Cosmos Hub, a part of the Cosmos Network blockchain, has undergone an upgrade to launch a liquidity staking module. This allows users to bypass the previous 21-day unbonding period by cancelling their ATOM token stakes.
ATOM is the native token of the Cosmos network. Prior to the upgrade, ATOM holders had a 21-day lockup period to transfer their funds after unbonding their tokens. With the new module, ATOM staking can be used within the Cosmos decentralized finance (DeFi) ecosystem without affecting the staking rewards.
The staking process involves users holding their tokens to validate transactions and secure the blockchain network. Participants are rewarded for their contributions, similar to earning interest on a savings account.
According to a Cosmos validator named Cryptocitos, the new module will unlock over $400 million worth of ATOM, potentially boosting the presence of ATOM in protocols running on Cosmos. “Deploying the liquidity staking module means no more waiting for 21 days to unbond and no more choosing between staking or DeFi,” Cryptocitos wrote on X.
The new version also allows token holders to cancel their existing unbonding, enabling ATOM to be used in the liquidity staking module again. The upgrade went live at 20:00 on September 12th at block height 16985500 under the name Gaia 12.
Cryptocitos explained that another expected effect will be on the inflation rate of ATOM. “Currently, the ATOM bonded ratio is 67.8%. As long as it’s above 66.67%, the inflation rate will gradually decrease to a floor of 7%—currently at 14.26%. The higher the bond ratio, the faster the inflation rate decreases.”
Additionally, ATOM holders will face a 25% cap on the total ATOM they can stake. Furthermore, Cosmos Hub has revealed steps taken to minimize the liquidity staking risks: “LSM introduces parameters governed by the admin and, as an additional security feature, validators wanting to delegate from liquidity providers will need to self-bond a certain amount of ATOM.”