Cosmos Hub Funding 2024 (Prop #839)

Cosmos Hub Funding 2024 (Prop #839)


Proposal 839 seeks $5.7 million from the community pool (controlled by governance) to fund the development and maintenance of Cosmos Hub in 2024. This funding would be directed to Informal Systems and Hypha, organizations that have been working on Cosmos Hub for several years. Traditionally, the Interchain Foundation (ICF) has funded Cosmos Hub development. The 2022 ICF Annual Report indicates that $7.79 million was allocated to Cosmos Hub. However, the bear market in mid-2022 led to a change in the dynamics of ICF funding decisions, prompting the foundation to reduce its spending and enforce more rigorous standards for accountability & roadmap planning. We applaud them for this – it is a tough job!

If we look at Interchain Stack Roadmap 2024, you will notice two things:  1) The scope is huge - 5 product lines. 2) Cosmos Hub is missing! Interchain is going to have its hands full with or without Cosmos Hub. 

Proposal #839 aims to fill this gap in the Interchain Foundation’s roadmap. Moreover, it represents a conscious decision from Informal Systems to gain more independence and dedicate their efforts to working for the Cosmos Hub (ATOM). This sets off to be the most important proposal on Cosmos Hub governance in recent history.

Let’s dig deeper into the structure, criticism of the proposals, and how stakefish will vote.

What is Cosmos Hub and what should it do?

Cosmos Hub (ATOM) is built using the Cosmos SDK and facilitates transfers between other Cosmos SDK compatible blockchains via inter-blockchain communication (IBC). The Cosmos Hub is a proof of stake chain with the staking token of ATOM. 

The smooth functioning of Cosmos Hub promotes a healthy Cosmos Network, making its maintenance & operation a key budgetary and strategic focus.

On feature development: The introduction of ICS (Interchain Security) to Cosmos Hub enabled ATOM to secure new networks with governance approval. It’s a great product but it adds operational costs to validators like stakefish. To address this we would like to see better incentive systems to operate consumer chains.  Given the industry’s trend towards  Layer 2 solutions, Eigenlayer, and subnets. We would like to see more development in this area to address market needs and support the validators who operate these networks.

Who should fund it?

It is stakefish’s primary responsibility to protect the interests of our ATOM stakers.  Through governance, we can help Cosmos Hub move forward by stewarding the community funds and contributing to decisions to governance proposals that advance Cosmos Hub.

Initially, we expressed that the ICF should fully fund these initiatives, based on precedence. However, as we dug deeper, we recognized the importance of Cosmos Hub’s independence and its ability to determine its own feature development.. To empower Cosmos Hub (ATOM) with its own voice, we have to fund at least part of the proposal, not all of it. So we pushed for the latter, joint funding. Brian Crain (one of 3 FC members) signaled support for this proposal by pledging to commit $3.5m (61% of the necessary funds), and later officially committed the funds from the ICF if this proposal passes. His official commitment reinforced our confidence in this direction.

What is the actual cost?

This is the point of big contention. The proposal requests for 1,117,857 ATOM, which is a shocking 21% of the community pool. This is where we have to trust the process. Conversations with Informal and Hypha have clarified that the on-chain governance constraint requires specifying a fixed number at the time of proposal submission. Any funds exceeding the $5.7m needed is expected to be returned to the community pool immediately after they are converted to the required amount.  The funds will be exchanged via OTC swap since there isn’t a DEX with this much liquidity. While not ideal, we need to trust that this process will be carried out correctly.  We believe (and hope) the right people are in place to follow through.

The community pool is funded from 2% of all staking rewards generated. At the time of writing, it holds $40M or 5.2M ATOM. The final cost (if you assume the excess is returned quickly) on the community would be $2.2m, effectively 5.5% of the pool.

How will they be accountable?

The proposal has a long recommendation for accountability, which is one small part of the solution.  We think the inclusion of the power to suspend the vesting contract, given to the governance voter, the same one that is voting for this proposal, has much stronger leverage. 

To assist the governance, the committee is tasked with creating public reports, evaluating proposals, grading performance, and giving recommendations. However, as an unpaid role, we are skeptical about the time the committee member will put into it. We would also like to see a policy in place to rotate committee members. Despite the proposal being written that the tenure is for the full 2024, we don’t believe such a thing is meant to be set in stone. Changes, such as job shifts, may affect availability, and people are no longer available to serve. The Cosmos Hub governance should be allowed to update this committee list in the future.

Regarding the $3.5M from the ICF - it is reasonable to expect that there is accountability to at least meet expectations for the teams to continue to gain funding for the following year.

Accountability is a difficult thing, as Brian Cain pointed out in his blog. This is entirely a new experiment and we believe it is worth the risk. We are a big fan of closed incentive systems where the token holders are fully in control of revenue, and the direction of its ecosystem. Sushiswap, Lido are good examples of this.

We have to be vigilant of the challenges ahead. stakefish is one of the top validators in the Cosmos Ecosystem, exceeding $71M in stake. If this proposal passes, we will take an active role in making sure the teams are accountable, and help Cosmos Hub move forward.

How will stakefish vote?

We will vote YES.

  • We think Cosmos Hub (ATOM) having a voice in its development is a good thing! 
  • As a major Cosmos validator, stakefish will voice for stronger economics behind Interchain Security within its roadmap and product development. 
  • The continuity of Informal Systems, and Hypha is crucial for continued operations and shipping new features. Any lapse, or transfer of knowledge will slow or freeze developments for a while. 
  • The official commitment of $3.5M from Interchain Foundation (ICF) is the right way to move forward and also signals support for this proposal.
  • There are proper controls in place to ensure accountability. We encourage the community to participate in helping Cosmos Hub move forward.