The upgrade introduces a liquid staking module, eliminating a 21-day locking period applied for unstaked ATOM tokens.
Cosmos Hub, a blockchain part of the Cosmos Network, has been upgraded to launch a liquid staking module, enabling users to bypass the previous 21-day unbonding period by unstaking ATOM (ATOM) funds.
ATOM is the native token of the Cosmos network. Before the upgrade, ATOM holders had a locking period of 21 days to move their funds after unstaking the token. With the new module, staked ATOM can be used in the Cosmos decentralized finance (DeFi) ecosystem without compromising yields from staking.
The staking process involves users holding their tokens to validate transactions and secure a blockchain network. Participants receive rewards for their contribution, similar to earning interest on a savings account.
The v12 upgrade is successfully completed ⚛️
The Liquid Staking Module is live on the Cosmos Hub!
With LSM the Hub unlocks new dynamics within the ATOM Economic Zone.
— Cosmos Hub ⚛️ (@cosmoshub) September 13, 2023
According to pseudonymous Cosmos validator Cryptocitos, the new module will unlock over $400 million worth of ATOM, likely accelerating the staked ATOM presence in protocols running on Cosmos. “The implementation of the liquid staking module means no more need to wait 21 days to unbond and no more choosing between Staking or DeFi,” Cryptocitos wrote on X (formerly Twitter).
The new version also allows holders to cancel unbondings already in place, allowing ATOM to return to regular staking and be used in the liquidity staking module. The upgrade went live at 1:00 pm UTC on Sept. 12 at block height 16985500 under the name Gaia 12.
Another expected impact will be seen in ATOM’s inflation rate, Cryptocitos explained. “Right now, the bonded ratio for ATOM is 67.8%. As long as it’s above 66.67%, the inflation rate is slowly going down to a floor of 7% – currently it’s at 14.26%. The higher the bonded ratio goes, the faster the inflation rate goes down.”
Additionally, ATOM holders will be subject to a 25% cap on the total amount of ATOM they can liquid-stake. Furthermore, Cosmos Hub disclosed steps taken to mitigate liquid staking risks:
“LSM introduces governance-controlled parameters, and as an additional security feature, validators who want to receive delegations from liquid staking providers would be required to self-bond a certain amount of ATOM.”