[DRAFT PROPOSAL ] Cosmos Hub & Neutron: Validator alignment

Note: This proposal is the first of a series of proposals meant to increase alignment between Cosmos Hub, Neutron, Stride, future consumer chains and their respective stakeholders. A document outlining the general vision for these proposals is being drafted.

Summary

  • Allocate 10,000 NTRN from the NTRN Airdrop to each Cosmos Hub validator running Neutron nodes to provide financial support and improve incentive alignment.
  • Validators opting to not run Neutron nodes after the 31st of December under the ‘soft opt-out’ feature will not be eligible.
  • Tokens are allocated to Cosmos Hub operators running active nodes on Neutron. Operators whose nodes become inactive on Neutron will be reallocated or returned to the Cosmos Hub Community Pool.
  • Validator allocations will be vested linearly over one year using dedicated contracts on Neutron.
  • A corresponding proposal will be made to the Neutron DAO to request the enabling of a voting vault to provide locked validator tokens with voting rights in Neutron governance.

Context

Following the approval of proposal 835 and proposal N24, the Cosmos Hub community pool received ~42,727,950 NTRN tokens (4.27% of max supply of NTRN) from the Neutron Airdrop. This NTRN materialises the close alignment between the Hub and Neutron, reinforced by the “Do no harm” and “Cooperation” policies ratified by the Cosmos Hub community.

At present market value (>$0.80 NTRN 13.12.23) the transaction will equate to a return of >$34,000,000 on its initial outlay of 50,000 ATOM to Neutron in Prop 72. Based on average monthly cost of validation estimates, this would equate to 15 to 30 years of security budget.

This redoubled incentive alignment between the networks creates massive opportunities for collaboration: joint ecosystem funding initiatives, strategic PoL to bolster the AEZ’s growth, liquidity bootstrapping programs to enshrine ATOM as money on Neutron and the AEZ, and more.

As an initial step, we propose to ensure that Cosmos Hub validators are properly incentivized to fully support Replicated Security and Neutron. To this effect, we propose to allocate 1.8M NTRN out of the 42M tokens (roughly ~4.2% of the Hub’s allocation) to support and incentivize validators running Neutron nodes.

Proposal

We propose an endowment of 10,000 NTRN per validator, to be linearly vested over a year using battle tested smart-contracts on Neutron. Assuming a corresponding proposal is ratified by the Neutron DAO, Cosmos Hub validators would benefit from voting rights in Neutron governance.

  • Validators who wish to cover infrastructure cost may claim and sell their tokens
  • Validators who wish to gain upside in Neutron’s success may hold their tokens and help steer the network towards success

In the absence of ICA controller functionality on Cosmos Hub, it is not possible to implement a fully trustless solution. In the interest of time and simplicity, we propose to start with a minimal solution that can be implemented in the coming weeks, according to the following steps:

  • Obtain governance approval from the Cosmos Hub and Neutron DAO
  • Transfer 1,800,000 NTRN to a DAODAO multisig on Neutron.
  • Allocate 10,000 NTRN per active Neutron validator to a vesting contract on Neutron.
  • Vest the tokens linearly over 12 months. Unlocked tokens can be claimed at any time.

Since this proposal would release a large number of tokens into circulation, and in order to reinforce the collaborative precedent between the DAOs (having passed joints proposals for the airdrop transfer and more), a proposal to the Neutron DAO would be made to ensure it consents to the allocation of 1,800,000 NTRN. This would ensure that the Do No Harm and Cooperation clauses approved by the Cosmos Hub in Prop 835 are explicitly respected, and would grant the validator allocations voting power in the Neutron DAO.

This structure is the most straightforward option and can be implemented in a short amount of time. It requires a committee to perform the IBC transfer and allocate the NTRN tokens to the vesting contracts.

Name Role Address
TBD
TBD
TBD
TBD
TBD

Upon successful passing of the proposal the full amount of 1,800,000 NTRN would be sent from the Cosmos Hub community pool to the above multisig, which would then perform an IBC transfer to Neutron and execute a message to register vesting allocations for each validator.

The multisig would retain the ability to edit/remove vesting schedules to easily handle circumstances such as:

  1. An operator key has been compromised and the vesting schedule needs to be registered to their new operator address.
  2. An operator is no longer an active validator on Neutron and the remaining tokens need to be returned to the Cosmos Hub CP or registered to a different operator which has replaced them in the active set.
  3. Etc.

Any tokens remaining at the end of the period would be returned to the Cosmos Hub community pool before the multisig is disbanded.

Governance votes

The following items summarize the voting options and what they mean for this proposal:

YES: You wish to transfer 1,800,000 NTRN tokens from the Community Pool to the dedicated multisig to be allocated to validators running active Neutron nodes.

NO: You do not wish to transfer 1,800,000 NTRN tokens from the Community Pool to the dedicated multisig to be allocated to validators running active Neutron nodes.

ABSTAIN: You wish to contribute to the quorum but you formally decline to vote either for or against the proposal.

