A lengthy thread on $ATOM 2.0 #Tokenomics and why I am concerned. This commentary is the perspective of a long-term #ATOM holder, and my hope is that this thread will spark a vibrant, honest discussion in the #CosmosEcosystem and the broader #crypto community.
1) First, a brief history. The Cosmos team, led by Ethan and Jae, raised ETH and BTC in 2017 to support the development of an “Internet of Blockchains’ vision. Token sales were conducted privately and publicly via a 2017 ICO managed by the Interchain Foundation (ICF).
2) A total of 236,199,509 ATOM were sold for ~$18mm, 10% of which went to Tendermint Inc (now @ignite_com) and 10% to the @interchain_io. 
3) Historically, the ICF and Tendermint were the two primary entities that supported the development of Tendermint Core, Cosmos-SDK, and IBC. Tendermint Core and Cosmos-SDK were both shipped by 2019.
4) However, internal feuding and insufficient project scoping (I do not know what caused the internal problems) delayed the release of IBC.
5) Jae Kwon left Tendermint Inc in 2020, and was ultimately replaced by Peng Zhong. Tendermint rebranded as Ignite, and Peng Zhong has departed recently. Jae Kwon is now back at Ignite.
6) There certainly has been no shortage of internal Cosmos drama, but the team finally released IBC (LFG #IBCGang ) in 2021 and deserves credit for shipping what was promised. Nicely done!
7) With some brief history out of the way, let’s get to the point. ATOM, the native #CosmosHub token, has historically suffered from limited value accrual mechanics from the growing Cosmos ecosystem to the ATOM token itself.
8) Though today the Cosmos ecosystem is vibrant, with 47 interconnected zones (mapofzones.com) and over $1.2 billion in ICB volume over the past 30 days, ATOM value accrual remains poor. ATOM is not required to pay IBC fees, and overall has very limited utility.
9) As a result, ATOM has underperformed several of its #Layer1 competitors by a large margin, particularly #SOL and #AVAX. Of the large L1 projects, it is effectively last in market cap. It is also last in protocol revenue.
10) The Cosmos team is generally aware of this critical issue, and has made a bet that Interchain Security (to be released in Jan 2023) will improve ATOM’s token accrual. The payoff on this bet remains highly uncertain.
11) For a few months now, the #Cosmos team has been teasing a revamped tokenomics model. Finally this past week during #Comsoverse the team released a whitepaper outlining the vision of ATOM 2.0 along with a proposal for a revamped tokenomics model.
12) Core to the ATOM 2.0 are two new functionalities: Interchain Allocator and Interchain Security. I will not delve into these two protocols as many have done so extensively. So let’s chat about the tokenomics.
13) The new tokenomics model is centered around a 36 month transition phase during which token emissions will spike significantly in the first 9 month, and decline thereafter by 10% every month to a terminal rate of 300k per month IF the staking rate remains above the 2/3 target.
14) The end result is a significant increase in ATOM supply in the near term that will inevitably have a very negative impact on ATOM’s price.
15) What is the goal of the short-term emissions increase? Simply, it is to raise funding for a proposed Cosmos Hub Treasury. This funding amounts to a total of 55 million tokens, valued at $695 million at today’s ATOM price.
16) Under the proposed plan, by the end of the 36 month transition period, Cosmos Hub Treasury holdings would amount to 14.5% of total ATOM supply (assuming none is sold to fund development), which is a significant share of voting power.
17) While I completely understand the need for funding in order to support new development, 55 million ATOM amounts to a significant dilution of current ATOM holders to support a very ambitious roadmap that may ultimately still not address ATOM’s value accrual problem
18) In the near term, in my view the team ought to focus on Interchain Security to prove that there is indeed a product-market fit and improved ATOM value accrual.
19) Furthermore, I believe the Cosmos community deserves transparency on the state of the funding that was raised in 2017, why it is not sufficient to cover new development, and why such a large sum is necessary to support additional development.
20) The ICF has not released an update on assets since 2020, and I don’t believe Tendermint Inc has provided any insight at all.
21) Lastly, the community ought to have insight for how the Treasury is going to be managed, both in terms of Treasury spending as well as voting, and what role exactly Informal Systems, Interchain Gmbh, the ICF, and Ignite will play in development.
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