Why Interchain.FM is Voting No on Prop 848

Major Monetary Policy Changes Should be Proposed with Utmost Conservatism

Chjango Unchained ⛓️
6 min readNov 13, 2023

First of all, I’d like to express appreciation to Blockworks who invested sweat equity into doing the research that informed Prop 848. A vote of No from us is not a vote of no confidence; we will go in-depth into our rationale soon enough. It’s incredibly hopeful and bullish that there is independent work being done toward the ultimate goal of Making Atom Great Again. No one can deny that Cosmos is one of the most vibrant ecosystems with some of the most brilliant minds crypto has to offer. And just because we voted No on this particular proposal doesn’t mean that we are not aligned with making the Cosmos Hub succeed.

Ok—now that I’ve padded this with enough sugarcoating, here we go:

What is Prop 848?

It is, at its core, a monetary policy change. Monetary policy changes, in the past, a la Bitcoin scaling wars circa 2017, were treated as gingerly and methodically as if you were handling a radioactive core. One fuckup and you’re the poor schmuck who found himself at ground 0 in Chernobyl. Likewise, one param change later leads to a consensus bug which leads to a vulnerability that lets you infinitely mint ATOM which leads to bad PR which leads to coin price go down which leads to unhappy Cosmonauts. This is not a made up scenario. It’s happened before. BlueMatt did just this and inadvertently opened up an inflation bug on Bitcoin.

My job here is to remind newcomers to this space who may be well-meaning but perhaps lack some historical context in order so that we don’t repeat the same mistakes made in other ecosystems of times past.

Monetary policy is a covenant—a social contract that the project made with its community at the genesis block. To break that social contract is to break the trust of said community and the unspoken understanding that the project is reasonably resilient, censorship-resistant, and cartelization-resistant. After all, those are the defining properties of a decentralized network. To lose those properties is to be no better than our web2 counterparts.

To hit this message home, imagine it’s the 2030s. Cryptocurrencies, blockchain tech, and web3 have achieved mass adoption. Cosmos Hub is still standing , there are hundreds of appchains in the Atom Economic Zone (AEZ) relying on the Hub to be a fair and widely distributed Supreme Court, and a state actor wants to infiltrate the Cosmos ecosystem. The shortest path to achieving that goal would be to control the Hub. All it does is it buys up billions of dollars worth of ATOM (in today’s timeframe, that’s just one day’s worth of printing), propose monetary changes on the Hub, use its stake-weighted voting power to unilaterally pass the vote, then turn the Hub judicial system into a kangaroo court of its making. It could be done in as little time as it takes to pass an onchain proposal.

Therefore, to remain resilient against such an attack vector, we want to be careful about setting precedents about passing, specifically, Monetary Policy Changes. In fact, we should seriously start to consider extending the voting period to 4 weeks minimum and increasing the Yes quorum to 85% IF the prop is about a _Monetary Policy Change_.

MuH VaLidAtOoRs Are Not AliGned wITh UsOoRs

3 out of the 4 say that block subsidy rate is not causation of price action

Just because a validator votes No on this prop does not mean that it isn’t aligned with speculatooors’ interests. It just means that validators and users have different time preferences; the higher the time preference, the more short-term price action you want to see, and vice versa. Both want what’s good for ATOM. Users just want to see coin-price-go-up faster at any cost, while validators want what’s good for Cosmos for decades to come.

No one voting No is sitting there coming up with a master plan to thwart the “atom halvening” for the sake of thwarting a good plan. I’m sitting here writing to say that, Hey, we have other ways of doing it that can make ATOM more widely utilized across the Cosmos eco, while not sacrificing the Hub’s social contract, and while retaining its inherent decentralized properties.

To put it empirically, Ethereum did just this and while ETH price saw a very short spike in price when the change was implemented, it very quickly diffused back down; a sell the news type of event. It didn’t lead to any long-term robust price appreciation for the project.

The metrics that tangibly do that are, for example, the ETH ETF, which would bring new retail flow and a new set of holders who wouldn’t have otherwise bought in. Changes in block subsidy inflation rates do no such thing. And the notion that the ATOM APR competes with DeFi APRs within the Cosmos ecosystem and therefore should be reduced is a suboptimal mechanism to achieve wider ATOM adoption.

What Might an Alternative Mechanism to Achieve ATOM Alignment Look Like?

This is an economic mechanism that introduces no monetary policy change. It can be done, frens.

This is actually Sunny’s idea and I’m simply regurgitating it in blog post form. It’s the most coherent idea I’ve heard of so far in creating Atom alignment through its ecosystem of ICS-connected consumer chains.

It starts with Liquid Staking Derivatives (LSDs). I make no allusions to existing ones like Stride; I’m simply explaining the concept in the abstract.

Take ATOM, the native coin of Cosmos Hub, and allow users to mint LSDs, “sATOM.” If you’re staked with Interchain.FM, then you’d get your pro rata share of sATOM as a liquid token to do whatever DeFi thing you want on any appchain. Now let’s say you deposit the sATOM onto Osmosis to LP. On the Osmosis side, as more and more users deposit sATOM into its custody, its Protocol Owned Liquidity (POL) increases.

Stride’s fee model currently takes 10% of all liquid staked ATOM. That fee model could be applied to this LSD, sATOM, but with a minor tweak. The 10% fee, instead of going to a Stride community pool, could be distributed across all the appchains that custody sATOM and subsequently paid out pro rata as additional rewards for DeFi users. This increases the demand from users liquid stake ATOM, increases the incentive for appchains to support sATOM, and appchains stop pvp-ing with ATOM.

Since sATOM is tied to ATOM, this clearly would increase the demand for ATOM. The caveat is, sATOM has NO voting power. Only when it’s converted back into native ATOM does it regain voting power. This part is key.

The conversion from sATOM into ATOM needs to be stymied as well to prevent griefing. At the point of redemption, there could be a first-price auction to impose a dynamic supply and demand driven market for sATOM-ATOM to account for supply surges. In the edge case where a griefer mints millions of sATOM and then decides to exit back into ATOM some time later to vote maliciously, this auction market slows redemptions of one large whale. In the base case scenario, redemptions would typically be 1:1, assuming there is no mass redemption event. In the surge edge case, it could be 1:0.7, dissuading regular redeemers from doing so and increasing the cost of attack for the griefer.

This concept builds on the back of another primitive I previously proposed, in which I suggest the idea that the Cosmos Hub would act as the Supreme Court of the AEZ. I encourage you to give it a read if you’ve made it this far.

Thanks for reading.

Your Friendly Fellow Cosmonaut



Chjango Unchained ⛓️

Translates hard technical concepts into laymen’s terms. Covers DeFi & Web 3.0. Host of Interchain.fm—validatoooor, investoooor & advisoooor for Cosmos ecosystem