KEY INSIGHTS & TAKEAWAYS
The Cosmos ecosystem has shown significant progress in 2023, with Cosmos Hub leading development and improvements that have affected the ATOM staking landscape.
- Delegation Program Phase 1 by Interchain Foundation (ICF) caused the biggest yearly boost in total stake, delegating 10 million ATOM in Q1 to 93 qualified validators for a 6-month period.
- ICF’s Delegation Program Phase 2 in Q4 had minimal impact on total stake change but led to a redistribution of 8.5 million ATOM from Phase 1. However, the number of verified validators increased to 102, and the delegation period was extended to a 12-month.
- The top three Cosmos validators (Everstake, Coinbase, SG-1) gained around 22 million ATOM, while the other two big validators (Polychain, Paradigm) left the network with a total unstake of 14,2 million ATOM.
- The active validators set expanded to 180, adding 5 in Q2, managing 386k staked ATOM.
- The launch of Replicated Security, along with Netron and Stride joining as consumer chains, lays the groundwork for the future of ATOM Security-as-a-Service on the broader cryptocurrency landscape. This move aligns the tokenomics of consumer chains with ATOM.
- The US SEC’s lawsuit against Binance in June made waves around all involved tokens. The price temporarily dipped after the charges stated that ATOM, among other tokens, should be classified as a security. However, the arguments supporting this classification were questionable.
- The Cosmos ecosystem welcomed native stablecoins, including a $150 million USDT issued by the Kava Chain and a $75 million USDC issued on Noble in 2023. This implies that a portion of that liquidity can be synchronized with ATOM tokenomics through staking and DeFi.
- Liquid staking in Cosmos witnessed notable progress led by the major liquid staking provider Stride. Upon joining Replicated Security and implementing Liquid Staking module, Stride achieved a tenfold increase in its ATOM Total Value Locked (TVL) in 2023, reaching a total of 4.3 million locked tokens.
- November witnessed the approval of proposal #848, a pivotal moment that initiated the first significant alteration in ATOM tokenomics by reducing the upper limit of ATOM inflation from 20% to 10%. This adjustment impacted staking, as inflation is a crucial parameter in the APR formula.
- In 2023, the count of Cosmos chains compatible with the Inter-Blockchain Communication (IBC Protocol) doubled, reaching 107. Also, significant progress was achieved in connecting non-Cosmos chains to IBC. Polkadot has already been released, while Ethereum and Avalanche are expected in 2024. These advancements are poised to fuel broader adoption within the Cosmos ecosystem.
- Cosmos airdrops have sparked a notable resurgence in community interest following the successful Celestia campaign in November, which delivered fantastic additional rewards to ATOM stakers. Estimated gains for ATOM delegators from the TIA airdrop translated into a profit ranging from 30% to over 100% of their total stake.
The Everstake team crafted this report to keep the community in the loop with annual updates on the staking landscape in Cosmos Hub. The focus is on key events that notably impacted staking within the blockchain.
This is our fourth report in the series, and we’re committed to keeping these materials coming. If you have any questions, feel free to reach out to our Cosmos Blockchain Manager on X.
If referencing or using materials from this report, please attribute Everstake and provide a link to the original.
Check out our full thread on X, and follow us to stay up to date with all things Cosmos!
INTERACTIVE ANALYTIC DASHBOARD FOR COSMOS STAKING ANALYTICS
The data for this report was generated with our in-house analytical tool, Slurp, developed by Everstake’s engineers using Python and PowerBi. Graphs and diagrams featured in the report can be replicated through Everstake’s free analytic dashboard, enabling you to create the same visuals or personalized charts according to your preferences.
- Use the dashboard to fetch staking data for any period starting from the Cosmos Hub’s mainnet launch in 2019 until the present.
- Convenient filters let you specify the number of validators by rate, specific validators, commission rate, timeframe, and redelegation beneficiaries.
- Adjust the display of the charts to show data by days, weeks, months, or years.
