The Cosmos Hub
26.09.2022
authored collectively by members of the Cosmos community

1

Sam Hart
Interchain GmbH

Zaki Manian
Iqlusion

Ethan Buchman
Informal Systems

Max Einhorn
Iqlusion

Jehan Tremback
Informal Systems

Youssef Amrani
Cosmos Contributor

David Feiock
GalileoJack Zampolin
Strangelove

Udit Vira
Hypha Worker Co-op

Sacha Saint-Leger
Hypha Worker Co-op

Introduction

The vision of the Cosmos Network, as laid out in 2016, has been realized.1
The creation of a secure software stack for building and connecting applicationspecific blockchains has catalyzed a thriving ecosystem of sovereign interoperable communities and an increasingly dynamic inter-blockchain communication
economy. The interchain as originally imagined is taking form. The Cosmos Network is an association of autonomous communities connected economically andideologically with the Cosmos Hub. It is a voluntary association of blockchainsthat subscribe to a philosophy of sovereign interoperability, localism, and pluralism. A network of networks that uphold the right for communities to maintain technological sovereignty and peacefully interoperate. This philosophy isgrounded in a humility for the extraordinarily rich cultural diversity of humanbeings. It is tacit recognition of the fundamental limits of our discretionary
reason in organizing planetary sustainability, while serving as a call to use technology as best we can to facilitate responsible self-governance. Cosmos offers ameta-political economy, one that recognizes the need for representation of different interests at different scales, and for an approach that can bridge the gap
from local to global and back.
1 Kwon, Jae; Buchman, Ethan. “Cosmos Whitepaper.” Mar. 2017,https://v1.cosmos.network/resources/whitepaper.

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The Cosmos Hub’s inaugural role was to originate the internet of blockchains.
It did so by resourcing the development of the Cosmos SDK, IBC, and Tendermint, the core open-source primitives for the blockchain applications that now
populate the interchain. However, with an active and increasingly sophisticated
IBC network, the needs of the interchain have evolved. Accordingly, the Cosmos Hub must also transition into a new role: to grow a resilient interchain
economy.
In this new role, the Cosmos Hub becomes a secure platform for others tobuild the next generation of interchain-native infrastructure and applications,
opening new opportunities for interchain coordination. From this substrate, theCosmos Hub renews its purpose as a provider of infrastructure services whose
utility scales with the growth of the interchain. The Cosmos Hub will secureand capitalize ecosystem-critical applications, while serving as the port of entry
for new Cosmos participants, and a coordinating center for the infrastructure
and administrative concerns of the interchain.
This paper describes the Cosmos Hub’s layered architecture, beginning withthe collaborative effort required to build and maintain the Cosmos Stack. One
layer above is the Hub’s Interchain Security and Liquid Staking functionality,
which provide a platform for secure economic scaling. And on top of this scaling
platform, a newly proposed layer of Hub-specific functionality: the Interchain
Scheduler and the Interchain Allocator, whose joint purpose is to grow a more
resilient interchain.
• Social Coordination Technology: The Cosmos Hub is a natural place
for Tendermint, Cosmos SDK, and IBC DAOs. A presence on the Cosmos
Hub will open the funding and control of the open-source software to awider group of stakeholders.
• Interchain Security: Security is a necessary foundation to build essential components for the Cosmos Network, and the Cosmos Hub’s Interchain Security environment will be enriched with new capabilities thatmake it more useful, efficient, and cooperative.
• Liquid Staking: Liquidity is critical in the proof of stake economy. The
Cosmos community has studied liquid staking for years and will soon
provide the secure infrastructure for premier vendors to issue liquid staking
assets.22 Lutsch, Felix; Crain, Brian; Shapiro, Gabriel; Dillon, Brendan. “Liquid Staking Research

Report: Implications of Proof-of-Stake Assets in Decentralized Finance.” Jun. 2020,
https://mirror.chorus.one/liquid-staking-report.pdf.

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• Interchain Scheduler: The IBC economy is a patchwork of asynchronous
markets, introducing an enormous variety of cross-domain maximum extractable value (MEV) opportunities. This market can be made more
efficient, more secure, and more lucrative for Cosmos chains and theirusers. The interchain needs a secure block space market to avoid off-chain
cartelization and more options for chains seeking to optimize the use ofblock space.
• Interchain Allocator: Sustaining the rapid growth of the interchain
will require new approaches to on-chain economic coordination. The Interchain Allocator is a platform for delegated parties to grow and alignATOM-based markets, facilitating multi-chain trust and coordination.
The integration of sovereign political economies through transparent collateralized agreements will unlock higher-order economic power and capital efficiency.

Figure 1: A simplified representation of the core functionality provided by the Cosmos Hub.
The bottom layer is the Cosmos Stack, funded by the Hub and stewarded by core teams. The
middle layer consists of the upcoming upgrades to scalability of the Hub’s security and liquidity
system. Built on top of Interchain Security and Liquid Staking is Hub-specific functionality,
the proposed Interchain Scheduler and Allocator.

With these primitives, the Cosmos Hub will become a self-propagating economic
engine that drives the expansion and integration of the Cosmos Network. This
‘Cosmos Network’ is an area of economic association with the Cosmos Hub,primarily via the use of ATOM as the preferred collateral.