3 Likes

Appreciate you initiating this dialogue!

Regarding the vested payments to validators, is there a stance on including those on centralized exchanges (CEXs)? It’s not immediately clear if they’re intended to be part of this scheme.

The plan for a multisig on Neutron and a dual-proposal framework makes sense here, but I do have concerns about the precedent it sets. The ‘do no harm’ commitment by the Hub can be subjective, and while alignment should prevent detrimental actions to Neutron, it’s important that the Hub retains autonomy over fund management without necessitating Neutron DAO’s approval for every transaction. In my mind, the bulk of the decision and discussion for this should be on the Cosmos Hub forum, and then the vesting/multisig plan discussion should finish up here.

Take the AAT and Timewave initiatives; they’re designed to manage liquidity and occasionally sell/swap tokens on behalf of the Hub across the AEZ. Requiring approvals for such transactions seems excessive. Trust and a robust partnership should underlie these operations, allowing both entities to act in mutual support, as the tradition that is being championed here. These are major examples that will be relevant soon, but even validator subsidies shouldn’t need Neutron DAO approval.

While some might be comfortable with the Hub operating independently post-proposal, others might anticipate a need for approval for actions, which could lead to misalignments if not explicitly understood by all parties involved.

Also going to port over the post I made on the Cosmos hub forum related to this topic:

The focus of these funds should be long term alignment, and continuing to deploy useful liquidity throughout the AEZ & Cosmos ecosystem.

Although this could be a boost to things like validator revenues to help some of the smaller operators like myself and fund more grant proposals, I do not believe we should pull the trigger too early and spend too much on short term initiatives. We would hate to look back and regret it if the funds meant for the hub to see long term alignment with the upside of Neutron were all spent in the early days. The $3M number for validator subsidies actually doesn’t seem like too much of the total especially over a few years, so as long as we responsibly choose a number and a distribution process to not add too much sell pressure. Validators using the soft opt-out would probably need to be ineligible for this payment if we do go this route.

It does make sense to spend some of these funds, but I am largely in favor of deploying this liquidity in useful ways that doesn’t relinquish ownership from the Hub. We have the AAT coming which will allow for a more flexible and comprehensive deployment strategy. Timewave will be a boon to this as well. Any ATOM buybacks or USDC conversions may hurt the value of the token if not done properly. AAT & Timewave management would probably be preferred here as well.

Maybe its broken into 4 groups: Short term needs (Neutron specific grants through AA, neutron related funding prop), Validator subsidies, AAT deployment, and Strategic Reserve.

Would be cool to get that voting API and start voting soon too :slight_smile: .

1 Like

I don’t think the Hub’s autonomy is threatened. At the end of the day, the Hub is sovereign over its own treasury and there is nothing that a signaling proposal on Neutron can do about it.

In my opinion this is important for two reasons:

  • Set the precedent of seeking consensus whenever possible
  • Help discover the content of Do No Harm and Cooperation, as they are very broad and vague and should be refined iteratively through cooperation between the communities similar to how case law functions.

I don’t think any operational discussion should happen here - I think it should all happen on the Hub forum, and the Neutron proposal is merely to signal support/opposition to a specific plan.

Whether the Hub’s community take these outcomes into consideration is up to the Hub’s community, the hope being that these signals are taken into account and they result in good policies and alignment between the communities building up.

The proposed spend is less than 10% of the overall allocation, and given that the main source of frustration in RS has been from the validator’s infra cost, I think this is a worthwhile deployment.

I’m against buy backs or USDC conversions, they break the value of the allocation as an alignment mechanism and actively harm the interest of the Neutron community, but that’s my own opinion and we’ll see what the DAOs will end up doing.

Re voting, the remaining roadblocks are mainly getting a coherent plan in place. Neutron’s voting vault structure already enables this, so afaik the main thing would be to get ICA enabled on the Hub and such so that the system can be really trustless.

I would like with this comment to give a chance for those who will read to stop and think. The hub is not held up by validators alone, the hub is held up by the community, holder of atom. If Neutron is an unprofitable, expensive chain that rewards only the validators, I think we are doing it wrong. Governance should vote to get Neutron out of the ICS. By paying validators you are publicly corrupting them by admitting the ineffectiveness and lack of strategic power of your chain

1 Like

I would like with this comment to give a chance for those who will read to stop and think. The hub is not held up by validators alone, the hub is held up by the community, holder of atom. If Neutron is an unprofitable, expensive chain that rewards only the validators, I think we are doing it wrong. Governance should vote to get Neutron out of the ICS. By paying validators with Cosmos Hub community pool you are publicly corrupting them by admitting the ineffectiveness and lack of strategic power of your chain. I call for VERY good and VERY DETAILED clarification of how and when these Cosmos Hub community pool funds will be spent.

This proposal is a dangerous mistake. IF Neutron node runners are unprofitable, they are incentivized to take the 10000 Neutron and run.

Instead, these 10000 Neutron for each validator should be vested for 1 year to incentivize validators to KEEP RUNNING nodes for that time duration.

1 Like