ESSENTIAL DEFINITIONS
The primary terms given in this report are the following:
- Stake (Voting Power)—the number of staked ATOM;
- Staking Ratio—a percentage of a cryptocurrency locked by users for network security, which is counted by the formula staked ATOM/Total supply;
- Validators—node operators in Cosmos Hub which secure the blockchain by confirming transactions and producing new blocks;
- Delegators—ATOM holders who delegated their tokens to validators performing staking to get staking rewards;
- APR—annual percentage revenue provided by the blockchain for staking;
- Inflation—the percentage of ATOM yearly supply.
INTRODUCTION TO COSMOS STAKING
Cosmos earns the moniker “Internet of Blockchains” for its role as a decentralized network comprising sovereign blockchains that interact seamlessly. At the core of this network is Cosmos Hub.
Before examining the state of Cosmos staking in 2023, it’s essential to understand why Cosmos has garnered substantial attention.
WHAT IS COSMOS?
Cosmos is a decentralized network comprising independent parallel blockchains with a proof-of-stake consensus mechanism. These blockchains operate via the Tendermint consensus algorithm, known for its Byzantine Fault Tolerance (BFT). Most Cosmos chains are expected to migrate to CometBFT, Tendermint’s successor.
The network’s core purpose involves establishing an ecosystem where interconnected blockchains can avoid the restrictions of the traditionally isolated ones. To achieve this, Cosmos facilitates the development of tailored blockchains using the user-friendly Cosmos SDK. SDK simplifies application-specific blockchain development, providing high security, performance, and adaptability.
The Cosmos Hub is the main hub or central connecting point for various blockchains within the Cosmos ecosystem.
A pivotal feature within Cosmos is the Inter-Blockchain Communication (IBC) protocol. This protocol empowers distinct Cosmos blockchains to exchange tokens and data seamlessly.
WHAT IS ATOM?
ATOM is a native token of the Cosmos Hub that serves for staking, liquid staking , governance, and paying transaction fees, thus providing the entire chain operation.
WHAT IS ATOM STAKING?
Staking ATOM involves locking up a certain amount of ATOM crypto tokens as collateral to support the security and operations of the Cosmos Hub. It is available through operating a node or delegating tokens to validators. In return, stakers receive rewards in the form of additional ATOM tokens.
ATOM staking is a critical mechanism that helps secure the Cosmos network, encourage active participation, and align the interests of token holders with the network’s health and growth.
STEADY RISE AND Q4 CORRECTION: 252 MILLION PEAK, 10 MILLION CORRECTION
The surge in staked ATOM saw a record yearly growth of 21%, accompanied by a remarkable 29.5% increase in the number of delegators, reaching 1,012,140 unique staking addresses.
A significant spike in stake occurred during Q1, driven mainly by ICF’s Delegation Program and inflow provided by Coinbase validator, totaling 27.7 million ATOM.
Interact with live graphs on Everstake.one
The steady increase in staking continued until August, reaching its peak at 252 million staked ATOM. However, a subsequent market downturn in Q4 led to a correction of approximately 10 million.
As the chart below shows, the spring months, spanning Q1-Q2, were the most successful in staking. The only months with a net stake outflow were October and November, with a loss of 3.16 million.
However, that gap was covered in December, with a net increase of 3.26 million, partially due to the substantial stake brought by the Coinbase validator.
Interact with live graphs on Everstake.one
Surprisingly, the main surge in ATOM stakers occurred in Q4, with 186,500 new staking addresses, reflecting 62,6% of the total yearly inflow. This is noteworthy despite Q4 being the least favorable regarding net stake inflow.
This trend can potentially be explained by the price revamp that began in October, followed by positive sentiments about the Cosmos ecosystem and the release of the new Liquid Staking Module in September, providing new use cases for ATOM staking. Among them is the instant conversion of already staked ATOM into liquid staking tokens, avoiding the unstake period needed before.
Following the Cosmos Hub upgrade v12, which introduced the Liquid Staking Module, Stride , the primary Cosmos liquid staking provider, attracted around 1 million ATOM in September, which increased its Total Value Locked by 25% in several days.
