Thread by @youssef_amrani

I have been doing a lot of thinking lately about the $ATOM tokenomics and the overall role of The Hub within the Internet of blockchains. Here are a few thoughts and an attempt at bringing more clarity on this crucial topic. Long 🧵 ahead, buckle up!

Let’s start first with a state of the Cosmos union on the technology and infrastructure sides. Cosmos today is home to more than 50 blockchains, all connected through IBC (Inter-Blockchain Communication), the most important infrastructure piece of the entire Cosmos.

The Internet of Blockchains technology is highly praised by most technologists and engineers in the industry. Tendermint is one of the leading (if not THE) leading standards in the consensus stack while Cosmos SDK modularity approach has seduced a growing number of apps...

the latest one being dYdX, the most famous derivative DEX on Ethereum.

https://twitter.com/dYdX/status/1539607062291877889

With the recent launch of Interchain Accounts, Cosmos is bringing native composability between chains that wish to ‘collaborate’’, potentially unlocking game changing innovation at the app level. Ethereum paved the way for composability by enabling it between smart contract apps.

I believe Cosmos goes a step further since the composability is done at the app-chain level, giving more flexibility and more freedom in terms of design space.
If you haven’t heard of Interchain Accounts, you can read more about it below.

https://twitter.com/youssef_amrani/status/1513994892875386888

The other major feature that is currently in the pipe is Interchain Security. This new feature will give a remarkable opportunity for smaller chains to lease security from The Hub (actually from any other zone, could be Osmosis as well)...

as long as it is able to prove it offers enough economic security guarantees to consumer chains). Interchain Security is a cheaper alternative for new chains that want to build their app-chain on the Internet of Blockchains without setting up their own validator set.

Interchain Security, in my mind (and if successfully implemented and marketed), can be the killer app and catalyst Cosmos needs to accelerate the number of newly onboarded app-chains. Its plug and play approach will likely attract many new projects.

Enough for the context, let’s now move to the topic we’re all here for: ATOM’s tokenomics and beyond that the role of the Hub within the broader Cosmos ecosystem. There is a growing consensus that something needs to be done about $ATOM so that it can be at the spot it deserves:

up there in the top 10 or even 5 by market cap. So why does the Cosmos community need a strong $ATOM? Here are 5 reasons:

1. To be stronger, both the Cosmos ecosystem and The Hub need a strong ATOM: Cosmos’ native token is the main gateway to the entire ecosystem. I would never have discovered the numerous wonderful projects (Osmosis DEX, Kelpr Wallet etc within Cosmos if I hadn't owned ATOM before.

Many Cosmos users (if not the majority) decide to own $ATOM to get exposure to the Cosmoverse and then immerse themselves by injecting 5-10x their original investments once they get to know the ecosystem and the community.

Imagine the increase of cash inflows into the Cosmos were $ATOM to be a more ‘’sexy’’ gateway token.

2.Because ATOM and The Hub, as the only public goods chain on the Interchain, needs to be a locomotive for the entire Cosmos. @Zmanian detailed his vision for the ATOM a few months ago in the ‘splitting the ATOM’ show.

Part of that vision was for the @IBCHub and $ATOM to become a portfolio like company. In short, the value generated by ATOM will be redistributed back to new Cosmos ventures, strengthening the entire ecosystem.

Now, to do this at scale and in an impactful way, we obviously need the strongest ATOM possible for the community pool to be effective.

3. Because the market perceives ATOM as lacking value accrual. And because the market is the ultimate judge (like it or not, rightly or wrongly) when it comes to valuing a project. This reason is why ATOM hasn’t been able to establish itself as a powerful brand. Yet.

It is considered as a token amongst many others. Consider $ETH on the opposite side: the token was able to reinforce itself by evolving and potentially becoming deflationary. This has become a strong marketing tool to attract the masses.

In the past bull cycles, token engineering wasn’t necessarily a big issue because programmatic value accrual was not yet a thing. The 2020-2021 bull run changed everything, with many projects going above and beyond to bring to market best in class tokenomics for their token

And it worked. Although LUNA Classic ultimately failed, it nonetheless showed how token engineering can have a powerful, almost mystical effect over the collective psychology of retail and institutional users.

4. Because ATOM is the ‘reserve asset’ token for the entire Cosmos. Retail and institutions use ATOM to stake and pair it in liquidity pools with other assets. In most if not all Cosmos DEXs, ATOM is in the largest pool.

A reserve asset cannot be doubted or perceived as lacking utility. Rather, it needs to be strong and inspire confidence.

5. Last but not least, the community needs a strong ATOM to provide the Hub with a robust economic security. This is even more important in the context of Interchain Security.

If the Hub wants to secure a maximum of chains through this new feature, then it’s gonna need to convince them it has the right economic size to do the job…safely.

Now that we know the WHY, we also need to investigate and discuss the HOW. Stay tuned for my next thread, where I’ll be covering how we can improve $ATOM utility and legitimacy within the Cosmos and beyond.

Fin.

@cosmos @cosmoshub