The Future of Staking is Going into Hyperdrive

Cosmos & Cross-Chain Staking in a post-IBC World

Intro

We are quickly approaching the conclusion of the three-phase launch of the Cosmos Hub mainnet, what with the primary building blocks of the Cosmos ecosystem — Tendermint Core, Cosmos SDK, and IBC — being brought to completion. With the close of this chapter comes the ringing in of the next one.

Understanding Replicated Security

We’ll first cover the simplest model for implementing cross-chain staking. A distinction needs to be made here about what Polkadot calls “shared security”. Because Cosmos architecture is so fundamentally different from that of Polkadot’s, the term “Replicated Security” is a distinct technical departure from the Polkadot shared security model.

Understanding Interchain Staking

There are two ways of implementing Interchain Staking:

  1. Sunny Aggarwal’s “Leased Security” model. A fraction of the Cosmos Hub validator set can discover and elect to validate for new zones of their choosing. Key distinction: zones will use the same ATOMs that are bonded on the Hub in order to “merge mine” their zone.
  2. Jae Kwon’s “Interchain Staking” model. The entire validator set of the Cosmos Hub at any given time provides validation-as-a-service to new zones that elect to be Interchain Staked. Key distinction: zones use a secondary token — let’s call it PHOTONs for now — to bootstrap security on their zone. PHOTONs would be issued from the Hub and have a fixed inflation schedule, similar to Ethereum’s.

Method 1) Leased Security

Borrowing from an analogy made by Ryan S. Adams on “Investing in DeFi Paradigms”, blockchain security is kind of like a country’s military defense. To measure how much is enough security, one must ask: If the US wants to defend against an attack, does it spend 1% of its GDP, 5%, or some other amount? And how much more equipped is the US to defend against attacks with every incremental increase in dollars spent? Trouble is, you won’t know the answer until you are attacked.

  • Consensus Entry: Entry into the set of any zone’s consensus signers is done by validator opt-in. Delegators would follow specific validators who co-validate on the zones that they want to stake on and earn provisions in.
  • Staking token denomination: ATOM acts as the security premium for zones to “lease” security as if being protected under NATO. Staking is done with the same ATOMs — which are effectively virtualized ASICs — as this simulates merge mining between Proof-of-Work blockchains that have the same hashing algorithms.
  • Slashing penalties: Enforced by the zone’s consensus protocol but slashing penalties will slash ATOMs that are staked on the Hub instead of on the zone.
  • Governance: Cosmos Hub will act as a Supreme Court to perform dispute resolution and evidence handling when faults are observed on a zone.

Method 2) Interchain Staking

Jae Kwon’s Interchain Staking model leverages a secondary token — let’s call it the PHOTON for now. A key feature of PHOTON is that it hard-spoons the ATOM distribution at a given snapshot and airdrops those new PHOTONs to ATOM holders. After all of its initial supply has been distributed by the protocol, new PHOTONs would be able to be minted at a fixed rate every block. Like the ETHER supply schedule that subsidizes miners a fixed block reward per block mined, the PHOTON supply would be minted in the same manner.

  • It opens the door to having much more validators in the ecosystem in aggregate than does Leased Security with ATOM because doing so with ATOM limits the maximum number of validators who can perform cross-chain staking to the 125 validator slots allowed to operate the Cosmos Hub
  • It is more secure and mitigates the introduction of perverse incentives such as the incentive to create many faux zones in order to get ATOM Leased Security, earn block rewards in ATOM, receive ATOM provisions rent-free of paying the tax that ATOM stakers pay to the Hub tax pool, and circumvent having any meaningful participation in Cosmos Hub governance
  • Consensus Entry: Entry into the set of a zone’s consensus signers is enforced by the zone itself. Any zone that is IBC registered to the Hub by default has the option to have Interchain Staking with PHOTONs
  • Staking token denomination: PHOTON as the security premium for zones to interchain stake. Staking is not done with ATOMs, as that reduces overall security
  • Slashing penalties: Faults that are detected on the zone will slash the zone’s native token and whatever PHOTONs that are staked on the Hub in proportion to the zone’s total voting power. PHOTONs are slashed on the Hub, not the zone. Anyone who detects a fault who has been monitoring the zone can submit evidence to the Hub for slashing penalties if a zone ever gets corrupted
  • Governance: Cosmos Hub acts as the “designated recoverer” by which Hub governance process takes over upon failures incurred on any zone that opts into Interchain Staking