Cosmos Hub: ATOM Economic Zone

Bringing Utility to the Cosmos Hub

Despite the Cosmos ecosystem gaining developer mindshare in the depths of a bear market, the Cosmos Hub, the first blockchain in the ecosystem to be built leveraging the Cosmos SDK, has historically lacked utility. The Hub has been instrumental in bootstrapping an Internet of Blockchains with over 55 IBC-enabled chains today, but the Hub has no value alignment with IBC growth and does not have any revenue-sharing agreements with other chains in the ecosystem. The Cosmos thesis based around sovereignty and app-specific blockspace is great for developers that want ownership of the stack to focus on building the best product, but without a killer use case the Hub may fade into irrelevance.

Interchain Security

The original vision for the Hub was to provide Validation-as-a-Service through a feature called Interchain Security where newer Cosmos chains would rent security from the Hub’s validator set. With Interchain Security, the Hub’s validators would run a node for the new chain and put up the staked ATOM delegated to them as slashable collateral as a deterrent for malicious activity. In return for this added risk to delegators and additional operating costs for the validators, the newer chain would enter a revenue-sharing agreement with the Hub to align all stakeholders. Finally, with governance proposal 187, the Cosmos Hub was upgraded in March to enable Interchain Security v1, called Replicated Security.

Unfortunately, there are a few problems with security provision alone as a lasting value accrual mechanism for the Hub. One problem is that onboarding high-quality validators to your chain is no longer as large of a hurdle as it may have been historically. Another problem is that security provision may conflict with Cosmos’ sovereignty thesis. As a newer chain finds product market fit, it may look to secure itself and no longer pay a middleman for this service. The last problem is security will likely get commoditized over time as crypto converges on an interoperability standard and newer chains decide to leverage Eigenlayer to rent security from Ethereum restakers.

ATOM 2.0 Governance Failure

To create long-term alignment, the Hub would have to offer more than security. In the real world, countries not only create security alliances like NATO, but they also create trade agreements to bolster economic activity between partner nations. If you impose this concept onto blockchain networks and reimagine them as sovereign territories with their own cultures and ideals, then the Hub could theoretically offer more than security. With ATOM being the most liquid Cosmos ecosystem asset and the initial chain that helped to fund the ecosystem, the Hub’s killer use case could be to leverage ATOM as the ideal reserve asset of the Interchain. By using ATOM to bootstrap liquidity for these new chains and use ATOM to fund public goods around developer tooling and infrastructure, ATOM could further gain money-like properties that largely are attributed to BTC and ETH’s high valuations. This was the vision for the contentious ATOM 2.0 whitepaper that was shot down in Prop 82 by community governance for being an omnibus bill with large concerns around governance, ATOM monetary policy, and risks associated with liquid staking. Notably, there wasn’t much concern around the idea of ATOM being a reserve currency for the ecosystem, but more so a difference in opinion on the path to get there.