[Temp Check] Add Atom as Collateral

New Markets
1

Hello Compound Community, I am Agustin a partnership lead for Composable Finance. This proposal is to explore and discuss the potential of adding ATOM, the native token of the Cosmos network, as collateral on Compound. Our main point of reference is that ATOM has established its reliability as a valuable asset given its substantial liquidity and integral role in the Cosmos network. The process of making a non native asset usable on Compound will be securely be done by using IBC as a bridging mechanism. The end goal is to make ATOM an advantageous addition to Compound’s collateral options.

Background
The Cosmos hub, symbolized by its native token ATOM, represents a robust ecosystem of interconnected blockchains designed to improve scalability and interoperability in the blockchain space. ATOM holders can stake their tokens to secure the network and earn staking rewards, contributing to the network’s consensus and governance.

For more insights, refer to the Cosmos Hub documentation: Cosmos Hub Documentation

The integration of ATOM on Compound could serve multiple purposes, such as:

  • Enhancing liquidity on the Compound platform by attracting Atom liquidity
  • Providing ATOM holders with opportunities to leverage their holdings on Compound.
  • Fostering a stronger bridge between the Ethereum and Cosmos ecosystems
  • Expanding ATOM’s utility by allowing it to be used as collateral, thus giving it more functionality within the DeFi space.

ATOM Token

ATOM is not only a governance token but also secures the Cosmos Hub through staking. The token accrues value through network fees and staking rewards. Cosmos employs a slashing mechanism to maintain network integrity, which can be considered in risk assessments.

Cosmos and ATOM are supported by thorough documentation and have undergone several audits, ensuring a high level of trust and security within the network. ATOM is also supported by various oracles for price feeds, which facilitates its integration into lending platforms.

Atom Stats
Market Cap: $4.4B
Weekly Volume $1.41B
Weekly txs 530k
WAU 170k

Parameters
Given ATOM’s market presence and existing liquidity pools, I propose the following parameters for its inclusion on Compound:

  • A conservative Maximum Loan-to-Value (LTV) ratio to start, ensuring a buffer against market volatility.
  • A Liquidation Threshold and Liquidation Penalty in line with Compound’s risk management practices and comparable to those of similar assets on the platform.

Strategy
We have our IBC bridge that will allow for these assets to become ERC20 tokens in the most secure and trust minimized manner. We are connected with the main hubs from Polkadot and Cosmos and will be advocating to get cross chain community support. Initially we plan on getting support from market makers and community pools to inject the initial liquidity.

Detailed IBC Overview
The Inter-Blockchain Communication Protocol (IBC) is a protocol designed to facilitate the authentication and transportation of data between two blockchains. It operates with a minimal set of functions defined in the Interchain Standards (ICS). Importantly, IBC does not limit the network topology or consensus algorithm of the blockchains it connects, making it versatile and adaptable for use with a wide range of blockchains and state machines. The following features highlight key benefits to utilizing IBC:

i) Permissionless and Secure: IBC offers a permissionless way to relay data packets between blockchains, unlike most trusted bridging technologies. The security of IBC relies on the security of the participating chains.

ii) Modularity and Composability: IBC separates the transport layer (TAO) responsible for secure connections and data authentication from the application layer, which defines how data packets are packaged and interpreted. This modularity enables composability and the ability to design applications on top of IBC.

iii) Light Clients and Relayers: IBC relies on light clients and relayers to ensure the validity of cross-chain transactions. Relayers are responsible for scanning the state of participating chains, constructing datagrams, and executing them on the receiving chain. Light clients efficiently verify the relevant state of the counterparty blockchain.

iv) Security: IBC’s security is based on trusting the consensus of the connected chains. It also implements fault isolation mechanisms to limit damage in case of malicious behavior.

About Composable
Composable was the first company to connect a non Cosmos chain through IBC. This was through a custom mechanism to connect Polkadot and Cosmos. Our goal is to bring IBC everywhere, hence connecting to all chains. Connecting to Ethereum will be a major push in the terms of secure interoperability as we are moving away from centralized solutions and empowering users.

Conclusion
This proposal seeks to collect feedback and sentiment around incorporating ATOM into Compound to boost liquidity and user interaction. Leveraging the Inter-Blockchain Communication (IBC) protocol, with Composable leading the charge in establishing secure cross-chain links, it intends to close the gap between different blockchains. Supported by the community and market makers, the proposed approach offers a well-founded plan for enhancing Compound’s stature within the cross-chain DeFi ecosystem.

