ATOM 2.0. Vetoed, not killed
🔍We have analyzed the reasons expressed by the validators who voted No With Veto to proposal 82 for the implementation of the ATOM 2.0 whitepaper, and the consequences of the rejection.
Intro
September, in Colombia: the roadmap for the next big iteration of the Cosmos ecosystem saw the light of day at Cosmoverse, the international Cosmos convention. The community enthusiastically welcomed the whitepaper detailing the proposal, dubbed ATOM 2.0. To the point that many took it as valid without realizing that it was just the first step of a governance process.
Two months later, and despite the initial euphoria, ATOM 2.0 was rejected by the community. And not just with a simple no vote, but through a No With Veto: a vote reserved for proposals that can harm the system or are considered abusive. So how did it get here?
It is essential to listen to the validators to understand how the tables turned. Therefore, we have reviewed the opinions of all Cosmos validators who publicly explained their decision to vote for NWV and the reasons that led them to reject ATOM 2.0.
Cosmos, 2016–2022
✨ Before we start, for those who still need it, this is a broad outline of how Cosmos has evolved since 2016 and what the ATOM 2.0 roadmap contained.
The origins of Cosmos
The ATOM 2.0 proposal was built on top of the success of the initial vision for Cosmos. Cosmos in 2016 was intended to become the tool with which to implement the “fat app thesis”: an approach where, instead of aiming at a broad, multipurpose, safe, general blockchain capable of accommodating any use case, crypto should strive for a model where developers can customize, optimize and launch a unique blockchain for each application, within a secure and interoperable ecosystem.
Under this premise, Cosmos launched and perfected its three central proposals:
- Tendermint: the Proof of Stake consensus model.
- The Cosmos SDK, the blockchain development framework.
- IBC (Inter-blockchain communication) facilitates the transmission of messages and assets between compatible blockchains.
Six years after its launch in 2016, Cosmos embodies the success story of this vision of an interoperable network of blockchains. However, following its decentralizing spirit, Cosmos ended up relegating the Cosmos Hub, Cosmos’ primordial blockchain, and ATOM, its native token, to irrelevance. The absence of a central entity slowed the business development efforts and community support that other more centralized projects enjoy.
ATOM 2.0
ATOM 2.0 aimed to solve that: the proposal contained ideas that tried to give the Cosmos Hub a central position as a facilitator of the ecosystem and ATOM a more important role within the network.
The ATOM 2.0 whitepaper was divided into the following chapters:
- “Securely Scaling Cosmos”.
The authors proposed two elements designed to improve network security in this chapter.
Interchain security. A system by which any blockchain in the Cosmos ecosystem can delegate the production of blocks to the Cosmos Hub validators. In a way, it’s as if the Cosmos Hub rented validators to make the launch of new blockchains easier (following the original Cosmos ethos of helping developers launch appchains as seamlessly as possible).
Liquid staking. The Cosmos whitepaper proposed the creation of a native liquid staking service. Liquid staking would make the ATOM locked in Tendermint’s Proof of Stake protocols liquid, creating an asset (stATOM) that would dramatically increase the liquidity of the ecosystem.
2. “ATOM: The Interchain Reserve Currency”
Issuance. The ATOM emission model was initially designed to seek a balance between liquidity and security: ATOM rewards to validators were automatically fine-tuned according to the proportion of ATOM locked to increase or decrease existing liquidity. With the introduction of liquid staking and interchain security, there was no zero-sum game between liquidity and security, and monetary policy could pursue other goals.
According to the proposed model, the Cosmos Hub would initially emit 10M ATOMs per month to progressively decrease until reaching a constant state of emission of 300k ATOMs per month. This would mean a strong initial dilution but a path to minimal inflation.
A significant portion of this initial emission would feed the community’s treasury to enable the Cosmos Hub to fund the development of public good innovations for the ecosystem.
In addition, the Interchain Security system would create a new source of income for the treasury: block validation fees, collected in ATOM, would flow partially into the community’s treasury.
3. “The Cosmos Economic Engine”
Once the foundations of a new economy were set in the first chapter (Securely Scaling Cosmos), the whitepaper proposed a series of services that the Cosmos Hub would offer to the rest of the ecosystem, thus becoming a leading actor in it.
