Introduction

Despite challenges such as the audit-related delays over the Cosmos Software Development Kit (SDK) and transaction fee market updates, the Cosmos Hub continued to develop during the first quarter of 2024. Notable achievements included the initiation of Partial Set Security (PSS) – a flexible development of the Interchain Security model; collaboration with Babylon to bring BTC security to Cosmos; and the onboarding of three new consumer chains, AetherEVM, Elys Network, and Lorenzo Protocol. 

Moving forward, Informal Systems, a Cosmos Hub validator that has been mandated to lead development initiatives, has introduced multifaceted, yet fascinating milestones that it plans to accomplish in the second quarter.  

The goals of Q2: 

• Update Cosmos SDK via Gaia V16;

   

• Move PSS to the main net under Gaia V17;

   

• Integrate Babylon into DevNet to bring Bitcoin-level security to Cosmos;

   

• And launch Hydro V1 for Atom stakers to vote on liquidity deployment to Cosmos Hub consumer chains

Subsequent sections of the report delve deeper into the context behind these milestones and provide a broad overview of the outlined goals. 

Gaia V16

The Cosmos Hub is built using the Cosmos SDK and compiled into a machine-readable (binary) code called “gaiad” (Gaia Daemon).

Currently, the Cosmos Hub operates on Gaia version 15 (V15) which has brought the 

the minimum commission rate for staking to 5%, therefore affecting how rewards are distributed to validators. For example, validators previously charging less than 5% will now charge 5%.

Additionally, the funds previously held (vested) in the multi-sig wallet of Notional, a blockchain security firm responsible for round-the-clock monitoring of Cosmos for vulnerabilities, have been transferred to the community pool following the company’s dissolution. This clawback was executed in accordance with governance proposal #860.

Gaia V15 also fixed some security issues identified in the previous version of the software. As a result, certain changes have been made to how the software works including the rejection of Votes from accounts that have less than 1 ATOM stake. Thus, as of now, to participate in governance, the validators need to stake at least 1 ATOM from the wallet they use for voting.

Audit-related delays on Cosmos SDK slowed the release of V15, impacting the V16 release date, hence the reason why V16 moved to Q2. However, the Hub community voted in favor of V16, and the upgrade is set to occur on May 15th, at 16:08 (UTC). This will bring new features to the system, including Interchain Account (ICA) controller, IBC fee middleware, and IBC Rate Limit module, to name a few. 

Breaking down these features: 

• ICA could be thought of as a feature within the Cosmos blockchain system that handles the creation and management of special accounts called “Interchain Accounts.” Rather than being controlled by private keys like regular accounts, Interchain Accounts follow the instructions sent from another blockchain via a chain messaging system called Inter-Blockchain Communication (IBC).

   

• An IBC-free middleware is a tool that ensures the smooth operation of the Interchain network without relying on specific data operators. Instead, it incentivises various parties involved in transferring data between different blockchains and automates manual processes like registering relayers (entities that transfer data/assets between different addresses).

   

• The IBC rate limit module, inspired by CosmWasm (a smart contract platform born in 2019 at HackAtom), acts as a safety control in case of bugs, attacks, or economic failures in external zones. It prevents large inflows or outflows of IBC tokens (tokens that use IBC for interoperability) within short time frames by setting limits on transfer amounts. These limits are based on variables such as total channel value and configurable transaction thresholds, thus safeguarding against potential attacks and ensuring stable network operation

Overall, Gaia V16 builds on V15 and adds additional features to enhance customisation, security, and user experience.

Gaia V17

Gaia V17 builds on V16 and merges it with the PSS, which was developed in the first quarter.  

Before the PSS was introduced, chains on Cosmos were secured by ICS’s Replicated Security (RS) model. RS automatically grants all chains on Cosmos the same security level by defaulting validators to secure networks and restricting chains from choosing their own validator sets.

To grant more flexibility and choice to both validators and chains, the PSS system introduces the concept of provider chains together with features like opt-in and top-n consumer chains. It also allowed for customisability and ease of launch to new chains through validator settings and permissionless chain launch respectively.

• With opt-in consumer chains, validators can choose whether or not to secure a particular chain. This means that no validator is compelled to validate a given chain and can choose its set of chains based on individual metrics. Additionally, validators can choose a different commission rate for every consumer chain, therefore covering expenses on the consumer chains that they run without affecting their Cosmos Hub commission rate.

• Top-n consumer chains automatically opt-in a percentage of Cosmos Hub validators, ensuring security levels comparable to Replicated Security (RS), with adjustable settings for different security requirements.

• Validator set settings, such as whitelists/blacklists and power caps, enable consumer chains to tailor validator configurations to their needs. A consumer chain can also opt for a smaller active set of validators compared to the Hub’s full active set to improve performance via faster consensus and easier governance. 

• Permissionless onboarding grants consumer chains the ability to launch without a governance proposal, streamlining the initiation process. Initially, consumer chains still require governance clearance for launch to prevent spam chains, but future updates will enable permissionless launches, further enhancing operational autonomy.

