The governing body of the Cosmos Hub has approved a proposal to reduce the maximum inflation rate of its native token, Cosmos (ATOM), from 14% to 10%.
This decision aims to address concerns about the high inflation rate and its impact on the network’s security and token price.
As per the proposal, this adjustment would result in a decrease in ATOM’s annualized staking yield from approximately 19% to around 13.4%.
The Cosmos Hub serves as the primary blockchain within the Cosmos network, an interconnected system of blockchains.
ATOM tokens play a vital role in staking, governance, and covering transaction fees within the network.
The proposal faced a close vote, with 41.1% of votes in favor and 38.5% against.
Initially, it seemed likely to fail, but a last-minute surge in votes, along with some validators changing their positions, tipped the balance in favor of the proposal.
The proposal argued that the high inflation rate had led to overspending on security within the Cosmos Hub. It also contended that validators could still maintain profitability with a reduced inflation rate of 10%.
The entity with the highest number of votes in favor of the proposal, Zero Knowledge Validator, took to X (formerly Twitter) to explain its support.
They stated that double-digit inflation was unnecessary for security and could undermine the long-term value of ATOM.
Moreover, it could discourage the use of ATOM in decentralized finance (DeFi) and other applications within the Atom Economic Zone.
On the opposing side, AllNodes, a validator, voiced its concerns on X.
We voted NO on $ATOM prop #848 not only because it overlooks the importance of small validators and could centralize the ecosystem. Lowering inflation isn't a way to boost token value. Quick, untested changes could harm network integrity.
Long read with reasoning👇 1/3
— Allnodes (@Allnodes) November 19, 2023
They argued that the proposed change might negatively impact small validators and described it as “an abrupt, short-sighted, and ill-researched idea” that could disrupt retail and businesses engaged in building, trading, and validating ATOM.
Notably, the Cosmos Hub recently underwent an upgrade to introduce a liquid staking module.
This enhancement allows users to avoid the previous 21-day unbonding period when unstaking ATOM tokens.
Prior to this upgrade, ATOM holders had to wait 21 days before moving their funds after unstaking.
With the new module, staked ATOM can be utilized in the Cosmos decentralized finance ecosystem without compromising staking rewards, offering greater flexibility to token holders.