Cosmos Validator Update - 8 months later

Cosmos Validator Update

It’s been eight months since the TaxiStake proposal to create a Cosmos validator for the DAO was passed. As such, it seems like an appropriate time to look at some data and numbers to see how it’s going. :atom_symbol: :taxi:

Here is a quick summary of last year’s proposal: TaxiStake would operate a Cosmos validator on behalf of the ShapeShift DAO and use the ShapeShift brand name to attract delegators, charging commission on delegations to earn revenue for both ShapeShift and TaxiStake. In return for use of the ShapeShift brand, TaxiStake would forward 70% of all revenues to the ShapeShift DAO, and keep only 30% of revenues for itself. While this 70/30 split of revenue was heavily weighted in the ShapeShift DAO’s favor, both parties believed the well-recognized brand name of ShapeShift would attract many more delegates than TaxiStake’s own name, which should more than make up for the unequal division of profit.
Boardroom: Shall a ShapeShift Cosmos Validator be created?

What went well:

  • The revenue generated from the Cosmos validator in November 2021 was the first non-FOX revenue stream earned by the Tokenomic workstream.

  • The total revenue generated from the Cosmos validator from inception in 2021 is $214,627 in stable coins, which represents 11% of the total DAO Revenue. (DAO_revenue_stream_DV_MVP_PY - Google Sheets)

    • |609.4642262895175x381.6391359006682
  • Delegations through the ShapeShift platform became available around April 27th, 2022. (ShapeShift Integrates Cosmos Functionality for Native Wallet Users)

  • The initial excitement and success of the proposal led to the creation of four additional ShapeShift branded Cosmos ecosystem validators: Osmosis, Umee, Juno, and Terra2.

  • The Cosmos Hub validator remained in the top 45th rank throughout the eight-month period.

  • TaxiStake cumulative expenses to the DAO, for all validators, represents only 1% of the total workstream expenses since the DAO launched in July 2021, while generating 12.7% of the DAO’s all-time revenue.

What didn’t go well:

  • The total number of ATOMs delegated to the Cosmos Hub validator hasn’t increased at the rate that was expected. In fact, the total number of ATOMs delegated has actually consistently decreased to its lowest level since TaxiStake began using the ShapeShift name on its validator. Delegations to the Cosmos validator are down 30% (in ATOMs) from December.

  • Amongst all of TaxiStake’s validator systems, the Cosmos validator is worth the most. However, unlike the other validators, which are mostly experiencing an increase in delegations, the Cosmos validator is consistently losing delegations.

  • The price of ATOMs dropped approximately 75% since the inception of the ShapeShift branded DAO validator in this current bear market.

  • Delegations through the ShapeShift platform didn’t become available until April 27th, 2022–which was six months after the validator was rebranded with the ShapeShift DAO moniker. ShapeShift Integrates Cosmos Functionality for Native Wallet Users

  • The marketing or promotion done by the ShapeShift DAO to promote ShapeShift DAO validators to attract delegations has been minimal.

  • The ShapeShift DAO has not delegated any native tokens to their own validators. This would not only help ensure the validators place in the active set but also increase the revenue earned from the validators. In addition, ShapeShift DAO is starting to garner a negative reputation from other validators because its commission is converted into stable coins weekly. While we agree it is up to the organization to decide how to use its commission, there are valid arguments that it doesn’t show support for the long-term success of the projects to dump earned tokens every week.

  • UST - Terra’s UST was working great as a fully decentralized bridge from the Cosmos ecosystem to ETH. For several months, the wormhole bridge was the only fully decentralized way to move value from the Cosmos ecosystem to ETH to be stored in the DAO’s Gnosis safe. While this method worked great until the death spiral, the fall of UST is still having ripple effects through the crypto ecosystem and was entirely out of the DAO and TaxiStake’s control. UST collapsing removed a good deal of liquidity from the Cosmos ecosystem. More information on what happened can be found here: The Fall of Terra: A Timeline of the Meteoric Rise and Crash of UST and LUNA

  • 81.8% of the current delegations to the ShapeShift branded Cosmos validator come from 10 addresses. Over the last eight months, TaxiStake has developed relationships with these large accounts through its public Discord and Telegram channels. While these delegators support the use of the ShapeShift name for a portion of the revenue split, they have indicated that the biggest reason they delegate to TaxiStake’s validators is not because of the ShapeShift brand or support of the DAO, but because of the availability and the security standards put in place by the TaxiStake team. Looking at the smallest cohort of delegators with fewer than 100 ATOMs, most of them have delegations of less than 0.1 ATOM.

