3 (Post-stabilization):

  • Security_Cost becomes explicit via a formula that integrates:

    • Median_Validator_Cost × Target_Validator_Count

    • + Risk_Premium × Total_Staked

    • + Decentralization_Buffer (to maintain margin)

Governance as Guardian

Security_Cost is not algorithmically fixed but adjusted by governance with:

  • Strict bounds: Min/max defined in the protocol

  • Limited frequency: Quarterly/semi-annual review maximum

  • Total transparency: Public calculations, audited, based on on-chain data

Timing: Observable Then Operational

Phases 1-2: “Observable” Mode

  • Security Cost is not yet formalized in the protocol

  • But we create observation metrics:

    • “Validator Economics Health” dashboard

    • Tracking actual cost per validator

    • Analysis of stake/validator distribution

  • This data already informs decisions without being contractualized

Phase 3: “Operational” Mode

  • Security Cost becomes an explicit governance parameter

  • Calculated according to the above formula

  • Used as a ceiling for additional issuance

Advantages of This Progressive Approach

  1. Avoids early arbitrariness: We don’t set numbers in a vacuum

  2. Enables learning: Phases 1-2 generate necessary data

  3. Creates consensus: The community sees mechanisms being built transparently

  4. Reduces risks: Final parameters are anchored in the network’s observed reality

2. What I Mean by “Economically Viable” for a Validator

Definition of Economic Viability

For me, a validator is economically viable if:

  1. It covers direct operational costs: Server, bandwidth, electricity, monitoring, security tools

  2. It compensates time spent operating: Even if it’s the founder’s “free” time, this time has value (opportunity cost)

  3. It generates attractive returns on self-bonded capital: This return must exceed what could be obtained from a less risky or less labor-intensive investment

  4. It has margin for investment and resilience: Upgrades, increased redundancy, training, R&D

Economic Viability Scenario Calculation

Updated baseline assumptions:

  • Current ATOM price: $2

  • Average staking APR: 16% per year

  • Validator commission rate: 5%

  • Bare metal node cost: $60/month

Annual Operational Cost Estimate

  • Hosting / Infrastructure (bare metal server): $60/month × 12 = $720/year

  • Monitoring / Alerting / Security Tools: $50-100/month × 12 = $900/year

  • Management / Operations time (opportunity cost): $500-1,500/month × 12 = $9,000/year

  • Miscellaneous (software, security audit, contingencies): $1,500/year

Total estimated annual operational costs: ~$12,120/year

Revenue Needed to Cover These Costs

  • Revenue generated per staked dollar (via commission) = APR × Commission = 0.16 × 0.05 = 0.008 (or 0.8% of stake per year in commissions)

  • Total stake needed (in USD): $12,120 / 0.008 = $1,515,000

  • Total stake needed (in ATOM): $1,515,000 / $2 = 757,500 ATOM

Conclusion

To be operationally viable with current market parameters, a validator would need approximately 757,500 ATOM of total stake (including their own self-bond and delegations).

This figure is significantly high in ATOM quantity because, even though direct operational costs are moderate in USD, the current ATOM price ($2) means much more staked ATOM is needed to generate the same USD amount via commissions.

Implications for Small Validators

For validators in the “long tail” of the ranking (e.g., #171 out of 180), with stake well below 757,500 ATOM, direct profitability based solely on ATOM commissions is extremely difficult, if not impossible.

This explains why many small validators operate with an economic model based on indirect benefits:

  • Training and expertise in the Cosmos ecosystem

  • Building relationships and reputation in the community

  • Synergies with other projects or chains in the ecosystem

  • Philosophical contribution to network decentralization

This participation remains valuable for network decentralization and resilience, even if it’s not sufficiently rewarded by the current direct economic model.

3. Complementary Proposal: Foundation Delegation Program with Responsible Liquidity Management

Context and Justification

As previously established, a validator needs approximately 757,500 ATOM of total stake to be economically viable. This reality creates a barrier for talented small validators. However, any support solution must be economically neutral for token price and not aggravate selling pressure.

