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Cosmos Community Introduces Temperature Check Proposal for ATOM Liquidity Pledge

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On April 24th, the Cosmos community released a temperature check proposal aimed at introducing ATOM liquidity pledge, and voting has now begun. The proposal proposes to replace the

Cosmos Community Introduces Temperature Check Proposal for ATOM Liquidity Pledge

On April 24th, the Cosmos community released a temperature check proposal aimed at introducing ATOM liquidity pledge, and voting has now begun. The proposal proposes to replace the current pledge, allocation, and penalty modules of Cosmos Hub with LSM (liquid stacking module), and to mitigate liquidity pledge risks by limiting the total amount of ATOM pledged for liquidity to 25% of the total amount of ATOM pledged.

Cosmos community releases a temperature check proposal aimed at introducing ATOM liquidity pledge

The Cosmos community recently released a temperature check proposal that aims to introduce ATOM liquidity pledge and voting has now begun. The proposed changes include the replacement of the current pledge, allocation, and penalty modules of Cosmos Hub with LSM (liquid stacking module) and mitigating liquidity pledge risks by limiting the total amount of ATOM pledged for liquidity to 25% of the total amount of ATOM pledged. In this article, we explore what this proposal means for the Cosmos ecosystem and highlight its potential impact.

What is the ATOM Liquidity Pledge?

The ATOM liquidity pledge is a mechanism that incentivizes token holders to lock up their assets for a specific period to ensure sufficient liquidity on the network. When users stake their tokens, they earn rewards in return. However, when they make a liquidity pledge, they lock up their assets for a specified period, earning additional rewards. This encourages token holders to secure the network while providing liquidity for other users.

The Current Pledge, Allocation, and Penalty Modules

The current pledge, allocation, and penalty modules have been in place since the inception of Cosmos Hub. The allocation module distributes rewards based on a formula that considers the total amount of staked ATOM and the liquidity provided. The penalty module penalizes those who do not meet the minimum pledge requirements, while the pledge module allows users to stake their tokens for a specified period.

The Liquid Stacking Module

The liquid stacking module (LSM) is a proposed alternative that aims to increase liquidity while mitigating risks associated with liquidity pledge. With LSM, users can stack their tokens and remain liquid, allowing them to earn rewards while having the flexibility to transfer or sell their tokens if they need to. Additionally, LSM aims to reduce the likelihood of staking failures by introducing a stacking score that considers parameters such as uptime and the amount of ATOM stacked.

Mitigating Liquidity Pledge Risks

One of the main concerns associated with liquidity pledge is the risk of a flash crash. When a significant number of tokens are unlocked simultaneously, this can lead to a sudden drop in the value of the asset. To mitigate this risk, the Cosmos community has proposed to limit the total amount of ATOM pledged to 25% of the total amount of ATOM pledged. This ensures that the network has sufficient liquidity while reducing the risk of a sudden drop in value.

Potential Impact of the Proposal

The temperature check proposal has the potential to enhance the Cosmos ecosystem significantly. If approved, it would encourage more users to stake their tokens and provide liquidity, providing a more significant incentive for holding ATOM. This, in turn, could increase the value of the asset and attract more users to the network.

Conclusion

The temperature check proposal for ATOM liquidity pledge is a significant development for the Cosmos community. If approved, it would introduce significant changes to the current pledge, allocation, and penalty modules of Cosmos Hub. The proposed liquid stacking module aims to increase liquidity while mitigating risks associated with liquidity pledge. The proposal also aims to limit the total amount of ATOM pledged for liquidity to 25% of the total amount of ATOM pledged, reducing the risk of a flash crash. All of this would encourage more users to stake their tokens and provide liquidity, potentially increasing the value of ATOM and attracting more users to the network.

FAQs

Q1. What is the ATOM liquidity pledge?

A1. ATOM liquidity pledge is a mechanism that incentivizes token holders to lock up their assets for a specific period to ensure sufficient liquidity on the network.

Q2. What is the liquid stacking module?

A2. The liquid stacking module (LSM) is a proposed alternative that aims to increase liquidity while mitigating risks associated with liquidity pledge.

Q3. What is the proposed limit for the total amount of ATOM pledged for liquidity?

A3. The proposal suggests that the total amount of ATOM pledged for liquidity be limited to 25% of the total amount of ATOM pledged.

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