Can ATOM War be a good way to "lift" the price of ATOM?

Written by Tia, Techub News

Cosmos is also starting the ATOM War, and when I just saw it, I couldn't help but feel a little sad.

Sighs return to sighs. Although I personally think this is actually a desperate move, a good project should promote its advantages instead of changing the strong integration for the sake of the status quo. The previous project Balancer, which had a hard-fork ve token economic model, did not make much of a splash after the ve token economic model was released. But we still have to hold on to hope, don't we? What if it succeeds?

The narrative of Cosmos is sovereignty, and its one-click chain launching feature allows applications that are not adapted to the 'local' chain environment to have the right to independently launch their own chains. Applications no longer need to rely on the sovereign chain, and Cosmos directly grants them the right to establish their own portals, so it is once considered the most crypto-spirited habitat, and many developers also love Cosmos. The founder of Celestia also said on Interchain Travel that Cosmos is his spiritual home.

Although the Cosmos ecosystem is powerful and many excellent projects are launched on Cosmos, the ATOM, as the governance token of the Cosmos Hub, does not generate any revenue from it (this is also a trade-off to give economic sovereignty to projects on Cosmos), and it has even been mocked as a meme coin at one point. However, as a project that is still being updated, Cosmos cannot simply be an unprofitable public good. The 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, while the community fund has been underfunded for many years. The Cosmos Hub needs to find a way to generate some revenue from the ecosystem to support its continued development.

ATOM War

The term 'ATOM War' originates from the Curve War on Ethereum. In Curve, liquidity providers can receive two incentives: transaction fees from the pool and additional CRV incentives. The CRV incentive is determined by voting. In order to maximize the CRV incentive for their pool, it will force them to purchase and lock the governance token CRV to obtain more voting power. As the demand for locked CRV increases, it will drive up the price, increase the pool's APY, attract more liquidity providers, and thus form a flywheel effect.

ATOM War is in some sense a continuation of Cosmos 2.0. With the completion of the liquidity staking module, ATOM stakers can convert their staked ATOM into 'DelegationShares' through the liquidity staking module, and then lock the 'DelegationShares' into the new governance platform Hydro to obtain hATOM for voting rights. Different lock-up periods can yield different levels of Voting Power.

Typically, the Cosmos ecosystem has a demand for liquidity from the Hub. Taking proposal 853 as an example, pSTAKE Finance requested an allocation of 600,000 ATOM from the Hub, primarily to provide stkATOM/ATOM LP to the Cosmos ecosystem DEX. Of the 300,000 ATOM used for staking to obtain stkATOM, the remaining 300,000 ATOM are combined to form stkATOM/ATOM LP. There are two places where income can be generated, one is staking ATOM to obtain stkATOM, and the other is LP income. pSTAKE has committed to share 15% of the income with the Hub and waive 5% of the protocol fee.

Therefore, the Cosmos community came up with the idea of ATOM War, which allows different parties with a need for ATOM funding to compete for it. Of course, the initial liquidity comes from the Hub community pool. According to the proposal, the initial funding is 1 million ATOM (approximately 1/3 of the current community funds).

Projects that require liquidity support need to register on the Hydro platform's allowlist and provide detailed descriptions of the use of the funds, the profits shared with the Hub community pool, and the bids for hATOM supporters (i.e., the amount the project is willing to pay its hATOM supporters to win the auction). hATOM holders then vote based on this information, and the project with the most votes will receive the liquidity funds from the community pool.01928374656574839201

However, bidding can easily lead to a downside, that is, it can easily lead to voters supporting "high-yield and high-risk" projects. The Curve USDM stablecoin pool is a lesson learned. Therefore, Hydro has added an "Incentives alignment" mechanism. If a project has poor fund management, the voting party that supports the project will be punished accordingly; but if a project party uses the funds obtained better and performs better than expected, the voting party that supports the project party can receive rewards.

The relationship between the Cosmos Hub and the Cosmos ecosystem projects is actually very subtle. On the one hand, Cosmos grants the ecosystem projects the highest level of freedom - economic freedom. However, on the other hand, the Cosmos Hub still plays a decisive role in determining the development direction of various components of Cosmos. The Hub takes the economic issues upon itself, while the ecosystem projects, after enjoying various convenient services of Cosmos, do not have any taxation system. However, the Hub should find a way, because this not only involves financial and economic issues, but also governance. The ecosystem projects are stakeholders of Cosmos, and regardless of whether the ecosystem projects are aware, the Hub has an obligation to involve the ecosystem in governance, whether actively or passively.

Hub has always been discussing the ability to enhance ATOM as a reserve currency. ATOM War can to some extent help achieve this goal, but is it really a good idea to monetize governance tokens? I think that before ATOM War, it may be more important to find the positioning and purpose of Hub than ATOM War itself.