Thread by @wolf_of_defi

1./ Cosmos is recognized as one of the greatest ecosystems around. However, the $ATOM token is often mentioned as a token without value capture. But is this right?

Let’s talk about $ATOM

2./ The main topics I want to discuss in this thread are:

Interchain Security
Liquid staking
IBC routing

And how those topics affect $ATOM

3./ Cosmos aims to be the internet of blockchains: a network with sovereign proof-of-stake blockchains that are able to communicate with each other. But each proof-of-stake chain needs security. And for security, validators are needed.

4./ Without going too deep into the details of proof-of-stake security it’s good to know when there is an incentive for someone with bad intentions to attack a network, because this is a major reason to implement interchain security. So, when is this the case?

5./ As I said, validators are needed to secure the network. To become a validator, you need to stake tokens of the chain you want to be a validator for. Let’s assume you need ⅔ of the staked supply to be able to control the network; would you buy this amount of tokens to do so?

6./ There is only an incentive to do so when the cost to buy these is less than the gain you can make. What is the gain? The TVL in a protocol

So it’s important that the cost to hack the network, also known as the corruption cost, is higher than the TVL in a network

7./ Alright, so what is interchain security?

With interchain security it basically becomes possible to share validators.

8./ This would allow the Cosmos Hub (where $ATOM is staked) to assign the value of the $ATOM staked to other chains which would increase the costs of corruption. So it becomes harder to hack.

9./ Nice. But why does this increase the value for $ATOM?

As we all know, stakers are rewarded. Currently when staking $ATOM at the Cosmos hub you’ll earn rewards in $ATOM, but once the validator is validating another chain too stakers will also be rewarded for this chain.

10./ So it could theoretically be possible that by staking $ATOM you’ll earn rewards in both $ATOM and $OSMO. Amazing, isn’t it? This would make it more interesting to stake your $ATOM, which increases the demand. So, that’s interchain security.

11./ Next one: IBC Router

12./ With Cosmos IBC it became possible for chains to send native tokens directly to each other. But to do so there has to be an infrastructure. And this infrastructure costs money to maintain. With the huge amount of new blockchains on Cosmos, this could be a problem

13./ In order to solve this a proposal was made to integrate an IBC router in the Cosmos Hub. IMO it’s best to compare the IBC router with a post office. You can choose to bring a letter to all your family members yourself or to bring all the letters to the post office ...

14./ ... and they do the work.

The first takes a lot more time while the latter is much more efficient. With the IBC router it becomes possible to send multiple transactions to this router and that’s doing the job.

15./ Again; the value of $ATOM?

Those transactions cost money. And the fees paid for those transactions are distributed amongst $ATOM stakers. So the staking APR is expected to go up.

The expectation is that IBC router transactions are mainly attractive for new chains.

16./ So, last one: Liquid staking

To begin with I’m not exactly sure to what extent liquid staking is already possible yet. I’ve seen a video from 3 weeks ago where my take away was that it’s not live yet ...

17./ However, I also see that there is already a locked value in pStake. If someone can explain, please reply to this thread. Much appreciated!

18./ What is liquid staking?

Usually, when you stake a token you’re just earning yield. The token is locked. But not anymore. Liquid staking gives you utility to a staked token.

19./ Imagine minting another token when staking $ATOM. This new token, in this case $pATOM, is basically a token to redeem your original $ATOM. But this $pATOM is liquid. You can use this anywhere.

20./ Once it becomes possible to use this as collateral or to deposit it in liquidity pools in for example Osmosis. It becomes possible to stake your $ATOM and use it to farm at the same time.

21./ How about interchain security where you can earn double rewards from staking and use your liquid token to farm at the same time? I’m not 100% sure if this would be possible, but I don’t see why not.

22./ Quite a read, right? I hope you enjoyed it and it helped you to see why $ATOM does hold value. All those things might not be live yet, but they will go live eventually. And exactly that is the reason why I’m stacking $ATOM #NFA

23./ One last note: Cosmos is amazing but at the same time quite hard to understand completely. I’m not sure if everything I just explained is 100% correct. If it’s not, feel free to reply below. So if you read this, also take a look at the comments. It might be important.

24./ Because I’m such a fan of Cosmos and want to know more about it I’m planning to do more research and tweet about it. I won’t use this account for most Cosmos tweets so I made a new one. If you’re interested in Cosmos, please follow: @CosmosProfessor

25./
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@wolfcontract
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@jack_zampolin
@cosmos
@cosmosibc
@ATOMCosmonauts
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