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The Interchain Scheduler and the Interchain Allocator drive the growth of the
Cosmos Network, together creating a flywheel whereby:
1. Cosmos Hub collects revenues from interchain economic activity by creating a secure block space market, the Interchain Scheduler, and charging amatching fee.
2. Revenue is used to drive long term ecosystem alignment and add promising
new projects to the Cosmos Hub’s holdings via the Interchain Allocator.
In turn, these projects expand the Scheduler’s addressable market.

Figure 2: Core positive feedback loop driving the growth of a resilient interchain. The
Scheduler monetizes IBC economic activity with revenues going to Allocator. The Allocator
supports new Cosmos chains, expanding the addressable market of the Scheduler.

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The result is a renewed role for ATOM as preferred collateral within the Cosmos
Network. The Cosmos Hub becomes a long-term holder of ecosystem assets,
drawing valuable projects into Cosmos. ATOM stability, liquidity, and theoverall attractiveness of ATOM denominated collateral increase with a growing
asset backing and deeper ATOM markets. The network effect thus encourages
more participants to join the Cosmos Network and integrate with one another.
Likewise, the public works sponsored by the Cosmos Hub will lead to a healthierecosystem and a more demand for the Hub’s infrastructure offerings.
Like a port city at the center of a vast ocean trade network, the Cosmos Hub
will grow to offer increasingly favorable conditions for life and trade within the
Cosmos Network and the interchain at large.3

2

Securely Scaling Cosmos

The Cosmos Hub is the most secure pillar of the interchain. Interchain Security enables the reuse of the same validator set and staked collateral to secure
additional state machines. New projects can develop as independent applications within the Cosmos Hub’s security boundary while the Hub continues tominimize its security surface. Liquid Staking providers will be the first users ofInterchain Security, enabling ATOM holders to earn staking rewards while alsousing their ATOM to pursue other opportunities. Together, Interchain Security
and Liquid Staking create a secure base layer for projects to build and capitalize
valuable interchain utilities.

Figure 3: Interchain Security empowers independent projects to build on the Cosmos Hub
while Liquid Staking positions ATOM to become the premier interchain reserve asset.
3 Buchman, Ethan; Hart, Sam. “The Cosmos Hub is a Port City.” Feb. 2021,

https://blog.cosmos.network/the-cosmos-hub-is-a-port-city-5b7f2d28debf.

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2.1

Interchain Security

Interchain Security enables the Cosmos Hub to host a novel category of applications with complementary functionality. The Cosmos Hub establishes trust by
putting ATOM at risk for consumer chain faults, enabling parallel developmentfrom core teams and collaboration with incentive-aligned consumer chains.4 For
these projects, Interchain Security’s value proposition starts with an increase ineconomic security up to the Cosmos Hub’s cost of corruption, together with asubstantial reduction in the marginal cost of security when compared to thecost of an independent validator set. Interchain Security gives consumer chainsa faster, easier, and cheaper path to market, accelerating innovation within theservice perimeter. Participating projects will be naturally aligned with the Cosmos Hub community, benefitting from a variety of integrations and collaborative
opportunities with other Cosmos chains.
The development platform afforded by Interchain Security allows the Cosmos
Hub to fulfill several of the functions imagined from inception by allowing third
parties to utilize the Hub’s essential infrastructure to build commercial applications, for instance:• Rollup Settlement: A canonical rollup settlement system and scaling
solution in which external data availability providers publish fraud proofs
and resolve fork-choice disputes.
• IBC Routing: A market for IBC relay contracts and multi-hop connections, aggregating relay providers to create a simple, cost-effective, andreliable IBC connectivity subscription for a wide coverage area.
• Multiverse: An application deployment utility for projects to permissionlessly launch consumer chains within a sandboxed environment such as
CosmWasm. Infrastructure automation would make creating a blockchain
secured by the Hub as easy as deploying a smart contract.
• Chain Name Service (CNS): A utility analogous to a root certificate
authority for the interchain. A secure identification and authentication
service for IBC-connected blockchains would provide a single location for
chains to permissionlessly manage information about themselves. By establishing a secure connection to this resource, clients or on-chain entities
can discover information about other resources within the interchain. A
CNS architecture would likely require components deployed both to the
Cosmos Hub directly as well as a consumer chain.
4 Kwon, Jae. “The Shape of Cosmos.” Sep. 2020,

https://github.com/jaekwon/cosmos roadmap/tree/master/shape of cosmos.

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Interchain Security also allows for several avenues of application development.
Chains may join as independent economic units, diverting a portion of inflation and fees to cover security costs. Alternatively, core Hub functionality may
be built on a consumer chain and receive financing for infrastructure buildout, opting for a fee split rather than a dedicated token, or some combination
thereof.
The utility of Interchain Security for consumer chains rests on providing strong
accountability guarantees to a broad set of Cosmos chains and substantiating
the Hub’s credible neutrality.