  • The bear market, in conjunction with the 30% commission split, is putting financial pressure on TaxiStake’s ability to maintain operations and growth. Put plainly — TaxiStake needs more money to support its existing systems and enable growth on new blockchains.

  • Market changes led to TaxiStake’s one-year Sablier stream of 100,000 FOX losing 85%+ of its USD value.

    • ($0.41 NOV 20221 to ~$0.060 July 2022)
      • ~$41,000 to ~$6,000
      • Same dollar amount today would be over 600,000 FOX

We want to note that many of these things that “didn’t go that well” were beyond both TaxiStake’s and ShapeShift DAO’s control. That being said, all of these events contributed to the current environment that we all must navigate.

Summary

TaxiStake is a huge supporter of the DAO. We take pride in the fact that we were the first revenue source for the DAO, and have provided over 11% of the DAO’s revenue with the Cosmos validator alone at a relatively minimal expense (1% of the DAO’s total expenses, all in FOX) — all the while maintaining the highest level of security and availability on our validators.

TaxiStake has made considerable financial contributions and sacrifices to try to provide a win/win situation for both TaxiStake and the ShapeShift DAO. However, in reviewing the data, we unfortunately have not seen the increases in delegations that both organizations expected from use of the ShapeShift brand. Further, the ShapeShift DAO has not undertaken actions that could have strengthened the validator’s performance. The DAO has not delegated any native tokens to its own validators, hasn’t staked any rewards it earns back onto its own branded validator, and has not used its platform to drive delegations to the validator. Finally, the Cosmos validator’s largest account holders have indicated that they will continue delegating to TaxiStake’s validators regardless of whether TaxiStake shares its revenues with the ShapeShift DAO. Given these circumstances, along with the current market financial pressure, TaxiStake will not seek to renew its validator proposal at the end of October with its current terms. This may change if the ShapeShift DAO proposes a plan to drive delegations to TaxiStake validators with a new commission split arrangement that can help both parties earn more revenue.

TaxiStake is still a strong supporter of the DAO and its mission, and will continue to be an active member and continue to support the DAO in as many ways as possible. We look forward to hearing options that could drive more delegations and more revenue to both TaxiStake and the DAO, and we hope that one of these options results in a renewed proposal and success for everyone. All comments and suggestions are very welcome. Lets DAO the damn thing!!

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Thanks so much for the data-driven insights!

I would personally love to see the DAO organize a proposal here, perhaps in direct spite of the bear market. Hopefully someone from the Tokenomics Workstream will reach out.

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+1 thank you for the analysis and data. I would also be in support of the DAO figuring out a plan to drive more delegations to TaxiStake and continuing the relationship.

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Thank you for the detailed analysis and posting this review @Marley !

I am huge supporter of Taxistake and its relationship with the DAO to this point, you all have been great partners and I do hope the DAO can do more to strengthen this relationship for everyone involved.

I do think a lot of the downtrend in the cosmos validator can be chalked up to bear market sentiment kicking in for a lot of folks (including causing some people to probably withdraw their delegations due to liquidity needs in the short term). I am hoping that any market stability or reversal will help reverse that trend as well and let the brand shine more in regards to the validators.

I do know a lot of the work the DAO has wanted to do to support this has been delayed, but is still on track to be deployed, as you mentioned the cosmos delegation was shipped much later than we had hoped, and the osmosis work has taken far longer than anyone wanted but is also on track to hopefully ship soon, plus the recently passed proposal for the DAO to spend funds on stakingrewards seems like good steps to start strengthening this.

