Cosmos Hub Unveils Liquid Staking Module, Accelerating DeFi Integration and Easing Unbonding Periods

Cosmos Hub, a key blockchain within the larger Cosmos Network, has rolled out a significant upgrade introducing a liquid staking module. This comes as a game-changer for ATOM holders, allowing immediate unbonding of assets without the previous 21-day waiting period.

What are ATOMs and How Were They Previously Treated?

ATOM is the native token of the Cosmos network. Prior to this upgrade, users faced a 21-day lock-in period after unstaking their ATOM tokens. During this time, the staked assets couldn’t be moved or utilized in other decentralized finance (DeFi) applications within Cosmos. This often placed investors in a quandary: choosing between staking for network security and yield, or participating in the burgeoning DeFi ecosystem.

Liquid Staking: Bridging Staking and DeFi

The new module allows ATOM holders to freely move their staked assets into Cosmos’ DeFi ecosystem without losing their staking rewards. Essentially, this connects two critical crypto financial activities—staking and DeFi participation—making it possible to earn staking rewards while simultaneously leveraging assets for other financial activities.

According to pseudonymous Cosmos validator Cryptocitos, this feature is set to unlock over $400 million worth of ATOM tokens, potentially accelerating their presence in Cosmos-based protocols. “No more need to wait 21 days to unbond and no more choosing between Staking or DeFi,” Cryptocitos noted on X (formerly known as Twitter).

Governance and Risk Mitigation

Understanding the risks inherent to liquid staking, Cosmos Hub has implemented governance-controlled parameters. Validators receiving delegations from liquid staking providers will be required to self-bond a certain percentage of ATOM tokens, adding an extra layer of security to the system.

Economic Impacts: Inflation and Caps

Another critical impact of this feature will be on ATOM’s inflation rate. Cryptocitos explains that the bonded ratio for ATOM, which is currently at 67.8%, impacts the inflation rate. As the bonded ratio crosses the 66.67% threshold, the inflation rate slowly decreases to its floor of 7%—it’s currently at 14.26%.

Additionally, to prevent concentration and potential misuse, Cosmos Hub has set a 25% cap on the total amount of ATOM an individual can liquid-stake.

Conclusion

The liquid staking module, live since September 12, 2023, at block height 16985500 under the name Gaia 12, represents a significant milestone for Cosmos Hub and its user base. By eliminating the 21-day unbonding period and allowing staked ATOM to be utilized in the DeFi ecosystem, the upgrade not only improves liquidity but also broadens options for user engagement within the Cosmos Network.