Interchain Scheduler. The Interchain Scheduler is a marketplace for MEV. A place where Cosmos appchains could increase the profitability of their blocks by selling block space in the form of NFTs. This would optimize the income for each appchain and, at the same time, generate income for the Cosmos Hub in the form of ATOM since it would be used as a payment currency.
The Interchain Allocator would use the revenue earned by the Scheduler to reinvest in the development of the Cosmos ecosystem, creating a virtuous circle with the Interchain Scheduler.
4. “Cosmos Governance”
Finally, and together with the technical and economic measures, the ATOM 2.0 whitepaper proposed a framework for the development of a common language that would help build a new form of governance in the ecosystem based on the institutions of Cosmos Councils and the Cosmos Assembly — governance bodies similar to DAOs and subDAOS where the different zones of the ecosystem could collaborate.
The community’s response to ATOM 2.0
The initial response to the Cosmos whitepaper was unanimously positive. The media considered the proposal virtually valid, and even the token experienced a temporary 10% spike driven by optimism. The Cosmos ecosystem was finally taking the wheel of its future through a roadmap that placed the Cosmos Hub in the front and center, giving the ATOM the role of a reserve currency.
But the debate had just begun, and dissenting voices would soon appear. The Cosmos community got activated like never before: the forum thread reached 150 replies and +50,000 views and immediately became the liveliest conversation ever in the community. Among the contrarian opinions were those of influential figures, including one of the founders of Cosmos and Tendermint, Jae Kwon, who opposed ATOM 2.0 since the beginning.
The whitepaper authors soon understood the debate's relevance: they released a second document version and delayed the formal voting date twice until October 31.
The momentum of the informal debate continued during the voting period, and the different sides of the debate increased their lobbying efforts. Proposition 82 launched on October 31st, and for 2 weeks, it garnered great attention (even though crypto was simultaneously experiencing the FTX drama). Live debates and Twitter threads abounded, some few of them quite vitriolic.
Five days before the deadline, the vote had crossed the quorum threshold and leaned towards Yes.
Then came the dissident counterattack. Influential voices began to advocate for a frontal rejection of the proposal. Cosmos governance has four types of votes: Yes, Abstain, No, and No With Veto. The veto, designed to empower minorities within the community, expresses a more vigorous disagreement. It’s meant to apply to occasions where the voters consider the governance process is being abused or to proposals deemed harmful to the ecosystem. A 33% No With Veto implies the measure's rejection and the loss of the deposit of 64 ATOMs necessary to launch a proposal as a penalty.
Many validators in the Cosmos ecosystem raised the No With Veto flag, and it soon became apparent that Proposition 82 would ultimately be rejected. About 56 million ATOMs (37%) in the final tally favored the NWV.
In a vote of this magnitude, the voice of the validators becomes vitally important. Validators are the organizations to which network security is delegated. They are the actors that participate in the Proof of Stake process for block validation, and, in the case of the Cosmos ecosystem, they can also be depositories of tokens delegated by the token holders. Anyone with ATOM in their wallet can delegate their tokens to a validator in exchange for a proportional share of the Proof of Stake reward. This delegation also involves delegating voting power.
Validators’ opinions
🐦 We have analyzed the arguments expressed by the validators who opted for the No With Veto. 43 of the 175 validators rejected proposal 82 with a No With Veto. And 19 of them took to Twitter to express their opinions openly. These are the main reasons they brought forward.
Check this TABLE to see all the messages shared by validators who voted NWV
- Monetary policy. ATOM 2.0 whitepaper proposed a new ATOM issuance model that created a short-term inflationary phenomenon for the benefit of the Cosmos Hub. The newly minted ATOM would partially land in the community treasury to provide the project with the financial muscle needed to address improvements for the entire ecosystem (some of them, such as the Interchain Scheduler or the Interchain Allocator, outlined in the white paper). The immediate consequence would be the decrease in the purchasing power of large ATOM holders derived from the dilution of the token.
- The rejection of the initially inflationary policy for the ATOM was sometimes stated directly, sometimes in a more veiled way. Many validators expressed that a change of this magnitude should have been brought to the table differently. Some argued that the monetary policy design had not been subject to debate and was instead devised by a small group behind closed doors.
