Why All in Bits Recommends a Strong No with Veto on Prop 82
After careful thought and consideration, All in Bits (AiB) recommends the Cosmos community cast a strong No with Veto vote on prop 82, ATOM 2.0. As co-creators of Cosmos and its longest-standing contributor, AiB has a duty to safeguard the development of the Hub and protect the interests of the community at large. Unjustified changes to monetary policy deprioritize ATOM holders and fail to preserve Cosmos’ core values of accountability and transparency; while unproven experimental ideas and lack of prudence in proposed designs place the security of the Hub at risk. We are working to build a viable lasting alternative to the current financial system. Prop 82 recreates many of the existing problems we’re fighting so hard to resolve.
Innovation Should Not Compromise Economic Security
Cosmos has grown from an idea in a whitepaper to a flourishing ecosystem of independent interconnected chains – the Internet of Blockchains. At AiB, we are proud to have incubated, collaborated with, mentored, and learned from some of the brightest minds in the blockchain space and visionaries in their notions of Proof of Stake and governance. Ideas are the lifeblood of the community and Cosmos has evolved through their continued innovation. Yet, this innovation has always been carefully considered and adopted (or not) thanks to our advanced system of governance that ensures appropriate checks and balances are observed.
We believe that some ideas laid out in the ATOM 2.0 whitepaper hold merit and are worthy of exploring. However, these types of unproven and experimental suggestions should not be implemented directly on the Hub (and, not all at once). Neither should they be rushed through in an omnibus whitepaper but broken down into components to assess by individual merit. We have seen time and again through multiple examples of bleeding-edge iteration that high innovation can come at a high cost; most often, to the token-holding minority.
Observing the conservative, predictable, and minimal development of the Hub guarantees the economic security of all. We can continue to deliberate the concepts in prop 82, and we can implement them carefully, unhurriedly, and one by one. Should any of them fail, we ensure that the entire ecosystem is not endangered. Take the Interchain Allocator or Interchain Scheduler as examples. These proposals are innovative and may result in generating value for the Hub. However, they are untested and unproven; we have not conducted suitability tests and have no means of knowing whether they will work or generate value.
Liquid staking, while attractive to many participants in the ecosystem, poses a plethora of security concerns that must be addressed. Staked ATOM tokens deployed in DeFi can easily be lost through bad trades or liquidations at lending protocols. The amount of liquid staked tokens should therefore be limited to reduce systemic risk, primarily by limiting interchain accounts. It’s also possible that liquid staking may not be safe at any level; liquid staking combined with shorting markets would incentivize employees or insiders of validator companies to sabotage their own validator employer. As far as we are aware, nobody has considered this risk factor, because not enough attention is paid to designing safe systems.
Let’s remember, Cosmos Hub’s greatest strengths are stability and security – as demonstrated by its resilience to the collapse of Terra LUNA in May 2022 – nothing should interfere with these core attributes.
“ FTX <–> Alameda compounding is exactly the kind of systemic risk that unchecked LS (liquid staking) will bring to Cosmos unless we are proactive in putting checks on it, such as by limiting ICA (Interchain Account) staking. Vote NoWithVeto on 82 to save Cosmos,” wrote Jae Kwon on Twitter.
Most of Cosmos Hub’s tokenomics or proposed future value generation for ATOM stakers relies extensively on Interchain Security (ICS). When launched, ICS is expected to allow ATOM holders to benefit from the launch of Consumer Chains that request security from the Hub and, in exchange, distribute part of their staking rewards to the Cosmos Hub community. When you have a strong value proposition for the Cosmos Hub that benefits from security as the main feature, it is essential to take the proper measures to ensure that security at all times.
Proposed Changes to Tokenomics Are Detrimental to ATOM Holders
Proposed changes to the tokenomics are unjustified, and the passage of proposition 82 for ATOM 2.0 creates a dangerous precedent of minting scandalous amounts of new tokens to a treasury controlled by a few selected members. The whitepaper does a disservice to public education because it fails to explain to Cosmonauts that the ATOM token is intentionally designed to NOT be a deflationary monetary token for the purpose of security – to ensure that ⅔ of ATOMs are bonded. In fact, ATOM 2.0 doesn’t prevent exponential ATOM inflation either for this exact reason, so it isn’t any more deflationary than before. This makes moot the premise for the up-front (and following proposed mint tranches) in the first place (at the time of the proposal, around $500M). In addition, the inflated ATOMs would go to a treasury that isn’t controlled by Cosmos Hub governance.
Instead, we should change the existing parameter of the tax rate from 2% to something higher, with the flexibility to execute slight modifications to the ATOM inflation model to remove the minimum inflation bound of 7%. With these simple changes, we could create sufficient funds for development going into the Hub governance-controlled community pool, and with the adoption of ICS over time the inflation rate would approach zero and may even become negative, making the ATOM effectively a deflationary token. Yet still, we can explore alternative models of supporting deflationary fee tokens such as that proposed in the ATOM One Constitution draft, or otherwise, simply support any of the many tokens of zones connected to the Cosmos Hub.
The Hub’s clear, predictable, and calculated tokenomics are not something we should underestimate, undervalue, or take for granted. Can the system be improved? We believe it can – through public conversations and open dialogue – and using the existing tools that were specifically designed for this very purpose.
Using the existing framework, we can further ensure the fair and transparent distribution of the funds – without changing the monetary policy or sacrificing decentralization. We encourage the community to draft competing plans for increasing the tax rate and managing the community pool to fund multiple competing DAOs for permissionless experimentation. How can we best ensure that approved DAOs are held accountable for performing work contracts funded by the community pool and approved by the Hub? Let’s find out.
The Cosmos Hub was created with a guiding vision to enable decentralization and transparency. These core values (along with accountability, security, and simplicity) have been fundamental to the ongoing success of Cosmos. Further, the Cosmos Hub was outlined in the original whitepaper, built, tested, and released piece by piece after multiple testnets and strenuous troubleshooting. Prop 82 places this methodology of prudence, transparency, and decentralization at risk.
AiB remains committed to the continued growth of Cosmos and upholding its core values. The only way to do this is by voting No with Veto on Prop 82 and finding a way to collaborate on a renewed effort on a new ATOM whitepaper. Let’s propose a better way to move forward that builds on our legacy rather than tears it apart.
For a call to action and more specific criticisms of the ATOM 2.0 proposal, take a look at Jae Kwon’s Call to Arms of True Cosmonauts.
By Cristina Cosmos
Notice: This content represents an official statement from All in Bits, and should not be confused with a statement made by the new Ignite entity.