Original author: Jiang Haibo, PANews

The price of ATOM has been criticized by fans of the Cosmos ecosystem. Based on the Cosmos SDK, a series of projects with higher valuations have emerged, such as the former Terra, and the current Celestia, dYdX, etc. However, Cosmos Hub (ATOM)’s valuation is not as good as these ecological projects.

Or in order to increase the valuation of ATOM, a proposal to adjust the ATOM inflation rate was recently put forward on the Cosmos Forum, aiming to reduce the maximum inflation rate from 20% to 10%, which also means that the current annualized return on staking The rate was adjusted from approximately 19% to approximately 13.4%. We may subjectively think that such a proposal that is conducive to boosting the price of ATOM should be passed without controversy. However, the reality is that the proposal triggered unexpected and fierce controversy and was ultimately passed with only a small margin. , a process that significantly revealed the differences between different interest groups.

After Cosmos’ proposal to adjust ATOM’s inflation rate was passed, Cosmos and Tendermint co-founder Jae Kwon took to Twitter to express his dissatisfaction with the outcome and proposed a proposal to fork ATOM. He believes that the current governance mechanism may not fully represent the opinions of all currency holders.

Jae Kwon has had a long history of discord with other team members. He once resigned due to disagreements with other members on issues such as governance and project development direction, and later split Ignite (renamed Tendermint) into two independent entities. : Ignite and NewTendermint, Kwon serves as the CEO of NewTendermint.

Kwon’s proposal sparked widespread discussion within the community, with many raising questions about the possibility of a fork and its impact on the Cosmos ecosystem. Forking ATOM may mean a major change for the Cosmos network, which will have an important impact on its long-term development and the interests of currency holders. This also reflects governance challenges within the Cosmos community.

Cosmos pays exorbitant costs in maintaining network security

ATOMs high inflation has been criticized for a long time. According to data from Staking Rewards, before the proposal was passed, the inflation rate of 14.97% was almost the highest among the native tokens of the major PoS public chains. It sets a target pledge rate, generally 67%, and the inflation rate is dynamically adjusted within the range of 7% to 20% based on the actual pledge rate and the target pledge rate. If the actual staking rate is lower than the target staking rate, the inflation rate will increase to encourage users to stake; if the staking rate is higher than the target staking rate, the inflation rate will decrease to reduce inflationary pressure. Staking Rewards shows that the staking rate before the proposal was passed was 65.4%, which means that even though the inflation rate is already high, the inflation rate itself is still in the process of rising.

Blockworks Research proposes plans to transition to a fixed inflation rate after research suggests Cosmos may be paying too much to maintain network security. The study found that at a maximum inflation rate of 10%, nearly all 180 validators would be able to break even or be profitable on commission income alone, with validators also having the option to increase their commission rates to help cover operating expenses.

Based on this research, Zaki Manian, co-founder of decentralized asset management protocol Sommelier, proposed this proposal to lower ATOM’s maximum inflation rate to 10%. Voting on the proposal begins on November 12 and ends on November 26.

94.97% of voting accounts support it, but support for voting rights is not high

The proposal ultimately came to a vote on November 26 and passed by a narrow margin. Calculated based on the number of participating ATOMs, the voting rate reached 72.6%, with 41.1% in favor, 31.9% against, 6.6% in veto, and 20.4% in abstention.

The conditions for the adoption of the Cosmos proposal need to meet: the voting rate is above 40%, more than 50% of the voting rights (excluding abstentions) vote in favor, and the number of vetoes (excluding abstentions) is within 33.4%. According to the final voting results, the proportion in favor was 41.4%, and the proportion in favor, opposition, and rejection (excluding abstentions) was only 51.63%, slightly higher than the minimum requirement of 50%.

