Can ATOM War be a good remedy to boost the price of ATOM?

Written by: Tia, Techub News

Cosmos is also starting the ATOM War, and I couldn't help but feel a pang of sadness when I first saw it.

While I feel a sense of nostalgia, I personally believe this is actually a desperate move; good projects should leverage their strengths rather than change to fit the current situation. The last hard fork project with a ve token economic model, Balancer, did not make much of a splash after the ve token economic model was released. But we still have to hold onto hope, right? What if it succeeds?

The narrative of Cosmos is sovereignty, and its one-click chain creation feature allows applications that are not suited to the "native" chain environment to have the right to create their own chains. Applications no longer need to rely on sovereign chains; Cosmos directly grants them the right to stand on their own, which has led to it being regarded as the most crypto-spirited habitat, and many developers love Cosmos. The founder of Celestia once said on Interchain Travel that Cosmos is his spiritual home.

Although the Cosmos ecosystem is strong, with many great projects launching chains through Cosmos, the ATOM governance token of Cosmos Hub has not gained any benefits from this (which is a trade-off made to grant economic sovereignty to projects launching chains on Cosmos). It has even been mocked for becoming a meme coin. However, as a project that continues to update, Cosmos cannot just become a non-profitable public good. Cosmos Hub and ATOM are the first and largest source of funding for the development of IBC, Cosmos SDK, CometBFT, and the rest of the Cosmos stack, and the community fund pool has been underfunded for years. Cosmos Hub needs to find a way to derive some revenue from the ecosystem to support its continued development.

ATOM War

The term "ATOM War" is derived from the Curve War on Ethereum. In Curve, liquidity providers can earn incentives from two parts: the trading fees of the pool and additional CRV incentives. The CRV incentives are determined by voting; to ensure their pool receives as high CRV incentives as possible, they are compelled to buy governance tokens CRV to lock them up for higher voting power. As the demand for locking CRV increases, it drives up the price, which in turn increases the pool's APY, attracting more liquidity providers and creating a flywheel effect.

In a sense, the ATOM War is a continuation of Cosmos 2.0. With the liquid staking module now developed, ATOM stakers can convert their staked ATOM into "DelegationShares" through the liquid staking module, and then lock the "DelegationShares" into the new governance platform Hydro to obtain hATOM for voting rights. Different locking periods can yield different levels of Voting Power.

Typically, there is a demand for liquidity requests from the Cosmos ecosystem to the Hub. For example, in proposal 853, pSTAKE Finance requested the allocation of 600,000 ATOM from the Hub, primarily to provide stkATOM/ATOM LP for the Cosmos ecosystem DEX, with 300,000 ATOM used for staking to obtain stkATOM, and the remaining 300,000 ATOM forming the stkATOM/ATOM LP. There are two places where revenue can be generated: one is staking ATOM to obtain stkATOM, and the other is LP revenue. pSTAKE promised to share 15% of the revenue with the Hub and waive a 5% protocol fee.

Thus, the Cosmos community came up with the idea of the ATOM War, which allows parties in need of funds for ATOM to compete for funding. Of course, the initial liquidity comes from the Hub community pool. According to the proposal, the initial funding is set at 1 million ATOM (about 1/3 of the current community funds).

Projects needing liquidity support must register on the Hydro platform for whitelisting and provide detailed descriptions of the intended use of the funds, the revenue shared with the Hub community pool, and the bids for hATOM voters (i.e., the amount the project is willing to pay to its hATOM supporters to win the auction). hATOM holders will vote based on this information, and the project with the most votes will receive liquidity funding from the community pool.

However, using bids can easily lead to a downside, which is that it may encourage voters to support "high-yield, high-risk" projects. The Curve USDM stablecoin pool is a cautionary tale. Therefore, Hydro has added an "Incentives alignment" mechanism; if a project mismanages funds, the voting parties supporting that project will receive corresponding penalties. Conversely, if a project utilizes the funds well and performs better than expected, the voting parties supporting that project will be rewarded.

The relationship between Cosmos Hub and Cosmos ecosystem projects is quite delicate. On one hand, Cosmos grants ecosystem projects the highest level of freedom—economic freedom. On the other hand, Cosmos Hub still plays a decisive role in the development direction of various components of Cosmos. The Hub has left economic issues to itself, and ecosystem projects, after enjoying various convenient services from Cosmos, do not have any tax obligations. However, the Hub should find a way, as this involves not only fiscal and economic issues but also governance. Ecosystem projects are stakeholders in Cosmos, and regardless of whether they are aware of it, the Hub has an obligation to involve them in governance, whether actively or passively.

The Hub has been discussing enhancing ATOM's ability as a reserve currency, and the ATOM War can help achieve this goal to some extent. However, is it really a good idea to monetize governance tokens? I believe that before the ATOM War, accurately identifying the Hub's positioning and purpose may be more important than the ATOM War itself.