What is Cosmos v12 Upgrade
The v12 will be upgraded at block 16985500, with an expected time of September 13th at 21:22:50. You can check the live countdown and the block status on mintscan. During this period, the Cosmos network will experience a brief downtime, and transactions may be delayed. Therefore, it is advisable to avoid transactions during the upgrade.
Now, let's take a closer look at the specific changes included in the v12 upgrade.
Liquid Staking Module (LSM)
In simple terms, with LSM enabled, staked ATOM will be able to participate in liquid staking directly, just like spot ATOM, thereby increasing liquidity within the Cosmos ecosystem.
Previously, liquid staking for ATOM could only be done with spot ATOM. For example, users would deposit spot ATOM into the liquid staking platform Stride to receive stATOM (ATOM LSD) and earn staking rewards. The stATOM could then be used in various DeFi protocols within the Cosmos ecosystem, such as DEXs, lending protocols, and more.
With the LSM's help, users can now use their staked ATOM for liquid staking on staking platforms, gaining ATOM LSD and staking rewards, while engaging in the same DeFi activities. Compared to before, this will significantly increase the available liquidity for DeFi protocols.
According to stakingrewards's data, the current staking ratio for ATOM is around 68%, with a total staked volume of nearly 1.6 billion. This data indicates that there isn't a significant amount of spot ATOM available for liquid staking within the Cosmos network. This scarcity of spot ATOM has resulted in a lack of overall liquidity in the Cosmos ecosystem.
However, this upgrade effectively unlocks a portion of staked ATOM tokens, releasing their liquidity into liquid derivatives platforms and DeFi protocols within the Cosmos ecosystem. This will positively impact the development of the Cosmos ecosystem.
It's worth noting that the released liquidity does not exist in the form of ATOM but rather in the form of ATOM LSD. This is because, fundamentally, ATOM still remains staked during the liquid staking process.
Liquid Staking Management
In addition to enabling LSM, the v12 upgrade has also introduced some liquid staking management measures:
- Limiting Liquid Staking
The number of ATOM that can be used for liquid staking will be limited to 25% of the total staked ATOM. This measure is designed to prevent liquid staking platforms from controlling an excessive amount of staked ATOM and reduce the centralization risk in liquid staking.
- Validator Bond
Validators will need to stake a certain amount of ATOM as self-bonding to qualify for receiving staked assets from liquidity staking platforms. This mechanism, known as "Validator Bond," with a 1:250 collateral ratio, meaning validators stake 1 ATOM and can receive 250 ATOM. This mechanism primarily aims to mitigate the risk of malicious behavior by validators.
- Instant Liquid Staking
LSM allows users to instantly stake staked ATOM for liquid staking. After the upgrade, users will no longer have to unlock their ATOM (waiting for the 21-day unstaking period) to engage in liquidity staking.
In summary, the most significant upgrade in v12 is the ability for users to stake their staked ATOM for liquid staking. This will help improve liquidity within the Cosmos network, increase the utilization of ATOM, and foster DeFi activities related to LSD.
Liquid Staking Derivatives (LSD)
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