2.2

Liquid Staking

A practical consequence of the current competition between staking and external
uses of capital is that most staking assets are confined to their originating chain,
which hinders cross-chain composability.5 Therefore, full economic integrationof the interchain requires liquid staking. The user experience and capital efficiency improvement offered by liquid stalking is so substantial that liquid staked
assets are expected to become the dominant transactional medium—particularly
for use-cases exogenous to the originating chain.
Centralized exchanges already provide a form of liquid stake by custodying assets and staking on behalf of their users. They do so while allowing tokens to
trade freely within the confines of their platform. Moreover, it is possible to create liquid stake custodially via cryptographic means or via Interchain Accounts.
Since the benefits of liquid staking effectively makes these applications unavoidable, the Cosmos Hub must ensure that the liquid staking system is as safeand decentralized as possible by providing for it in-protocol. The current 5%
slashing penalty for equivocation means that ATOM collateral is considerably
under-utilized. The liquid staking module will enable the creation of delegation
shares, and thereby liquid staked assets, which can be used cross-chain withacceptable risk and user experience tradeoffs. Specifically, delegation shares allow protocols to accurately price risk while removing the need for unbonding
prior to third party liquid asset issuance. The resulting liquid staking asset canbe easily exported over IBC and accrue rewards while composing with otherprotocols to expand the utility of ATOM across the interchain.
Liquid staking requires providers to custody assets, and therefore represents asignificant change to the Cosmos Hub’s security model. The most effective way
to ensure long-term security is to make sure both individual providers and themarketplace for provision remains decentralized.
5 Manian, Zaki. “ATOM 2021.” Aug. 2020, https://github.com/cosmosdevs/atom2021.

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A competitive marketplace for liquid staking provision will further improve theconsumer experience, driving protocols to compete on several dimensions, including trust minimization and safety. This market for cross-chain liquidity willbe the catalyst for ATOM deployment across the interchain, creating new waves
of innovation built on secure Cosmos-native collateral.

3

ATOM: The Interchain Reserve Currency

3.1

Issuance

Today, the Cosmos Hub’s monetary policy is designed to balance security withliquidity by targeting of ATOM supply staked. If the staking ratio falls below this target, issuance increases incrementally until either the staking ratio isbrought back to the target level or the maximum issuance threshold is reached.
Additional staking is incentivized, increasing security at the cost of liquidity.
Conversely, if the staking ratio rises above , issuance incrementally decreases toensure the availability of liquid supply. Staking is thus disincentivized, improving liquidity at the cost of security.
However, keeping of the entire monetary base staked is a substantial capitalinefficiency that limits growth and hinders cross-chain composability. Liquidstaking increases capital efficiency by allowing users to stake ATOM while simultaneously using the claims on staked ATOM as working capital, thus removing
the competition between staking and other opportunities.
Since liquid staking solves the problem that the current monetary policy was
originally designed to address, issuance can now be reconsidered. Rather thantry to balance security with liquidity, the new monetary policy should balanceinterchain adoption, growth, and capitalization with fiscal responsibility while
preserving the security afforded by the original regime.6
This new monetary policy has two phases: transition and steady state. The
purpose of the transition phase is twofold. First, to allow consumer chains time
to join Interchain Security, helping to subsidize security expenditure, and second, to give the community an opportunity to develop the social infrastructurenecessary to effectively manage a sizable treasury. The transition phase starts
the moment that Cosmos shifts to the new monetary policy and ends 36 months
later, at which point the steady state phase begins and lasts indefinitely. During
the transition phase, issuance temporarily increases for the first nine months as
it bootstraps initial funding for a new Cosmos Hub Treasury. Issuance significantly reduces thereafter. As an additional safety measure, during the transition
phase no more than 10% of the Cosmos Hub Treasury can be deployed withina 21 day period.
6 Chitra, Tarun; Kulkarni, Kshitij. “Improving Proof of Stake Economic Security via MEVRedistribution.” Aug. 2022,
https://people.eecs.berkeley.edu/ ksk/files/MEV Redistribution.pdf.

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At the beginning of the transition phase 10,000,000 ATOM are issued per month.
This issuance decreases at a declining rate until it reaches steady state issuance
36 months later. Steady state issuance will be 300,000 ATOM per month (anod to the speed of light, 300,000 km per second). A portion of the issuance
will be directed to the distribution module as a temporary extension of thecurrent security subsidy, while the remainder will be directed to the Cosmos
Hub Treasury.
(
M onthlyIssuance =10, 000, 000 − 200, 000) ∗ (1 − 12%)month + 200, 000,
300, 000,

if month ≤ 36
if month > 36

Of this monthly issuance, the amount of ATOM issued to validators and delegators as a security subsidy will start at the same subsidy level as immediately
precedes the transition phase. The subsidy will decrease by 10% every monthfor 36 months, at which point it will cease entirely. At this point, the revenue
generated from Interchain Security should meet or exceed the original subsidy.
As a safety measure, if the staking rate ever falls below , the new monetary
policy will pause and the original monetary policy will resume, incrementally
increasing issuance up to a maximum percentage of supply until the staking ratio again exceeds , at which point issuance will return to a fixed 300,000 ATOMper month. Note that the security subsidy will also continue to fund the Community Pool as staking rewards are granted via the distribution module, which
will automatically direct 5% of funds to the Community Pool.

M onthlySecuritySubsidy =(SecuritySubsidy t−1 ∗ (1 − 10%)month ∗ 95%,
0,

if month ≤ 36
if month > 36

The remaining issuance is directed to the new Cosmos Hub Treasury and will
be used to support initiatives that increase adoption, growth, and capitalizationof the interchain, including public works and opportunities for expansion. By
having a well funded treasury, the Cosmos Hub can ensure that capital is not an
obstacle in the pursuit of worthwhile endeavors, enabling more interchain developer activity and greater liquidity, helping protocols bootstrap their economies
while increasing the Scheduler’s addressable market.

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Figure 4: New issuance from time of activation. Issuance during the transition phase (i.e.
first 36 months) is intended to wean stakers off of their security subsidy and bootstrap the
Cosmos Hub Treasury balance. The Cosmos Hub Treasury is used to capitalize the Allocator.

