Thread by @chtmorris

The new @cosmos whitepaper just came out 🚀. Here are some thoughts as I read through it:

Pg 1 - "The vision of the Cosmos Network has been realized" - bold statement and true. v1 of the whitepaper focuses on a hub and spoke model communicating via IBC. This is live today...

Pg 2. The Hub needs a new role. @zmanian said in his talk just now at #cosmoverse2022 - ATOM today is a meme coin within the Cosmos ecosystem. It can be so much more.

It's new role is "to grow a resilient interchain economy". What does this mean 🧐

Pg 2. ".. provider of infrastructure services.."

Ethereum acts as platform and not as service provider. In Cosmos, chains can use the Cosmos SDK without touching The Hub. As a result, the Hub is forced to provide additional value to be relevant...

Pg 2. Layered architecture:

1. Social Coordination Technology - default home and coordination layer for Cosmos SDK, Tendermint, etc

2. Interchain Security - consumer chains secured by the Hub

...

3. Liquid Staking - stake assets, but use them in DeFi

4. Interchain Scheduler - secure block space market

5. Interchain Allocator - "platform for delegated parties to grow and align ATOM based markets" - don't fully grok this yet

Interchain Scheduler and Interchain Allocator are Hub-specific

Pg 4. This is cool. The Hub will collect revenues from interchain economic activity by creating a block space market and charging a matching fee.

Today the Hub basically has no revenue at all. The Interchain Scheduler changes this. But what will it do with this revenue...

Ah ha! Revenue is used to "add promising new projects to the Cosmos Hub's holdings via the Interchain Allocator".

Hmmm. Lots of questions here. Who decides on which projects to add? Are these grants or investments from the Hub?

Pg 5. "The result is a renewed role for ATOM as the preferred collateral within the Cosmos Network".

Similarities to ETH being preferred collateral in Ethereum DeFi.

Pg. 5 - Interchain Security. Hub to continue minimizing security surface (so unlikely to become a platform to deploy applications). But to offer this security to consumer chains.

Liquid staking as the first users of Interchain Security.

Pg 6. Interchain Security can be used for:
- Rollup Settlement
- IBC Routing - market for IBC relay contracts
- Multiverse - I think this just means consumer chains
- Chain Name Service - Cosmos version of ENS

Pg 7. Liquid Staking - first mention of Interchain Accounts. 👀

Staked assets can be exported over IBC, continue to accrue rewards and be used in other protocols.

Pg 8. ATOM issuance. New monetary policy suggested.

Two phases - transition and steady state.

Transition lasts for 36 months. Issuance temporarily increases for first 9 months providing initial funding for a new Cosmos Hub Treasury...

... Issuance reduces after. Interesting. Using inflation to print a new treasury for the Hub. That will surely be a topic of debate.

At the beginning of the transition phase 10m ATOM issued per month! This is inflation of about 40% annualized (eek). But reduces every month...

... Eventually 300k ATOM per month at Steady State. This will be about 1% annualized inflation.

"If the staking rate ever falls below [BLANK]" - maybe a typo here (?) or as of yet undefined amount. Below some threshold, the original monetary policy resumes to ensure security.

Pg 10. Old and new issuance visualized

Cumulative inflation - new is clearly better than old. High start is less of a concern, but will still likely be debated.

Pg 11. Fees. Interchain Security -> more fees to ATOM stakers. There will be a global fee module and an ATOM floor fee for chains secured by the Hub.

Fees will be collected in other tokens and the Hub may convert into a target currency, ATOM or stablecoins before distribution...

... Not clear how this will be done - automated or manual. Discussion to be had here.

Pg. 12. The Cosmos Economic Engine
1. Interchain Scheduler
2. Interchain Allocator

Scheduler - "bringing MEV markets on-chain, thereby minimizing trust, improving quality of service, and enabling direct block space regulation by chains themselves"

This works by...

1. Consumer chain offers portion of blockspace
2. Scheduler issues NFT representing future block reservation
3. Reservation NFTs can traded on a secondary market
4. On block execution, proceeds of NFT split between Scheduler and partner chain

"By purchasing synchronous regions of block space on different chains, users can lock-in arbitrage opportunities or schedule cross-chain settlement transactions with strong execution guarantees."