To respond to a few of the things in the OP:

What exactly was expected? Was that ever delineated anywhere? I agree that we had hoped to see an increase in delegations over time, but if we are going to compare vs expected we should probably have some numbers to go off there? Maybe this is a good place to put in a explicit goal if/when there is a renewal of any type.

Some of this, other then the bear market sentiment which I think is probably the largest driving factor, may be attributed to the fact that the Cosmos validator started in a much higher position than the newer validators.

Agreed the DAO needs to do a better job on this front and I am quite open as a FOX holder to voting much more mandate in place for the DAO to support these efforts, would be nice to get some ideas down of what else we can do and how the DAO can drive more delegations and revenue.

A large part of this problem is simply that the DAO cannot currently hold native cosmos based assets, so the solution was to convert to stable and transfer to the treasury something it could hold. I wouldn’t be against the idea of the DAO accruing and re-staking some portion of the revenue, but this then would mean Taxistake would effectively have to custody assets on the DAO’s behalf for indefinite periods of time. Not against considering that, but it does create further logistical challenges.

I am sure some of this is the case, but I do wonder if it is also missing some data from some of those delegators. For example, I personally delegate pretty much 95%+ of all my cosmos assets that are being staked with TaxiStake, and I do that primarily because of the ShapeShift DAO relationship. I am not the largest delegator, but I may very well be in the top 10 you describe and I would definitely re-delegate all of my assets elsewhere if the relationship ends with the DAO. Just might be some datapoints missing from whoever you are surveying that could cause a bigger hit if the relationship ends to taxistake (e.g. it is unknown how many might un-delegate if the brand/relationship is lost).

Not sure I fully understand this as it seems at least the Cosmos validator remains profitable above and beyond costs? It also seems taxistake is protected with the newer proposals via the fixed overhead amount though of course would be better if we could drive more delegations so revenue rises above of that.

Yea, market decline has hit all FOX holders, though I appreciate that Taxistake took the risk of taking this stream in FOX, I would be potentially supportive of a much larger stream for Taxistake in a renewal to help offset some of the costs and risks if a renewal does happen.

Two of these points I don’t really understand, the DAO cannot currently hold native cosmos assets so it can’t hold and then delegate those assets, this is the first I am hearing suggested that maybe it should? As mentioned above that would mean Taxistake doing the accounting and custody on the DAO’s behalf for some portion to re-delegate those assets, I am not against considering that personally but am unsure if that makes sense or not. Regarding the third item I agree and think we can do a lot more though against as mentioned above I think we are taking steps in the right direction and can hopefully build on that as a community to strengthen this relationship further.

Overall, I want to re-iterate that Taxistake has been an amazing partner and I would like to the DAO do anything reasonably within its power to find a way to continue the relationship for another year, I do still believe that is in the best interest of the DAO and Taxistake. My question to you @Marley and @scoh is what you would need to see from the DAO in order to renew for another year, preferably this would be things directly within the community’s control such as a larger FOX stream for the next renewal, launching some of the features that drive delegations, the stakingrewards proposal the DAO is already approved and spending on etc, further marketing efforts, etc. If you can define that perhaps the community and Taxistake can work together to generate a renewal proposal that everyone is happy to move forward with. This is what I would like to see happen and is my first choice to resolve this and keep the relationship moving.

That being said, since Taxistake is indicating here that they at least currently don’t plan to renew, I do think it would be prudent for the DAO to start reaching out and considering other service provider proposals in the event that no renewal agreement happens with TaxiStake as I do think the validator efforts should live on either way, again my preference is to stick with TaxiStake given the relationship and trust already built, but I also think the DAO needs to prepare for that not to be the case until it becomes more clear that there is a potential renewal with Taxistake on the table.

Thanks again for all the efforts over the last 8 months @Marley and @scoh - I hope the DAO and TaxiStake can find a path forward together over the coming months!

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Can you provide a more in depth explanation of this? Why can the DAO not hold Cosmos assets?

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Its not currently possible with Gnosis Safe which is an ETH based application, and setting up native multi-sigs on cosmos has proved very difficult (e.g. the issues we have run into executing the RUNE tokenswap for the same reason).

