Most everyone has heard of Cosmos, and most everyone in the cosmos ecosystem has heard of stride, but for those of you who haven’t we are going to start with a little background about what they do and what this article is gonna be diving into.
The Origin Story
Lets keep it simple, Stride is based out of New York city founded in 2022. It’s the lead liquid staking protocol on Cosmos. THEY RAISED 6.7 million in seed round funding. Virat Talwar, and Vishal Talasini, are incredible people, and some of the smartest people I know [0].
If you don’t know what liquid staking is, sorry I can’t help you. Jk, here’s a few articles you can read to brush up on your blokchain knowledge that is absolutely essential for the rest of this document.
Extremely essential, so go read the documents. [1] just one of them to make it easy😃
Stride has a market cap of a fixed 100 million, this means their tokenomics are designed to be highly profitable to holders. Initially the proposal was to distribute 2,608,200 STRD to incentivize stakeholders but with the new shift to ICS the updated distribution is 1,304,100 STRD annualized. Along with this, 15% of the staking rewards will go back to the hub.
This breakdown should help illustrate how the economic incentives work in the ecosystem.
Staking and Rewards in Stride
- Staking: In Stride's system, if you own STRD tokens, you can "stake" them. Staking is like saying, "Hey, I'm not going to use these tokens right now. I'll let the system use them to help make everything run better." It's a bit like investing your money in a bank and letting the bank use it, while you get some interest in return.
- Earning Rewards: By staking your STRD tokens, you help secure the Stride network and keep it running smoothly. As a thank you, the system gives you rewards. These rewards are more STRD tokens. It's like getting a small thank you gift for helping out.
- Reducing Rewards to Make Things Sustainable: Initially, Stride was giving out quite a lot of STRD tokens as rewards. But they realized that if they kept giving out so many, it might not be good for the long-term health of the game (or, in this case, the Stride network). So, they decided to cut the rewards in half. This is a bit like a game developer reducing the number of in-game coins you get for a task to make sure the game stays fun and challenging for a longer time.
- Participating in Decisions: Owning STRD tokens also gives you a say in some of the decisions about how the Stride system should work, kind of like getting to vote on new rules or features in a game.
WTH IS ICS
Well, ICS is beautifully explained by Sunny Agarwal, in his presentation at Cosmoverse 202, where this guy showed up in a 40 pound suit of armor.
OH - ICS stands for interchain security, it is the idea that within the Cosmos ecosystem we can increase security by having individual blockchains share their validator set and their rewards.
So below we have Sunny explaining mesh security if you need more details, but if I was gonna summarize in two lines. Mesh security is like the united nations, a n to n mapping of subsets of validator sets that allow the world to run properly and safely because of the balance of social power. Watch Sunny Agarwal’s presentation
Let's Get Into It
The Controversy
That is a bomb dropped in the cosmos forums, and sparked a 166 thread debate, I am gonna do my best to breakdown the key points of this discussion for you today.
Pros
- This significantly increases the value prop for Cosmos hub
- This benefits Stride decentralization
- They adopt the cosmos validator set which is significantly larger
- This benefits capital efficiency of the cosmos ecosystem because, liquid staking is natively enabled on ATOM and allows for less fees when liquid staking
- Huge economic upside for ATOM and stability upside for Stride
- This makes Stride the enshrined liquid staking protocol
- The Stride team and Hub team become two independent identities working on development on the Hub therefore decentralizing the development of the hub as well
- Stride is currently a leveraged bet on Cosmos, it derives 80% of its value from the ATOM hub
Cons
- Horrible for STRD economics
- currently stride has a cap of 100 million tokens if we convert into cosmos you are converting into an inflationary currency
- Might result in less decentralization, this might screw over other liquid staking protocols on cosmos
- Might decrease the use of Stride because it is not as easy to partner with other staking providers
- Requires an 80 million dollar investment, the current community pool only has 40 million
- This means that there has to be 40 million tokens minted on cosmos which is diluting by about 4% which is horrendous
- There is an argument to be made that ICS is sufficient and there is no need to migrate towards a meshed chain entirely
Summary
Overall the biggest thing to take out of this discussion, is that it is a discussion. Stride is asking its community to review a decision they are trying to make, this is a good move by their corporation, but has sparked a lot of debate and controversy. This merger would be incredible for the ATOM hub and would make ATOM hub tokenomics fall into place much more, which is already an issue being worked on by AADAO. This could really make Stride the primary liquid staking protocol on Cosmos, and create a moat for them that shuts out all their competitors, but at the same time this would increase centralization. This is an amazing move for the corporations but not for their stakeholders, and this is a primary example of how we see blockchain as different from a regular corporation. Corporations move in accordance with their greatest benefit even if it means screwing over they’re customers, blockchain networks don’t do that.
Blockchain networks try to act in the best interest of they’re people. One thing to note though, is that this would be one of the first crypto mergers, and if they did go through with it, it could set a hallmark for future chain mergers and acquisitions in a blooming ecosystem in the future.
Lastly, I am still bullish on Cosmos because while the tokenomics are fucked, and the coin isn’t profitable, it is one of the best blockchain projects out there, this is the one place where companies can merge, be acquired and work as they do in the regular world. Mesh security is actual decentralization, Ethereum with ZK rollups is just a tree with a strong trunk and a lot of branches. We need a network of trees all with their own branches to build a forest, and its only a matter of time until the forest overtakes the biggest tree on the block.