A visualization of the Scheduler

Interchain Allocator - to provide new Cosmos projects help with user growth, liquidity and "long-term ecosystem alignment"

Pg 17. Answering some of my earlier questions on decision making in the Allocator:

Hub "to fund incentive-aligned DAOs to carry out the Allocator’s mandate"...

The Allocator provides 2 tools:

- Covenant - establishing multilateral agreements

- Rebalancer - automatic management os asset portfolios with public liquidity

Covenant:
- one protocol sets parameters and deposits the funds into a covenant
- other protocol may update parameters in a new covenant until agreement is reached

Rebalancer:
- "tool for the execution of third-party capital allocation strategies for liquid assets"

- periodically computes assets to be sold or acquired

Seems useful, but I foresee governance headaches as chains try to determine initial allocations 😖

Pg 19. Examples of how protocols may use the Allocator:
- Mutual stakeholding between protocols
- Providing guarantees on auction price floors
- AMM pools with liquid staked ATOM
- Rebalancing reserves
- Participating in governance of other chains where tokens are in treasury

Sidenote - I see value in the Allocator. The last few years of Cosmos have shown new chains airdropping tokens to ATOM stakers.

The Allocator seems to be formalizing this Interchain ethos for economic collaboration 🤝

Pg 19. Cracking sentence:

"The positive feedback loop between the Scheduler benefiting from increased interchain liquidity and the Allocator deploying capital to increase interchain liquidity gives the Hub asymmetric advantages relative to other liquidity providers."

🧠

Pg 20. Broader Allocator uses:

- Multiple Allocator Daos to improve diversification

- Liquidity-as-a-service - I feel like this is something that @sunnya97 and @osmosiszone is also working on

...

(Now this is fun)

- Under-collateralized financing - sounds exciting and dangerous:

"If the borrowing protocol defaults on its loan, they could mint the borrowing protocol’s tokens to cover losses."

That's wild. Giving a lender the ability to inflate away your token

Liquidity savings:
"Covenants can be used to direct capital into trade
networks, improving liquidity profiles and reducing the occurrence of insolvency due to stressors."

Don't fully get this.

Allocation beyond the Hub:
- still beneficial as it facilitates future integration with the Hub.

Pg. 21. Moving into Governance...

To achieve the next phase of interchain cooperation Cosmos will require

"a shared organizational language and a substrate for decentralized planning, resourcing, and accountability"

I have a feeling this was heavily influenced by @informalinc and @buchmanster!!

As a sidenote - if you're interested in organizational governance, strong recommendation to check this out from @informalinc

workflow.informal.systems

Groundbreaking stuff.

But I digress...

Pg 21. "The Governance Stack would provide a general specification for DAOs to self describe their organizational structure and relationships with one another"

I like this idea of a shared vocabulary, although I foresee it being challenging to implement in a decentralized ecosystem.

It's one thing to force employees in a company to speak the same language, but far harder to get a community to adopt shared (non-organic) terminology

Pg 23. The Cosmos Assembly

- An organizational body that represents the interests of the Hub community

This is SUPER interesting.
- ATOM holders define the overarching charter
- DAOs can become councils
- Councils are added to the Charter, resourced and given authority over specific topics
- The Cosmos Assembly is composed of delegates from councils.

Pg 24.
The Cosmos Assembly sets priorities and budgets for them. It represents the interests of ATOM holders.

I previously advocated for the Hub to have a seat on the Interchain board. But this take makes more sense.

https://twitter.com/chtmorris/status/1131984958027980800?s=20&t=9V7R4SzTPGFZr_WLmU6OFw

Pg 25. Conclusion - focusing on the positive fly-wheel that the Allocator and Scheduler will create.

Full whitepaper: gateway.pinata.cloud/ipfs/QmWXkzM74…

I also recommend reading @buchmanster recent piece on the phases of Cosmos: ebuchman.github.io/posts/phases-o…