Cosmos Hub has successfully completed its V12 upgrade, introducing the Liquid Staking Module (LSM). This upgrade enables users to immediately convert their staked ATOM tokens into liquidity staking tokens, bypassing the three-week unlocking wait time.
In the updated version of Cosmos, liquid staking will be an integral part of the protocol, rather than being managed by a third party like Lido. While third-party platforms have experimented with liquid staking derivates, incorporating this feature directly into the network is expected to enhance the attractiveness of staking, without compromising the security and validation framework.
In a careful move, the project has set a limit on liquid staking to 25% of all staked ATOM. This limit can be modified through governance if no issues arise. Additionally, the protocol mandates a self-bond from validators who wish to receive delegations from liquid staking providers. This measure is intended to enhance security and discourage malicious behavior by the validators.
Notably, the LSM is a modular component of the Cosmos SDK, enabling any Cosmos SDK chain to implement it. The advent of LSM should help further boost liquidity within the network and catalyze the development of the DeFi ecosystem across the network.
Indeed, despite the growth of DeFi activity on Cosmos over the past year, liquidity has remained a significant challenge. With the introduction of LSM, the issue should see some improvement.
Reflecting its impact, the update resulted in a rise in both the ATOM price and the number of tokens staked. As shown in the graph, the ATOM price increased by approximately 7%, while the number of tokens staked grew by 0.41%.
The staking industry has witnessed significant growth over the past year, notably with the introduction of liquid staking solutions on Ethereum, which paved the way for other protocols. The advantages of these solutions are clear: they enable users to free up billions in liquidity, which can then be channeled into DeFi protocols, fostering both innovation and broader adoption of the ecosystem.
The V12 upgrade and the Liquid Staking Module highlight Cosmos Hub's move to make staking more attractive. The improved staking incentives are likely to boost the number of tokens staked, the protocol's adoption, and consequently, the ATOM price.