Figure 5: Cumulative issuance from time of activation. The proposed new issuance model will
substantially reduce the growth of total ATOM supply over time by shifting from exponential
to linear growth.

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3.2

Fees

Today, transaction fees paid to the Cosmos Hub are sent to the distribution
module and split among the Community Pool, delegators, and validators. With
the addition of Interchain Security, a portion of transaction fees and issuancefrom each consumer chain will be sent to the Cosmos Hub’s distribution module,
paying to secure all chains and replacing the current issuance subsidy.

Figure 6: Interchain Security replaces issuance as a means of incentivizing validators anddelegators. If the stake ratio ever drops below , issuance will revert to the original issuancemodel until the ratio returns to or higher. Issuance not directed to the distribution module isdirected to the Cosmos Hub Treasury, a new capital pool managed by domain-specific councils
to fund public goods and grow a resilient interchain.

The anticipated global fee module will add a whitelist of accepted tokens withcorresponding fee minimums that will be maintained by Cosmos Hub governance. While serviceable in the short-term, governance-determined pricing forevery accepted token is cumbersome and prone to resource mispricing, particularly as the whitelist grows. Instead, governance should set a single ATOM floorfee, while the base fee is algorithmically priced in response to demand. Exchange
rates obtained from trust-minimized oracles may then be used to automatically
update the corresponding price for all remaining whitelisted tokens. The Cosmos

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Hub governance may then elect to use infrastructure provided by the Allocatorin order to periodically auction collected fees into a target currency, ATOM, or
stablecoins before tokens are sent to the distribution module.
All other applications may create their own fee mechanisms with the assumption of transaction inclusion. For instance, the Allocator and Scheduler cancustomize their fee structure depending on their chosen architecture, with returns flowing to the Cosmos Hub Treasury.

4

The Cosmos Economic Engine

With a secure domain for adding new functionality, beginning with cross-chain
liquidity, the Cosmos Hub now has the necessary components to assume itsrole as platform for the creation of valuable utilities, a hub for the interchain.
In order to realize its purpose, to drive the expansion of a more secure andefficient IBC economy and building long-term alignment with a growing Cosmos
Network, the Cosmos Hub will require two mutually-reinforcing systems:
1. Interchain Scheduler: a secure cross-chain block space marketplace andMEV solution
2. Interchain Allocator: a venue for economic coordination and interchain
project alignment

4.1

Interchain Scheduler: A Secure Blockspace Marketplace

While Interchain Security provides a secure platform for building a coalitionof Cosmos-aligned applications, the Interchain Scheduler builds on top of thisplatform to offer defensible utility that scales with the growth of the wider IBC
economy. This is achieved with a marketplace for tokenized cross-chain block
space.
MEV relay networks enable off-chain markets for private transaction submission. Such systems are attractive because they allow more expressive and efficient execution of user intent with capabilities like front-running protection,
multi-transaction bundling, failed transaction prevention, and transaction sequence priority. As MEV opportunities grow, such relay systems are becoming
increasingly active within the interchain. And by offering MEV relay service
on multiple chains, relays are able to further articulate cross-chain execution
guarantees.7
The assurances of an MEV relay network are only as strong as the number ofvalidators running modified software. While attractive for individual users, this
7 Obadia, Alexandre; Salles, Alejo; Lakshman, Sankar; Chitra, Tarun; Chellani, Vaibhav;

Daian, Philip. “Unity is Strength: A Formalization of Cross-Domain Maximal Extractable
Value.” Dec. 2021, https://arxiv.org/pdf/2112.01472.pdf.

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model presents systemic centralizing concerns if left unchecked. Functionality
rests on trusted relationships among validators, MEV relays, and builders, evenextending to intermediation of the node software run by validators. Therefore,
these networks are possible vectors for off-chain cartelization with little counterforce to ensure accountability as they scale. At worst, the monopolizing tendency of off-chain block space markets could undermine efficient transaction fee
pricing and, ultimately, chain security.
Beyond centralization concerns, the revenues generated from MEV networks are
typically shared among validators or clients directing orderflow, while protocols
and their token holders are left out of the value chain. To ensure fairness andefficiency for chains and users alike, the interchain ecosystem requires a competitive market with differentiated MEV solutions. The Interchain Scheduler
addresses these concerns by bringing MEV markets on-chain, thereby minimizing trust, improving quality of service, and enabling direct block space regulationby chains themselves. Moreover, an on-chain market can provide a more fair
and transparent system for returning revenues to their originating protocols andtoken holders.
Using the capabilities enabled by Tendermint’s latest ABCI++ upgrade, transaction inclusion and ordering can be segregated and the rights to order transactions for a designated block in the future can be tokenized, traded, and transported over IBC.89
8 Waters, Callum. “Tendermint’s New Application Blockchain Interface — ABCI++.” Sep.

2022, https://medium.com/the-interchain-foundation/tendermints-new-applicationblockchain-interface-abci-86d46bd6f987.
9 Floersch, Karl. “MEV Auction: Auctioning transaction ordering rights as a solution toMiner Extractable Value.” Jan. 2020, https://ethresear.ch/t/mev-auction-auctioningtransaction-ordering-rights-as-a-solution-to-miner-extractable-value/6788.

