Controversy Over Inflation Adjustment in the Cosmos Ecosystem: Proposal Passed with Difficulty, Founder Considers Fork

ATOM, as the core token of the Cosmos ecosystem, has not performed well in terms of price. Although the Cosmos SDK has incubated several high-valuation projects, such as Celestia and dYdX, the valuation of ATOM is far lower than that of these ecosystem projects.

In order to enhance the value of ATOM, the Cosmos community recently proposed a plan to reduce the inflation rate, suggesting that the maximum inflation rate be lowered from 20% to 10%. This means that the annual staking yield will drop from about 19% to approximately 13.4%. This proposal sparked intense debate within the community and ultimately passed by a narrow margin.

After the proposal was passed, Jae Kwon, co-founder of Cosmos and Tendermint, expressed dissatisfaction on social media and even suggested forking ATOM. He believes that the existing governance mechanism may not adequately represent the opinions of all token holders. Kwon has long-standing conflicts with other team members, having previously resigned due to differences with them on issues such as governance and project development direction.

According to statistics from a certain data platform, the inflation rate of ATOM at 14.97% is nearly the highest among major PoS public chain native tokens before the proposal is passed. ATOM has a target staking rate of 67%, and the inflation rate is dynamically adjusted between 7% and 20% based on the actual staking rate. Even though the inflation rate is already very high, it continues to rise because the actual staking rate (65.4%) is below the target value.

A research institution pointed out that Cosmos may be spending excessively on network security maintenance. The study found that even with a maximum inflation rate of 10%, the vast majority of validators can still achieve profitability or break even through commission income. Based on this research, a co-founder of a decentralized asset management protocol proposed a plan to reduce the maximum inflation rate of ATOM to 10%.

The proposal was ultimately passed by a narrow margin. The voter turnout was 72.6% based on the number of participating ATOMs, with 41.1% in favor, 31.9% against, 6.6% vetoed, and 20.4% abstained. After excluding the abstentions, the support ratio was only 51.63%, just exceeding the minimum requirement of 50%.

Interestingly, from the perspective of the number of voting accounts, the support rate reaches 94.97%. Although some point out that this may be influenced by a large number of small holders (possibly airdrop hunters), the number of supporting accounts exceeds that of opposing accounts within each holding range. For example, among the 143 validators participating in the vote, 54.55% supported, 27.27% opposed, and 0.7% vetoed.

Supporters believe that lowering the inflation rate is beneficial for promoting the adoption of the Liquidity Staking Module (LSM), increasing ATOM liquidity, and attracting more funds into the Cosmos DeFi ecosystem. They also believe that this will enhance the scarcity of ATOM, potentially increasing its market value, which is advantageous for long-term investors.

Opponents are concerned that lowering the inflation rate may reduce staking incentives and affect network security. Some believe this could lead to further centralization of ATOM holdings, while others worry it may bring uncertainty to the market in the short term. Regarding the positive impact of LSM adoption and the development of the DeFi ecosystem, some opponents express skepticism.

From the voting results, it seems that small holders are more inclined to support a reduction in the inflation rate, possibly hoping to immediately boost the price of ATOM. In contrast, validators and certain large holders, considering their own interests, are more inclined to maintain high inflation.

The controversy and outcome of this proposal reflect the challenges of balancing different interest groups in decentralized governance within the Cosmos ecosystem. It also reminds us that when engaging in delegated staking, in addition to considering yield and commission rates, one should pay attention to whether the voting tendencies of validators align with one's own. In case of disagreement, users can choose to vote themselves to override the validators' voting results.