- Too many decisions in a single vote. Another of the main arguments against ATOM 2.0 was the number of changes in the whitepaper announced in September. ATOM 2.0 contained significant modifications in security, monetary policy, and governance, most experimental and, in many cases, according to its detractors, poorly justified.
- Nevertheless, those who expressed this opinion often agreed with implementing some improvements or welcomed research and experimentation.
- Centralization. For some critics, including Jae Kwon, both the design and the spirit of Proposal 82 reflected a centralized nature contrary to Cosmos’ original philosophy. The creation of a substantial endowment for a centralized treasury defied, to them, the idea of a neutral ecosystem and brought forth a new form of centralization without suggesting sufficient limits.
- Risks of liquid staking. Another controversial aspect of the proposal was creating a system for liquid staking within Cosmos. While its value in unlocking liquidity for the ecosystem is generally accepted, critics claimed that liquid staking requires a much more defined incentive system and the implementation of penalties. Something the whitepaper was lacking, in their opinion. Critics claimed the implementation of liquid staking could lead to conflicts of interest that would worsen the ecosystem's security.
Conclusions
Despite the final verdict, even those who voted against Proposition 82 openly acknowledged the value of the whitepaper in many respects. The final vision of ATOM 2.0 (the search for a new role for the Cosmos Hub and its token, ATOM) was informally validated by the community. Above all, the Cosmos community unanimously welcomed the mobilization spurred by the proposal.
Cosmos has promising potential. After surviving the collapse of Terra, it managed to maintain a healthy community of developers and even become the home for some of the exiles. Cosmos embodies the “bear times are build times” mantra. The idea of an interoperable network of blockchains offers one of the most exciting alternatives to Ethereum’s vision of a solid, multi-purpose foundation for all decentralized operations.
Despite the result of Proposition 82, many of the innovations outlined in the white paper are likely to move forward.
Interchain Security is in an advanced stage of development, with an ETA in January. One of the first projects to take advantage of the validator delegation service is Circle’s USDC which has announced the launch of a customer chain on Cosmos that would use Interchain Security.
Liquid staking is also expected to arrive despite the veto. The rejection of Proposition 82 stops the development of a version of liquid staking centralized in the Hub, whose benefits would revert to the community. But other projects are developing solutions independently.
According to the promoters of the white paper, the rejection of ATOM 2.0’s proposed monetary policy postpones the debate but doesn’t kill it. Given that the community shares the need for leadership and approves the development of specific public goods innovations (such as Interchain Security) or desired services (such as the Interchain Scheduler), it will be necessary to find a way to fund their development. Currently, the debate has moved towards taxation: a percentage of the ATOM distributed in each new block goes back to the community treasury. Increasing that percentage is discussed as an alternative path to the monetary policy proposed in ATOM 2.0.
The Interchain Scheduler is another proposal that has generated widespread interest. Critics argued that the idea was too experimental and with unknown demand and that its implementation should follow a gradual process. But those who have criticized the Scheduler have expressed the need for more information, research, and planning but approve of the proposal's vision.
Finally, the ATOM 2.0 governance proposal has been the most ignored section of the whitepaper. It’s paradoxical since the rejection of the new ATOM roadmap also has much to do with governance design flaws. Many have pointed out that the immaturity and inefficiencies of the current system have a lot to do with the failure of ATOM 2.0. Still, decentralized governance is an unsolved puzzle in the entire Web 3 industry. Its failure is not unique to Cosmos.
If the effect of the debate and subsequent rejection of ATOM 2.0 had to be summarized in three ideas, the conclusions would be the following:
- The Cosmos community agrees on the need for a new push to the original vision, and ATOM 2.0 showed many of the same virtues sought in this new impulse.
- The whitepaper may go through the governance process again, fragmented for separate approval by its parts. Nevertheless, some initiatives are still alive despite the veto and continue to develop.
- Cosmos has developed high-value innovations that the community is eager to explore (such as the Interchain Scheduler). Still, they will need to solve the enigma of funding, either through taxes or issuance, to be understood and approved by token holders.