 You can see PSS in more detail in our recent post. 

Babylon 

on February 12, 2024, the intention to integrate Babylon into Cosmos was officially Introduced.  Babylon, a Bitcoin staking protocol, is powered by the idea of security aggregation, which involves sourcing billions of dollars of security from the Bitcoin blockchain and injecting this into various chains, hence translating Bitcoin security into the chains subject to this injection. 

Specifically, Babylon’s staking technology would allow Bitcoin hodlers to stake their Bitcoins to secure Cosmos Hub consumer chains. The consumer chains could, in turn, purchase economic security from staked Bitcoins, hence diversifying their security base. 

Once approved by the community, Babylon’s modularity would foster a seamless integration with the Cosmos Hub and its network of consumer chains via the CometBFT extension. 

To aggregate security for Cosmos, the CometBFT would combine ICS shared security capabilities and Babylon’s scripts on the Bitcoin blockchain to monitor validator activities and share this data between chains. With Comet extension, Bitcoin holders would delegate their assets to Cosmos Hub validators and easily earn rewards.
On the other hand, consumer chains will be able to allocate their security budget between ATOM and Bitcoin. For example, a consumer chain might allocate 70% of their rewards to their native token holders, 15% to ATOM security, and 15% to the restaked Bitcoin.

This integration would not only grant consumer chains access to billions of dollars in potential security but also support the onboarding of Bitcoin hodlers to Cosmos since to claim staking yields, they would need to create a Cosmos Hub wallet and withdraw the rewards on the Cosmos Hub.

Keep an eye out for the Architecture Decision Record (ADR) and a signaling proposal on the forum in early May! 

Hydro

Hydro (formerly known as Atom Wars), was officially introduced in January 2024. Hydro is a vote-based liquidity platform that allows Atom stakers to deploy liquidity to Cosmos Hub consumer chains and other projects. 

One of the main aims of Hydro is to enhance decision-making power for token holders through the locking of tokens for extended periods. The longer the tokens are locked, the greater the voting power. This incentivises token holders to commit to the ecosystem for extended periods, thereby strengthening community participation and commitment.

These locked tokens are used to determine the allocation of liquidity injections into third-party projects, including consumer chains. The injections spark a bidding competition, referred to as the “war,” among different consumer chains, therefore creating a marketplace where projects compete for liquidity injections by convincing users to lock up their tokens for longer periods.

To facilitate bidding, injection, and power multiplication, a new token separate from the governance token (ATOM – that can be purchased via the Ledger wallet) is introduced, called vATOM. Although initially, only staked ATOMs (stATOMs) are allowed to be locked and converted into vATOM, the plan is to extend this feature to any staker.

The voting power multiplier is determined by the duration for which the stATOMs are locked for. Currently, multipliers stand as follows:

• 1 month lock: 1x voting power
• 3 months lock: 1.5x voting power
• 6 months lock: 2x voting power
• 1 year lock: 4x voting power

Regarding monetary benefits, Hydro will source revenue for the Cosmos Hub through various means including liquidity injections and bids.

The liquidity injections (also known as “Protocol Owned Liquidity”) earn a yield from swap fees, external incentives, lending, and other sources. For instance, according to Stride, 900,000 ATOMs placed in a stATOM/ATOM liquidity pool on Osmosis are currently earning the Cosmos Hub roughly $100,000 per year.

When it comes to bidding, consumer chains bid to secure votes from token holders, therefore securing liquidity injections and contributing to revenue generation. As suggested by the proposal, 90% of the bid revenue should be allocated to vATOM holders, while 10% of the revenue should be distributed to the Hub.

As the Hydro CosmWasm contract and a litepaper are being finalised, Informal Systems is collaborating with SimplyStaking to secure community pool funding for a third-party contract audi”. Once the Hydro contract is finalised in May, Informal Systems aims to release it on Neutron – the first consumer chain to leverage the Cosmos Hub as the provider chain.

Concluding Thoughts

In the face of challenges such as audit-related delays and transaction fee market updates, the Cosmos Hub managed to make significant strides in its development throughout the first quarter of 2024. Key developments included the introduction of Partial Set Security, collaboration with Babylon to bring Bitcoin security, and the preparation of three new consumer chains to leverage PSS.

Looking ahead to the second quarter, Informal Systems, a longtime supporter of the Cosmos network, unveiled a comprehensive plan featuring updates to the Cosmos SDK, integration of Babylon, and the launch of Hydro. Gaia V16 introduces a host of new features while Gaia V17 merges with PSS, enhancing security and flexibility. Babylon’s integration promises access to billions in security and the onboarding of Bitcoin holders to Cosmos, while Hydro introduces a novel liquidity platform incentivising long-term commitment.

These initiatives, alongside ongoing efforts to enhance security and functionality, underscore the Cosmos Hub’s commitment to innovation and growth in the blockchain ecosystem.

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