What is the functionality of ATOM? What are the Tokenomics? What does IBC do?

What is the functionality of ATOM? What are the Tokenomics? What does IBC do?

When talking about Cosmos, these questions are asked a lot, but the answers are always changing because ATOM continues to evolve. I went ahead and did my own little rabbit hole of research and tried to answer them below, as concisely as possible to avoid confusion and also to show the purpose of each aspect of ATOM’s functionality, atleast as much as I could gather. I am not a financial advisor and none of this is advice, it’s just little windows of research into a bigger space, so, as always, please do your own research.

Inflation?

First, many people wonder about inflation. What is the point of it? Inflation is important to give incentive to staking. Why? Because in a POS (Proof of Stake) model, staking secures the network. So, by implementing inflation, new tokens are created and distributed to the network participants who participate by securing the network and voting on new governance. Keep in mind, inflation is very useful in the early stages of a network’s growth, and as alternative incentives to staking arise, inflation can be slowly phased down after the network is healthy and robust. For now, ATOM employs the following model:

The inflation has a floor of 7% and a ceiling of 20%. The target percentage of total supply coins staked is 66%. The network uses an algorithm to maintain this level. When the staked percentage of total supply is above 66%, the inflation heads down to the floor of 7%. When the staked rate is below 66%, the inflation starts heading up towards the ceiling, 20%.

The rate at which the inflation changes is proportional to how far you are away from 66%. The further the staked ATOM percentage is away from the target of 66%, the faster the inflation changes to help encourage the amount of ATOMs staked to go back above the target by rewarding extra atoms for staking.

Supply Cap?

As mentioned above, some inflation is always necessary in order to create an additional, non-transaction reward for validators and to maintain strong security. With the Proof of Stake model, there can be potential consensus instability issues if the entire reward for validators is based on transaction rewards and not the overall block reward. Because of this, Proof of Stake is generally not designed to have a maximum supply, which necessitates inflation eventually going to zero once that supply is reached.

Burn?

This doesn’t exist yet, however, ATOM is a heavily weighted governance functionality token, it is very possible to change parameters on the hub through governance proposals, but even small changes will be heavily scrutinized and debated by the voting community.

ATOM’s Current Functions

This is a list of the functionalities that are proposed on the website, Cosmos.Network . In just about a week the incentivized Testnet for the Gravity Dex begins, shortly after that we’ll likely see the implementation of the Dex on the hub and shortly after that, we’ll see what happens with Althea’s Gravity Bridge! Here comes ATOM DeFi!

ATOM’s Function in the Very Near Future

This is mostly a section about functionality that is forward-looking and speculative, some of it is announced on the roadmap on the Cosmos Website, some of it are little tidbits floating around the space, I linked and tried to explain what I could find.

For further reading on these upcoming features, check out: https://cosmos.network/features/

ATOM’s Function in the Slightly Further Future

This is mostly a section about functionality that is forward-looking and speculative, some of it is announced on the roadmap on the Cosmos Website, some of it are little tidbits floating around the space, I linked and tried to explain what I could find.

Possible Applications for IBC

The inter-blockchain communication protocol (IBC) is an end-to-end, connection-oriented, stateful protocol for reliable, ordered, and authenticated communication between heterogeneous blockchains arranged in an unknown and dynamic topology. IBC can be used to build a wide range of cross-chain applications, which include token transfers, atomic swaps, multi-chain smart contracts (with or without mutually comprehensible VMs), and data & code sharding of various kinds.

Few seem to understand that IBC for Cosmos chains means that one chain can hold another chain’s tokens! This kind of functionality increases the potential of any IBC enabled chain with all sorts of possible applications. Here are a few ways chains can use IBC based off of small pieces of information I’ve gathered and my own speculation.

Each developer you ask will likely have a different answer for what they want to do with IBC. This post has been a bit abstract but rest-assured — concrete examples are coming on-chain in the near future. IBC is the puzzle piece that enables vast possibilities for decentralized exchanges, staking derivatives, and Interchain accounts. Plus, there are many more functionalities that haven’t even been discovered yet. IBC makes Cosmos flexible, adaptable, and robust because it turns competition into collaboration.

With the friction-less transference of data and assets between chains, Cosmos opens the door for people who aren’t even aware of the word “blockchain” to transact with the powerful, efficient tools that blockchain technology enables. Cosmos’ open source toolkit makes it easy to build and deploy a blockchain. Inter-chain staking makes it convenient to secure it. The DEX and IBC allow seamless connection to other chains within the ecosystem. This is why we say that the functionality of Cosmos is limitless. It can stretch as far as we can take the technology, and the technology is incredibly flexible. It’s impossible to list what’s possible because the project is still in its infancy. To end the post, I’ll leave this fantastic quote from Dean Tribble of Agoric that seems to encapsulate the anticipation most Cosmos fans feel,

“It’s like dropping a crystal into a supersaturated solution: The pent-up need for interconnection between chains will be unleashed. Some of the most interesting connections will be between chains that we have never heard of, accomplishing things not currently feasible.”

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Class: Rogue

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