This is pretty good structure for the primary coin on the network. It seeks to adjust inflation according to current staking levels. Theoretically, this should help with minimizing gas fees and create a network that has less friction for users.
Total Supply and Distribution
The total supply of ATOM is not capped, which means it can increase over time. This is primarily due to the inflationary mechanism designed to incentivize network validators. The initial supply was determined during the initial coin offering (ICO), and new ATOMs are introduced into the system as block rewards.
Inflation Rate
Cosmos employs a dynamic inflation rate that adjusts based on the total percentage of ATOM staked. The inflation rate is designed to encourage a target level of staking, approximately two-thirds of all ATOMs. If the staking percentage falls below this target, the inflation rate increases to incentivize more staking. Conversely, if the staking rate is sufficiently high, the inflation rate decreases.
Staking Rewards and Validator Incentives
ATOM holders can stake their tokens to participate in network security by delegating them to validators who are responsible for committing new blocks to the blockchain. Validators and their delegators earn staking rewards, which come from the inflationary supply of new ATOMs as well as transaction fees.
Governance
ATOM holders have governance rights, enabling them to vote on proposals that affect the network, such as software upgrades, changes in network parameters (like the inflation rate), and the allocation of community funding.
Utility beyond Staking
While ATOM's primary use case involves staking and network governance, it also plays a crucial role in the interchain security model of Cosmos. This model allows newer blockchains to use the security of the Cosmos Hub in exchange for a fee, which can be paid in ATOM.
Transactional Fees
Transaction fees on the Cosmos network can be paid in ATOM or other tokens within the network. These fees are distributed to validators as part of their compensation.
Scalability and Interoperability
One of the key elements of Cosmos is its focus on enabling different blockchains to communicate and transact with each other seamlessly. The tokenomics of ATOM are designed to support this broad vision by incentivizing participation and investment in the network’s security and operability. Show Less
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