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The Scheduler system works as follows:
1. When the consumer chain enables the Scheduler module, it can enter
into a cross-chain contract to provide a portion of their block space (e.g.,
one block every minute). Chains may sell as much blockspace in themarketplace as they wish, above some minimal threshold.
2. Once the agreement is in place, the Scheduler issues non-fungible token
reservations representing each future block region on the consumer chain.
Reservation tokens from all participating chains are then periodically auctioned in batches.
3. Optionally, tokenized reservations may be traded on a secondary market.
This is possible until the reservation is redeemed to the appropriate validator on the partner chain, along with the desired transaction sequence.
4. Upon successful block execution, a split of proceeds from the Scheduler
auction are sent back to the partner chain.
By purchasing synchronous regions of block space on different chains, users canlock-in arbitrage opportunities or schedule cross-chain settlement transactions
with strong execution guarantees.

Figure 7: Depiction of a scheduled sequence of transactions occurring over multiple chainsin successive blocks. The Scheduler leverages ABCI++ to enable partner chains to tokenize
reservations for future block space. Those reservations are auctioned in a common MEV marketplace, enabling stronger atomicity and settlement guarantees than off-chain counterparts.

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In moving the interchain MEV market on-chain, the Scheduler can offer a trustminimized assurance that users hold an exclusive right to order transactions for
future block regions. Moreover, a common market for multi-chain block space
will command higher rates by securing cross-chain atomicity, while establishing
defensible network effects. This novel market structure is intended to complement the off-chain MEV economy, providing different trade-offs and increasing
competition to the benefit of chain security.

Figure 8: The Scheduler creates an in-protocol market for interchain block space, allowing
chains to specify allowable MEV. Unlike other solutions that only split revenues with validators, the Scheduler also splits revenues with consumer chains.

A portion of block space may also be designated for use by other chains within
the Scheduler network, analogous to a free trade agreement where the goods
and services of neighboring economies are given preference. The Scheduler system will provide a substrate for service providers to create a variety of MEVnative applications: settlement layers with cross-chain time preference, IBC
relay aggregators and routing utilities, on-demand liquidity networks, or trustminimized best execution services.

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The Scheduler will be available first to Interchain Security consumer chains fora secure initial deployment. The intention is to expand to become the primaryvenue for future interchain block space. The cross-chain MEV revenues generated from the Interchain Scheduler will flow back to the Cosmos Hub Treasury
to drive growth by capitalizing public works and the Interchain Allocator.

4.2

Interchain Allocator: Economic Coordination and LongTerm Alignment

To date, ATOM has funded the development of foundational software components powering a thriving ecosystem. ATOM’s liquidity, availability on exchanges, and its engaged user base has made it the primary entrypoint for thoselooking to experiment with new Cosmos applications.
However, until liquid staking is introduced, interchain growth is hindered by
the conflict between the native staking system and other opportunities for utilizing ATOM. Liquid staked assets eliminate the opportunity cost of staking,prompting growth. However, to further support ecosystem growth and economicalignment, the Cosmos Hub could also offer functionality for external protocols
and communities to develop strategies for economic coordination between staked
ATOMs and new projects in the interchain, aligning the utility of ATOM withecosystem growth.
The function of the Interchain Allocator is to provide new Cosmos projects
a more efficient path to user acquisition, liquidity, and long-term ecosystemalignment.

Figure 9: The Interchain Allocator is a system for capital allocation and incentive alignment.
The more Coin X that the Cosmos Hub holds and the more ATOM that Chain X holds, themore incentive aligned the two chains become.

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The Allocator provides two basic tools that enable incentive-aligned communities to develop strategies for economic coordination on behalf of the Cosmos
Hub:
1. Covenant: a system for establishing multilateral agreements with designated chains and IBC-enabled entities.
2. Rebalancer: a system for automatically managing asset portfolios withpublic liquidity.
The Cosmos Hub community will actively seek to fund incentive-aligned communities that can credibly aid in achieving the Allocator’s mandate, which includes
the following:• Increasing the velocity of new Cosmos project creation• Accelerating project growth and sustainability• Expanding the economy for cross-chain blockspace• Aligning incentives between new projects and the Cosmos Hub• Making ATOM the most desirable, widely deployed reserve asset in theinterchain
The Cosmos Hub would seek to fund incentive-aligned DAOs to carry out the
Allocator’s mandate as successful execution will require human judgment. For
example, to create an incentive-aligned DAO from which the Cosmos Hub may
source judgment, ATOM stakers could “bond” their liquid stake to a new
DAO instance for a specified duration. More ATOM bonded with a longer
lockup results in greater voting power within the DAO, where V otingP ower =AtomAmount ∗ RemainingBondDuration. The Cosmos Hub may grant thisDAO a recurring funding rate and a performance-dependent bonus, which ispaid to DAO participants in exchange for their service and for putting theircapital at risk. This new DAO could then utilize the Covenant and Rebalancer
to achieve the Allocator’s mandate.
Covenant
Without the Covenant system, protocol-to-protocol coordination is cumbersome, requiring multiple governance proposals to conduct the simplest interprotocol arrangement (e.g., establish an interchain account, send tokens, entera liquidity pool). The Covenant system streamlines this process by creating avehicle that can implement inter-protocol transactions with as little as a single
action by each protocol. To use it, one protocol sets parameters and deposits
the funds into a covenant. If the other protocol has any issues with the original
parameters, they may establish and fund a new covenant with updated parameters. This process repeats until a covenant is fully funded, at which point thedeal terms are active.

