Recently, Cosmos Hub announced that its community proposal Prop #821 has been approved and will be v12 on September 13th. Version upgrade.

This v12 upgrade will be carried out at block 16985500, and the estimated time is September 13th at 21:22:50. The countdown and specific block status can be queried on mintscan. At that time, the Cosmos network will experience brief outages and transactions will be delayed. Therefore, you need to try to avoid making transactions during the upgrade period.

Now, let’s take a look at the important contents included in this v12 upgrade.

Liquid Staking Module (LSM)

The main upgrade content of this v12 version is to enable Liquid Staking Module (LSM); the purpose is to release more ATOM liquidity.

To put it simply, after LSM is enabled, pledged ATOMs can be directly pledged for liquidity like spot ATOMs, thereby releasing more liquidity into the Cosmos ecosystem.

Previously, ATOM liquidity staking could only be done through spot ATOM. For example, users who use Stride (Cosmos' multi-chain liquid staking platform) to perform liquidity staking need to deposit spot ATOM into the protocol to obtain stATOM (ATOM LSD) and liquidity staking rewards. stATOM can be used in various DeFi protocols in the Cosmos ecosystem (for example, DEX, Lending protocol, etc.).

After the upgrade, LSM allows users to use pledged ATOM to perform liquidity staking on the liquidity staking platform, obtain ATOM LSD and staking rewards, and implement the same DeFi activities. The liquidity released into DeFi protocols will be significantly greater than before.

According to data from stakingrewards, ATOM’s pledge rate is currently around 68%, and the total pledged market value is close to 1.6 billion. It can be seen from the data that there are currently not many spot ATOMs available for liquidity staking in the Cosmos network. This leads to a lack of overall liquidity in the Cosmos network.

This upgrade is equivalent to unlocking part of the pledged ATOM and releasing their liquidity into the Cosmos ecosystem’s liquidity derivatives platform and DeFi protocol. This will play a positive role in the development of the entire Cosmos ecosystem.

It is worth noting that the released liquidity is not reflected in the form of ATOM, but in the form of ATOM LSD. Because essentially, ATOM is still in a pledged state.

Liquid Staking Management

In addition to the activation of LSM, the v12 upgrade also adds some liquidity staking management measures:

• Liquidity staking cap

The number of ATOMs that can be staking for liquidity will be limited to 25% of the total amount of ATOMs pledged. This prevents liquidity staking platforms from controlling too much ATOM staking volume, thereby reducing the concentration risk of liquidity staking.

• Verifiers guarantee pledge

Verifiers need to pledge a certain amount of ATOM themselves before they are eligible to obtain pledged assets from the liquidity staking platform. This mechanism is called "Validator Bond", which is the verifier's self-guarantee mechanism. The guarantee ratio is 1:250, that is, if you pledge 1 ATOM, you are eligible to receive 250 ATOM. This mechanism is mainly set up to reduce the risk of validators doing evil.

• Instant liquidity staking

LSM allows one-click liquidity staking of ATOMs in staking status. After the upgrade, users will be able to instantly stake liquidity without having to unlock ATOM (waiting 21 days for unstaking).

Summary

In general, the biggest upgrade of the v12 version is to support users in liquidity staking of pledged ATOM. This will help Cosmos improve the network’s liquidity status, increase ATOM utilization, and develop LSD-related DeFi activities.