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.
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 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.
Market Cap: $4.4B
Weekly Volume $1.41B
Weekly txs 530k
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.
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.
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.
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.
- Composable Twitter - https://twitter.com/ComposableFin
- Ethereum IBC Ann. Blog - Welcome Home: Guide to Participating in Composable’s Ethereum IBC Testnet | by Composable Finance | Oct, 2023 | Interchain Ecosystem Blog
- Ethereum IBC Testnet - Cross-ecosystem transfers | Trustless
- IBC Reference Information - What is IBC? | Developer Portal
Thank you for your time and consideration of this proposal. Looking forward to your feedback and support.