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While the Covenant system itself is a simple primitive, other protocols canuse this system to build increasingly sophisticated multilateral agreements toimprove inter-protocol coordination, liquidity provisioning, and incentive alignment.

Figure 10: The Hub’s Allocation DAO uses the Covenant system to enter into on-chain
agreements with other chains. In time, the Hub may support multiple Allocation DAOs.
Other chains may form their own Allocation DAOs, which would further streamline crossprotocol coordination.

Rebalancer
The Rebalancer system is a tool for the execution of third-party capital allocation strategies for liquid assets that takes the current portfolio, a target
portfolio, and exchange policy as inputs. The Rebalancer periodically computes assets to be sold or acquired to incrementally move toward the target
portfolio. The assets are sold or acquired according to the user’s desired policy, which could include gradual dutch auction or direct trade on a whitelisted
exchange.10 Users of the Rebalancer can set parameters to strike the desiredbalance between urgency and slippage minimization on a portfolio or per-asset
basis.
10 Frankie; Robinson, Dan; White, Dave; andy8052. “Gradual Dutch Auctions.” Apr. 2022,

https://www.paradigm.xyz/2022/04/gda.

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Interchain Allocation
Together, these tools can be used to create collateralized agreements with otherdecentralized entities, deploying and rebalancing capital. Examples of how protocols may use the Allocator include:• Mutual stakeholding and protocol-to-protocol collaboration• Providing guarantees on auction price floors• Expanding liquid staked ATOM markets by entering into AMM pools
with liquid staked ATOM or ATOM-backed assets such as collateralized
stablecoins• Rebalancing reserves and tuning the monetary properties of ATOM withdiversified collateral backing in order to make ATOM a more desirable
collateral asset• Participating in other chain’s governance as a delegate of the Cosmos Hub
by voting as a block on proposals from tokens held by the DAO or third
parties
The Allocator is a response to market demand. Protocols already seek alignment
with ATOM, the Cosmos Network, and core software development initiatives.
The Allocator gives such projects a more streamlined, formal, and quantifiablemeans of collaboration.
Cosmos is uniquely positioned to support emerging IBC-enabled applications inbuilding utility and increasing interchain liquidity. Increasing interchain liquidity is a win-win for both Hub-aligned protocols and the Hub itself because it
strengthens the economic development of the Hub-aligned protocol, while simultaneously increasing the utility of the Interchain Scheduler. Greater liquidity
increases the utility of the Interchain Scheduler because it increases the market
for arbitrage, making blockspace more valuable, thereby increasing the amountan MEV captor could pay for Scheduler-provided blockspace while remaining
profitable.
The positive feedback loop between the Scheduler benefiting from increased interchain liquidity and the Allocator deploying capital to increase interchain liquidity gives the Hub asymmetric advantages relative to other liquidity providers.
That is, the Scheduler and Allocator combined enable the Hub to benefit fromproviding liquidity, which reduces the Hub’s overall risk and enables the Hub toprovide more capital.
Lastly, in addition to the network having the largest and most sophisticatedvalidator set, Cosmos can also use capital allocation as an added incentive forchains to choose the Cosmos Hub as their Interchain Security provider andfurther integrate with the Cosmos Network as it matures.

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In addition to these immediate next steps for the Cosmos Hub, the Allocator
opens numerous opportunities for expanding the greater Cosmos Network:
1. Multiple Allocator DAOs: The Allocator would be designed to allow
for more than one Allocator DAO. The Cosmos community will likely fund
Allocator DAOs with differentiated theses and access so as to improve
Cosmos Hub treasury diversity and performance.
2. Liquidity-as-a-Service: an incentive-aligned community could deploy
ATOM into a covenant and automatically use that ATOM to create liquidity provider tokens when a counterparty matches the ATOM with agiven amount of a different token (e.g.,100 ATOM matched with 5,000
IST to create ATOM-IST LP tokens).
3. Under-Collateralized Financing: Prior to Interchain Security, there
was no on-chain way for a lender to recoup capital in an under-collateralized
loan if the borrower defaults. With Interchain Security, a capitalized entity
could provide loans to consumer chains without the borrowing protocol
putting down any collateral upfront. If the borrowing protocol defaults on
its loan, they could mint the borrowing protocol’s tokens to cover losses.
4. Liquidity Saving: Covenants can be used to direct capital into trade
networks, improving liquidity profiles and reducing the occurrence of insolvency due to stressors. Such injections can be optimized for network
level properties to improve the overall health of the network.
5. Allocation Beyond the Cosmos Hub: Protocols may use the Allocator’s Covenant and Rebalancer tools without the Cosmos Hub as acounterparty. Any usage of the Allocator is beneficial to the Cosmos Hub,even when the Cosmos Hub is not a counterparty, because it facilitates
future integration into the Cosmos Network.
The Interchain Allocator is designed to increase the rate of Cosmos-aligned
project growth and expand the cross-chain blockspace economy. Accordingly,
the Allocator fosters cross-protocol coordination while installing ATOM as theprimary reserve asset of the interchain. The Cosmos Network’s expanding
sphere of ATOM-based collateral establishes a region of cooperative integration, benefiting all those who contribute to its success. In providing a generalized multi-party collateralization system, the Interchain Allocator forms thebasis for a more collaborative interchain economy, empowering creative endeavors that leverage the primitive to engender trust and effect the next phase ofinterchain growth.