The Proposal: Strategic “Win-Win” Delegations

A Foundation delegation program to deserving validators (e.g., 500k ATOM per validator), designed not as a donation, but as a virtuous liquidity contract.

“Sell Pressure” Control Mechanism

This is the crucial point: We must not add selling to selling.

To prevent commissions generated by these delegations from being immediately sold on the market (dumped), the program would include a Vesting or mandatory Re-staking clause:

  1. Actual expenses coverage only: The validator is authorized to sell only the portion of commissions necessary to cover justified infrastructure costs (e.g., bare metal servers).

  2. Profit re-staking: The surplus of commissions generated by the Foundation delegation (profit margin) must be obligatorily re-staked (increased self-bond) or placed in a vesting contract over a given period (e.g., 12 months).

Impact:

  • The validator survives (bills paid).

  • Their “skin in the game” (self-bond) mechanically increases thanks to the surplus.

  • Zero net selling pressure on profit margin: tokens remain in the ecosystem.

Benefits of the “Win-Win” Model

For the network:

  • Enhanced decentralization without price crash.

  • Long-term alignment: Validators increase their own stake thanks to Foundation support.

  • Optimized cost: Less expensive than global inflation.

For validators:

  • Immediate viability: Bills are paid.

  • Capital growth: ATOM accumulation via forced re-staking, strengthening their future position.

For the Cosmos ecosystem (and token price):

  • We avoid the “lost subsidy” effect.

  • We create a class of validators who accumulate (HODL) rather than sell.

Foundation Cost and Impact Calculation

  • Annual opportunity cost: ~$320,000 (for 20M delegated ATOM).

  • Market risk: Neutralized by the vesting/re-staking clause. Impact on order books is minimal since only the “server costs” portion is liquidated.

Next Steps: Defining Eligibility Criteria

This proposal constitutes an initial reflection. Precise eligibility criteria will need to be defined later by the community, potentially around dimensions such as:

  • Technical performance (uptime, upgrade participation)

  • Ecosystem contribution (governance, development, education)

  • Decentralization criteria (geographic location, independence, infrastructure)

The goal is to open debate on a targeted and measurable mechanism that complements broader discussions on inflation and the network’s overall economic model.

Publication Context Note

This analysis is based on:

  • Updated market data (ATOM at $2, APR at 16%)

  • Real operational infrastructure costs (bare metal at $60/month)

  • Transparent and verifiable calculations

  • The perspective of a field validator (#171/180)

This is a personal contribution to the community debate, enriched by rigorous quantitative analysis, aiming to bring factual elements to the discussion on validator economic viability and mechanisms to support ATOM network decentralization.

Conclusion

This approach allows supporting the “long tail” of validators essential to decentralization, while respecting strict budgetary rigor: no unnecessary sales, no unjustified dilution.

We are here to debate and build, in a friendly spirit, with the sole goal of making the Hub stronger and more resilient.

Let’s Make ATOM Great Again.

2 Likes
7

ou mentioned the need to calculate the necessary security budget. Challenge accepted! :wink:

I actually just spent some time crunching the numbers regarding validator viability and security costs. I realized that without defining what ‘economically viable’ means for a validator (especially smaller ones like myself), we can’t define a proper Security Budget.

Please see my detailed analysis below (or in the next post). I broke down the operational costs vs. staking revenue to find the real threshold needed.

Spoiler: The numbers show why we need to be careful with inflation reduction if we don’t have a mechanism to support the ‘long tail’ of validators."

2 Likes
8

Thanks for sharing this. Really looking forward to the full breakdown.

Just to make sure I’m following correctly: once validator-level economic viability is established, would the next step be to bound the number of economically viable validators the Hub needs (rather than picking a single number…), as part of deriving a global security budget?

(Grounding “security budget” in concrete validator economics is exactly what this discussion needs !)