Cosmos 2.0: How the new economic model will affect ATOM prices

The draft of the Cosmos Hub 2.0 white paper has been officially released on the governance forum, describing the new ecological role of the Cosmos Hub and the new token economics of ATOM. The white paper will be uploaded to the blockchain and voted on by the community on October 3.

Previously, Delphi Digital, a well-known investment institution in the industry, announced that its protocol research and development department Delphi Labs will turn to research and develop the Cosmos ecosystem, and released a research report on choosing Cosmos after comparing different public chains. ATOM saw a 23% increase that day.

With the new token economics of ATOM proposed in the Cosmos Hub 2.0 white paper, does ATOM have the momentum to continue to rise under the new token economy? Odaily Planet Daily will interpret the white paper in depth and use the supply and demand relationship of tokens to analyze the impact of the new token economy of Cosmos 2.0 on the price of ATOM.

Issuance reduction

First, in terms of token supply, the issuance of ATOM is gradually decreasing.

Cosmos 2.0 proposes new ATOM issuance rules. The issuance of ATOM will be adjusted to a transition phase and a stabilization phase. The transition phase is 36 months, with 10 million ATOMs issued per month at the beginning. If it is approved and implemented immediately, the inflation rate will soar rapidly in the short term, reaching 40% for a short period of time, and then steadily decline until it reaches a monthly issuance of 300,000 ATOMs, effectively reducing the inflation rate of ATOM to 0.1%.

As shown in the figure below, the issuance of ATOM will no longer be linear.

Weakened liquidity

With the arrival of ATOM liquidity staking, more and more ATOM will be staked and the supply of ATOM in the market will decrease.

Buchman, a Cosmos core developer, said that the Cosmos Hub will soon incorporate liquid staking into the core of the network code. ATOM holders can earn interest by staking their tokens to validators, but doing so involves locking the tokens in an address on the blockchain, at least for a period of time, where they cannot be sold. It is only third-party applications that provide "Liquid staking" solutions, enabling users to trade their collateral assets through derivative tokens representing their staked shares.

Gas Settlement

The previous article mentioned the changes in ATOM supply and liquidity. Next, we will introduce the changes in ATOM demand. In Cosmos 2.0, some networks in Cosmos use ATOM to settle Gas, which will increase the demand for ATOM.

In order to lower the threshold for blockchain development and operation in Cosmos, Cosmos launched the Interchain Security solution. That is, other chains can share security with the Cosmos Hub. Simply put, with the Cosmos Hub, developers can focus on product development without having to design complex token mechanisms themselves, while sharing security with the Cosmos Hub (ATOM has a market value of $4 billion and the cost of doing evil is about $2.6 billion), but the cost is to use ATOM to settle Gas. It should be added that the custom consumer chain allows the project to create its own Gas token, and the Cosmos Hub will receive the customized Gas token from the project.

Treasury revenue

The white paper introduces two application-specific features, InterChain Scheduler and InterChain Allocator. InterChain Scheduler is a cross-chain block space market in Cosmos. The generated cross-chain MEV revenue is collected by InterChain Allocator to promote inter-chain collaboration, thereby expanding the potential market of Scheduler. Simply put, Scheduler is the block market on Cosmos. Chains with idle blocks can sell their blocks to chains in need, and the difference is collected by Allocator as income for Cosmos Hub.

At present, Cosmos Hub has stated that it will include this part of the revenue into the treasury of Cosmos Hub, and may set up an ecological fund to promote the ecological development on Cosmos and further increase the use scenarios of ATOM (Gas settlement). On the other hand, the possibility of distributing the revenue to ATOM holders is not ruled out.

Community Governance

ATOM also has governance rights.

For example, the Cosmos Hub community initiated a proposal on September 20 to spend 20,000 ATOMs from the community fund pool for the incentive of the inter-chain security public test network, of which 10,000 ATOM tokens will be awarded to Cosmos Hub validators who have completed the test network milestone. In addition, since ATOM is also a gas settlement token, ATOM may also be used in governance proposals to modify gas rates in the future.

In general, with the release of the Cosmos 2.0 white paper, the new token economics has affected the supply and demand relationship of ATOM. On the supply side, the issuance and liquidity of ATOM are gradually decreasing, and on the demand side, the demand for gas settlement and network governance will further increase. Therefore, we can expect that ATOM may become in short supply in the future, and the price will rise accordingly.