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5

Cosmos Governance: A Forum for Sovereign
Interoperability

The Cosmos design pattern is one of composable modules and standardized messaging that gives rise to emergent structure. This philosophy runs through thesocial infrastructure of the Cosmos as much as its technical components. The
software development process is highly decentralized with no one Cosmos development team. Rather, development is accomplished via an intricate networkof open source projects and contributors.11 However, to achieve the ambitionsof this next phase of interchain cooperation, Cosmos will require a shared organizational language and a substrate for decentralized planning, resourcing, andaccountability.12

5.1

The Cosmos Governance Stack

The Cosmos SDK has a history of pioneering governance innovations, such as
an advanced delegation system; governance-activated node upgrades; and a generalized message passing system that allows any account, whether individual,group, smart contract, or chain, to execute arbitrary transactions, locally orover IBC.
However, the Cosmos Hub’s ambitious technical roadmap and commitment tobuilding an autonomous, self-sustaining political economy requires pushing thesetechnologies even further, extending governance capabilities to suit Cosmos’
needs and creating more robust social layers that tie together a constellation ofparticipating entities, core teams, funding organizations, and other DAOs thatwish to make the Hub their home.
Without advance knowledge of the precise social architecture that will emerge
in this next phase of Cosmos development, the Cosmos Hub should furnish ageneralized system that may be used by any Hub-aligned DAO to flexibly deploy
governance infrastructure that meets their needs.
The Governance Stack would provide a general specification for DAOs to selfdescribe their organizational structure and relationships with one another. The
Cosmos Governance Stack gives entities a shared vocabulary for expressing governance forms with adaptive on-chain and off-chain layers. The modular organizational infrastructure could be adapted to meet a particular group’s needs,
while offering transparency into their operations facilitating accountability andalignment. The following example illustrates what such a system might look
like for three different entities.
11 Buchman, Ethan. “The Mind, Body, and Soul of Cosmos.” May 2022,

https://blog.cosmos.network/the-mind-body-and-soul-of-cosmos-140ee7cec0cd.
12 Buchman, Ethan. “Phases of Cosmos.” Sep. 2022,

https://ebuchman.github.io/posts/phases-of-cosmos/.

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Figure 11: Given the complexity of the ideas proposed in this paper, creating a flexible system to deploy new DAOs, help them coordinate with one another, and hold them accountable
would increase the likelihood of successful implementation. The proposed governance stackcombines new and existing components (e.g., Gov, Groups, Authz, and Interchain Accounts)
to create a language shared by DAOs operating on the Hub. New features include systems
for recurring payments, planning, and reporting. The diagram above compares three different
DAO patterns. Note that the inputs above are for demonstrative purposes only and are notsuggestive of a specific proposal.

Most of the requisite technology is available today—Groups, Authz, and Interchain Accounts—though they are rarely represented as an integrated systemfor creating organizational assemblages that interact on-chain. The parameters above are put forward for community consideration with the intention ofarriving at a standard for establishing Hub-based DAOs that can effectively
coordinate and govern shared resources.

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5.2

The Cosmos AssemblyWith a more articulated way to establish new entities, a wide range of organizational structures can establish themselves on the Cosmos Hub. Core teams canestablish a presence, as could representatives from across the ecosystem, including infrastructure providers, community organizations, and other chains.
To access Cosmos Hub resources, these entities would participate in a common
system for planning and coordination of public goods and growth-oriented endeavors. This system must remain flexible enough to dynamically provisionresources and authorities while remaining accountable to the Cosmos Hub andthe interchain with appropriate checks and balances.
The Cosmos Hub Assembly, a proposed decentralized organizational body, could
represent the strategic interests of the Cosmos Hub community. The Cosmos
Hub Assembly, together with a set of domain-specific Councils, form a governance supply chain that enables a variety of entities to work within a common
framework.13

Figure 12: Proposed Cosmos Hub governance structure. DAOs may apply to become acouncil if they wish to access Cosmos Hub Treasury resources or become accountable fordelegated Cosmos Hub roles and capabilities. All councils together form the Cosmos Assembly,
which does yearly budgeting and goal-setting. The Assembly is accountable to ATOM holders,
who have ultimate veto.
13 Hasu. “Simple MakerDAO — Governance from first principles.” Jun. 2022,

https://forum.makerdao.com/t/simple-makerdao-governance-from-first-principles/16207.