References

Thank you for your time and consideration of this proposal. Looking forward to your feedback and support.

2

Hi,

  1. Is there any specific imagined use case that is unique and / or is in demand? Why Compound? Please elaborate.
  2. Which instances of Compound III do you think would be appropriate for the new collateral asset? There are deployments of Comet on Ethereum, Polygon, Base, and Arbitrum.
  3. Which of these chains are capable of having the token bridged to it?
  4. Are there sufficient liquidity of the token in DEX markets for Comet liquidation purposes?
  5. Are there price feeds on the desired chains? Ideally Chainlink because all prior deployments have it integrated.

Adam

3

Hey Adam, greatly appreicate the diligent questions. Here are my responses below.

Q: Is there any specific imagined use case that is unique and / or is in demand? Why Compound? Please elaborate.
A: There is unique demand for Atom to become interoperable because its ecosystem has a lackluster defi ecosystem. Atom is relatively a big token with strong ecosystem but it is not pluggable into its native defi space. Compound is a staple to defi protocols and we believe that this could be a stepping stone to integrate Atom into an established distribution platform.

Q: Which instances of Compound III do you think would be appropriate for the new collateral asset? There are deployments of Comet on Ethereum, Polygon, Base, and Arbitrum.
A: This asset would be an ERC20 on mainnet meaning that it will stay on current mainnet deployment. We are working to expand out to L2s and other chains.

Q: Which of these chains are capable of having the token bridged to it?
A: Polkadot chains, Cosmos Chains, soon Ethereum and Solana. You can view entire list here Cross-ecosystem transfers | Trustless

Q: Are there sufficient liquidity of the token in DEX markets for Comet liquidation purposes?
A: We are in the process of bootstrapping the pools but we are working with established Market Makers to ensure robust liquidity. We plan on being live on several Dexes with good emissions for incentives.

Q: Are there price feeds on the desired chains? Ideally Chainlink because all prior deployments have it integrated.
A: Any major oracle system will be compatible to get the price feed

Thanks again for these great questions Adam. If you need me to elaborate on any specifics further happy to do so. Also happy to chat individually if you prefer.

4

It is shocking and dismaying to me that Composable Finance continues to perpetrate the deception that they have deployed a light-client based, IBC bridge to sepolia testnet. The material they have linked here, is simply untrue. Their contracts neither perform any light client verification nor do they even check commitments for merkle trie inclusion. It will simply accept any message passed to it as a valid commitment, as long as it passes a few sanity checks, allowing arbitrary minting. I have serious concerns if they go ahead and put this in production anyway, and now they are apparently seeking out partnerships in the ethereum ecosystem. Needless to say you should not touch this. They have substantially invested in the promotion of this product, claiming it’s something it just clearly isn’t, so whatever they end up releasing can’t be trusted. If there’s any doubt, just check on sepolia, this is the address of their (not) “light client” - 0x56378f9b88f341b1913a2fc6ac2bcbaa1b9a9f9f
the verifyMembership function 0x33714fe4 just returns ‘true’. There is no functionaly that verifies proofs of bridge messages.

So tl;dr no assets bridged to ethereum via their bridge are safe to use as collateral, and they are malicious actors.

5

Currently, we’re in the testnet phase of implementing Ethereum IBC. We’re actively deploying bridge components, and you can find detailed information about our bridge architecture in our documentation here: https://docs.composable.finance/technology/ibc/ethereum-ibc

During this testnet phase, we’re gradually releasing significant components, which might have caused some features to appear missing previously. However, rest assured that before the bridge is launched on the mainnet for production, our contracts will undergo audits, and the audit reports will be made public. This process will disprove any claims made against the reliability of our system.

To clarify, the latest version of our IBC implementation is operational on Goerli, not Sepolia, as indicated in your claims. You can test our bridge functionality here: Cross-ecosystem transfers | Trustless

Composable is the only team to have achieved a significant milestone by deploying an IBC instance outside of Cosmos, a two-year effort for our team. I kindly request that you await the audit reports and refrain from spreading FUD and unsubstantiated concerns about our work, which we’ve dedicated substantial effort to, without having the complete context. If you’d like us to run through our bridge in more detail, I’m happy to setup a call with one of our team members to explain our release process.

I encourage you to try it out here on Goerli. We welcome constructive feedback, that’s the main objective of our testnet. If you’re willing to identify yourself, we’d be more than happy to have a chat, reach me on tg @agustincortes831