Interact with live graphs on Everstake.one
Another factor that could contribute to such disproportional growth is the assumption that some ATOM stakeholders flooded the chain with numerous spam accounts, each with a minimal stake (0.01 ATOM and less), which might be used to benefit from Cosmos airdrops or to affect Cosmos governance.
One such case can be associated with proposal #848, where 127,500 (73,9% of the turnout) dust accounts were involved, which is atypical for usual voting in Cosmos.
Interact with live graphs on Everstake.one
Source: Smart Stake Analytics
POST-HALVING RECOVERY: YIELDS BOUNCE BACK DESPITE REDUCED APR
In 2023, the average monthly profitability of ATOM staking stood at approximately 19.65% per annum.
The staking yield in Cosmos Hub is intricately linked to the Staking Ratio and inflation. Inflation increases when the Staking Ratio falls below 66.7%, impacting the Annual Percentage Rate (APR) growth. Conversely, inflation and profitability decrease if the Staking Ratio surpasses 66.7%.
According to the Cosmos documentation:
APR = inflation/Staking Ratio – 10% (Community Pool tax), where Community Pool tax stands for deductions made in favor of the Cosmos Community Pool.
Interact with live graphs on Everstake.one
The chart above shows that the highest APR values, exceeding 22%, were encountered in Q1 before a significant stake inflow in March-April. Subsequently, there was a gradual decrease in APR continuing until September, when it reached a local minimum of 18.51%.
Afterward, the Staking Ratio dropped below 66.7%, leading to an increase in inflation and APR. This trend concluded on November 23 with a value of 19.9%.
On November 24, a noteworthy shift in staking yields occurred due to the ATOM halving proposal #848. The proposal lowered the maximum inflation rate from 20% to 10%, narrowing the inflation change range to 7-10%, fundamentally reshaping ATOM tokenomics for the first time since the mainnet launch in 2019.
Despite the main formula not changing, the inflation shift led to ARP’s significant decrease by around one-third. But given that Staking Ratio kept lowering, yields recovered from 13,7% in November to 14,15% at the end of December.
Proposal #848 was backed by the assumption that ATOM, having high inflation compared to other tokens, faces greater volatility and dilution, hindering its growth in market cap and appeal to a broader audience. Despite the Staking Ratio remaining below historically high values, December witnessed a record inflow of delegators.
Despite reduced Cosmos staking rewards, the subsequent cryptocurrency market adjustment offset the impact. ATOM rewards in December only slightly decreased, around 10% in USD yields compared to November before Tokenomics changed. This difference is expected to be negated when ATOM reaches approximately $12.6.
Moreover, delegators shouldn’t overlook Cosmos airdrops, as nearly every new project joining the ecosystem seeks to engage the ATOM community by distributing its new tokens.
Thus, staking ATOM with a non-custodial validator like Everstake presents the chance to earn significantly more than just staking rewards, as exemplified by the successful Celestia’s airdrop in November.
DELEGATOR DYNAMICS: 53.91% OF THE TOTAL STAKE CONTROLLED BY ADDRESSES WITH 100K+ ATOM
Cosmos Hub remains a whale-dominant blockchain, and stake distribution barely changed, with 83% of total stake concentrated in groups staking in ranges:
- 100,000+ ATOM
- 10,000-100,000 ATOM
-
Delegators staking above 100,000 ATOM now command 53.91% of the total stake, with their count increasing by 10 in 2023 to reach 193 addresses.
Interact with live graphs on Everstake.one
However, the influence of these whale addresses on decentralization through Cosmos Hub governance seems improbable. Their stakes are distributed among approximately 125 validators, and a significant portion of these addresses are associated with custodial validators such as Coinbase and Kraken. These custodial validators refrain from participating in governance proposals due to legal limitations, mitigating the potential threat to the network’s governance control.
PROPOSAL SURGE IN 2023: 60 VOTED-ON PROPOSALS, TWICE 2022’S COUNT
Having no single core team responsible for the chain makes Cosmos Hub unique in terms of governance. Occasional drama accompanies many proposals (referred to as Cosmos drama), underscoring a high level of decentralization.