In contrast to the above voting results is the proportion of support from the number of voters. Although for PoS public chains, this condition does not affect the voting results, it can reflect the proportion of supporters to a certain extent. Of the 173,000 accounts that voted, 164,000 chose to support it, accounting for 94.97%. Some people also pointed out that among the voting accounts, many accounts with a pledge of less than 0.1 ATOM participated in the vote and chose to support it, causing the proportion of supporting accounts to appear to be high. This part of the accounts may come from airdrop hunters. However, according to incomplete statistics, in each currency holding range, the number of supporting accounts in the vote is greater than the number of opposing votes. For example, among the 143 validators who voted, the support rate was 54.55%, the disapproval rate was 27.27%, and the rejection rate was 0.7%.

The voting results are more affected by the validators. Of the total 73.16 million ATOM support votes, 70.43 million ATOM came from validators. Validators such as ZKV, GAME, and Sikka chose to support it, and validators such as Allnodes, DokiaCapital, and Cosmostation chose be opposed to. It should be noted that the ATOM delegated to the certifier by other users will be included in the certifiers votes by default. If the user disagrees with the certifiers vote, they can also choose to participate in the vote themselves and overwrite the certifiers voting results.

Opinions of supporters and opponents

The Cosmos community’s proposal to reduce the ATOM inflation rate sparked heated and in-depth discussions. Supporters believe that this will bring a series of long-term positive effects, and opponents also express concerns and objections about the potential impact of the proposal. This disagreement reflects the challenge of the Cosmos community in balancing different interests in decentralized governance.

Some community members who support the proposal are optimistic that reducing the inflation rate will promote the adoption of the Liquidity Staking Module (LSM), believing that this will increase the liquidity of ATOM, introduce more funds to DeFi applications on Cosmos, and promote the development of the Cosmos DeFi ecosystem. Supporters also point to increasing the scarcity of ATOMs by lowering inflation, potentially boosting their market value. This strategy is considered beneficial to long-term investors. Based on research from Blockworks Research, backers believe validators will remain economically viable even if the maximum inflation rate drops to 10%, providing financial support for the proposal.

However, community members opposed to this proposal are concerned that lowering the inflation rate may reduce the incentive for users to stake ATOM, thus affecting the security of the network. Some opponents are particularly concerned about the impact of lower inflation on small holders, arguing that this could lead to further concentration of ATOM holdings. In addition, there are opponents who worry that this change may bring uncertainty to the market, especially in the short term. Some opponents have expressed doubts about the positive impact of lowering the inflation rate on LSM adoption and the development of the DeFi ecosystem. They believe that more evidence is needed to support this view.

However, judging from the voting results, it seems that small holders are more inclined to support proposals to reduce the inflation rate. If passed, it may immediately form a positive feedback on the price of ATOM. It seems that validators and some large investors who are motivated by their own interests have more reason to oppose in order to maintain higher inflation. According to incomplete statistics, among voting accounts holding less than 5,000 ATOM, the number of supporting accounts is several times that of opposing accounts (including vetoes); above 5,000 ATOM, the number of supporting accounts is approximately twice that of opposing accounts. But in the end, the lead in support votes was not obvious.

Assuming that the market value of ATOM remains unchanged and maintaining high inflation, both the nominal reward rate (the rate of return provided by the network to stakers) and the actual reward rate (nominal reward rate - inflation rate) obtained through staking are higher, and large pledgers And the income of validators is higher than the income of users who only hold ATOM.

summary

Cosmos’ proposal to reduce inflation was hotly debated and ultimately passed by a narrow margin. Judging from the voting results, 94.97% of the voting accounts supported the proposal, but according to the voting weight, only 41.1% of the votes supported it. Although many accounts among the supporters hold a small amount of tokens, which may come from airdrop hunters, there are more supporters than opponents in each currency holding range, which also shows that the proposal is supported by more people.

The final result of the voting is mainly affected by the validators. Of the total 73.16 million ATOM support votes, 70.43 million ATOM support votes come from the validators. This also gives us an inspiration. When making entrusted pledges, in addition to considering factors such as the rate of return and the commission ratio charged by the verifier, we must also consider whether the interests of the verifier and ourselves are consistent. If they are inconsistent, you can also choose to vote by yourself to override the validators vote.