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Today, the Cosmos Stack and the Cosmos Hub are built by a variety of organizations that contribute to product-specific working groups. Most recently, theConsensus Council was created to formalize one such multi-stakeholder relationship. Likewise, temporary initiatives, such as proposal 72 to onboard consumer
chains to Interchain Security, are typically mediated by multi-signature committees.
The Councils and Assembly system are intended to make existing informal andoff-chain workflows more explicit, accountable, and open to wider participation.14 Improvements to the Cosmos Hub Forum over the last year, as well as
new on-chain functionality like generic Gov proposals and the Groups module
improve the Cosmos community’s capacity to coordinate. Likewise, adoptionof Authz and upcoming features such as optimistic voting, allowing designatedthird parties to defensively revoke capabilities and block actions, will increase
operational efficiency through constrained delegation.
ATOM holders have the responsibility of defining and updating the Cosmos
Hub Charter, which includes directives at the highest level: the purpose of the
Cosmos Hub, its essential governance architecture, as well as which entities areadmitted Councils. Furthermore, ATOM holders have ultimate discretion overthe passage of policies, priorities, and budgets with veto power on all proposals
put forward by the Cosmos Assembly.
For a DAO to become a council, it must put up a proposal for discussion on the
Cosmos Hub forum that includes the items required by the Governance Stack.
It must then convince ATOM governance to pass the proposal. If successful, thecouncil will be added to the Charter, resourced, and accorded the appropriate
authorities.
The Cosmos Assembly is composed of delegates from each of the respective councils. The number of seats for any given council represents the weight of that
council within the Cosmos Assembly. On a yearly basis, the Cosmos Assembly
will set priorities, perform a participatory budgeting process, and draft a proposal that will be proposed optimistically, subject to ATOM holder veto.
Public accountability is perhaps the most significant challenge of decentralized
governance. The introduction of a new Community Council can aid in this effort. The Cosmos Community Council will represent the interests of the ATOM
Community within the Cosmos Assembly and on a day-to-day basis. Their role
will include observing the work of core teams, providing feedback on productdecisions, and providing a bridge to the wider community by communicating
important facets of ongoing workstreams. The precise role of the Community
Council and specifics about its formation should be discussed on the Cosmos
Hub Forum in conjunction with the initial formation of the Cosmos Hub Charter.
14 Informal Systems. “Workflow.” Accessed Sep. 2022, https://workflow.informal.systems/.

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The Cosmos Governance Stack and the subsequent formation of a Cosmos Assembly permit the higher-order organization required for the next phase of Cosmos’s development. Though Cosmos Hub governance is in some ways the mostmature in the ecosystem, it will need to evolve significantly to meet the needsof a growing political economy. The first step in this process should be a community dialogue on the forum about a Cosmos Hub Charter and initial Rules
of Engagement. Some of the issues that will need close attention include balance of power among committees representing various stakeholders, term limits,
mitigating conflict of interest, and provisions about membership within multiple organizational bodies. Community-driven creation of initial governing documents will be complex, but effective governance is only created through a sharedcommitment to accountability and decentralization of power.

6

Conclusion

The Cosmos Hub gave rise to the internet of blockchains. Interchain Security
and Liquid Staking are the final building blocks required for a secure interchain
economy, which in turn, enable the creation of the Hub’s application-specificfunctionality, the Interchain Allocator and Interchain Scheduler.
Together, the Allocator and Scheduler would create a flywheel that builds additional utility: the Allocator capitalizes new Cosmos chains and incentivizes
them to transact while the Scheduler creates a market for high-value IBC transactions and uses revenue to support network growth. With the creation of thispowerful economic bloc, the Cosmos Hub’s success becomes coupled to the success of other Cosmos chains and that of the wider IBC economy. Infrastructure
and community come together to drive the expansion of the interchain withcredibly neutral functionality, capital, and social infrastructure.
Today, the Cosmos Stack is the leading framework for building sovereign interoperable blockchains. With the introduction of the Scheduler and Allocator systems, the Cosmos Hub will become the leading platform for scaling IBC-enabledapplications, securing foundational infrastructure for the interchain and accelerating economic coordination for the next chapter of interchain growth.

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Figure 13: Cosmos is a political union of sovereign interoperable blockchains with sharedpublic infrastructure. Regions of interchain features utilizing ATOM comprise the Cosmos
Network. Placement of chains is for illustrative purposes only.

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7

Disclaimer

This paper is a collaborative effort by many members of the Cosmos community. It outlines
a proposed direction for the Cosmos Hub. However, the contents do not entail a commitment
by any authors or their respective organizations. The Cosmos community is responsible forthe adaptation and adoption of the measures proposed in this paper. The success of any
proposal will depend ultimately on the hard work of the wider community and those building
within the Cosmos Network. The information presented herein is being provided by theparties listed above (the PARTIES) for information purposes only. Neither the PARTIES
nor any of their affiliates, nor any of their respective directors, officers, managers, employees
or representatives make any representations or warranties, express or implied, with respect
to any of the material or information contained herein. Neither do the PARTIES or any
such person assume or otherwise have any responsibility or any liability whatsoever to you or
any of your affiliates, or any of your or your affiliates’ respective directors, officers, managers,
employees, or representatives resulting from the use of the information and material contained
herein. Information provided here is supplied in good faith based on information believed, but
is not guaranteed to be accurate or complete. The information provided in this paper does
not constitute investment advice, financial advice, trading advice, or any other sort of advice
and you should not treat any of the paper’s content as such. The PARTIES recommend
you conduct your own due diligence and consult your financial advisor before making any
investment decisions of any kind.
Although this paper does not constitute investment, financial, or trading advice, a regulator
may determine this paper includes ”forward-looking statements” under U.S. federal securities laws. If such a determination is made, please note that the PARTIES have based any
such forward-looking statements on current expectations and projections about future events.
These forward-looking statements are subject to risks, uncertainties, and assumptions about
the PARTIES and their related business objectives. The PARTIES caution readers of thispaper that, although PARTIES believe that the assumptions on which such forward-looking
statements are based are reasonable, any of those assumptions, current expectations, andprojections could prove to be inaccurate and, as a result, the forward-looking statements also
could be materially incorrect. Readers of this paper are cautioned not to put undue relianceon any such forward-looking statements. The PARTIES disclaim any intent or obligation
to update publicly such forward-looking statements, whether as a result of new information,
future events, or otherwise. All forward-looking statements attributable to the PARTIES or
persons acting on their behalf are expressly qualified in their entirety by these and any othercautionary statements and risk factors contained herein.

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