I would love if the DAO could hold native cosmos assets, that would give us a lot more options, but would require some infrastructure we don’t currently have or exists for DAOs today - @willy would have even more context on this than me.

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We did not have targets like this. This was a very early DAO proposal, so early it was before we had SCP’s for proposals. Definitely something to be added on in the next round. We generally expected an uptrend and not a decrease by 30%+ in delegations. The other DAO branded validators are in upward trends. We are also focusing on Cosmos in this update as the post turned out to be quite long as is.

I do acknowledge there are technical limitations for the ETH Gnosis safe to interact with Cosmos ATOMS. It isn’t a very easy problem to solve but I did want to shine light onto the problem. The DAO has signaled the signers to setup multi-sig accounts on other blockchains. (Gnosis, RUNE, etc) (You explained it well here Cosmos Validator Update - 8 months later - #6 by jonisjon)

There is also language in the original proposal stating that:

TaxiStake will work to convert the ATOMs into an ETH based asset USDC until Gnosis safe adds ATOMs support or some kind of synthetic ATOM on ETH exists.

There is now the ability to wrap ATOM and hold it on ETH, via Axelar. Those wrapped ATOM are not stake-able, however. Not a perfect solution but there are more options since the Cosmos Validator was proposed 8 months ago.
For the record, TaxiStake is not willing to custodian DAO assets. Maybe the Foundation could custodian ATOM? We’re working on some other solutions as well but are seeking community feedback and ideas.

This is precisely why we are starting the conversation early :star_struck:
One thing I would propose is a shorter Sablier stream, most workstream’s are 3-6 months for example. That time period standard has evolved in the past 8 months. Other options are renegotiating the revenue split.

This post is a review with the hope to start a larger conversation on driving delegations and discuss potential changes in terms for a renewal proposal.

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Thanks for the explanation. Much appreciated.

I assume this would be true for any chain that doesn’t support multi-sig?

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While it’s not possible to create a multisig cosmos address with Gnosis Safe, it is possible for the Treasury Signers (TSes) to create a multisig cosmos address.

Gnosis Safe is a nice point-and-click UI for Ethereum multisig. There’s no reason why the Treasury can’t create other multisigs with other UIs; they’re not bound to using only Gnosis Safe.

If the DAO (or the TMDC on the DAO’s behalf) instructs the TSes to create a new multisig address they can make it happen.

As a DAO member who was in charge of establishing ShapeShift AG’s technical policies/procedures regarding cold storage and multisig addresses, I’d be happy to assist the TSes and TMDC to ensure the multisig addresses they create are void of the common problems that have led to other treasuries’ funds being lost.

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Thanks, Marley and Scoh, for taking the time to prepare this and post it to our community.

Like many in the DAO, I also believed last year that the established ShapeShift brand would attract much more delegation than the new TaxiStake brand.
I’m surprised to see there’s no data that correlates the ShapeShift brand with delegations.

I remember one of the very first proposals to pass was Osmosis integration, and ShapeShift’s prioritization of its validators when the user attempts to delegate. It seems likely that these delays in deployment contributed to the lack of increased delegations.

TaxiStake’s validator revenue has been the most reliable and consistent source of income for our DAO.
Now that our community knows that the current deal (as written) won’t be renewed, it is incumbent on us to think of ways the ShapeShift DAO can drive delegations and distill them in a new plan/proposal.

Thank you, TaxiStake, for giving us 4 and a half months to try and fix this before you shut the door on us.
We’ve loved the relationship we’ve had with you for the last 8 months, and if we can make it stronger for the future then both of us will win together.

–Michael

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+100 to Michael’s comment above

Thank you for all this data @Marley and giving us runway to work on solutions.

TaxiStake has been upholding their end of the agreement very well and has generated a significant portion of the DAO’s revenues; it’s been an amazing partnership for the DAO, but we need to make sure this is a win for TaxiStake as well so we can continue building one of the best partnership/revenue stream the DAO currently has in place (especially during bull markets).

We did complete the Cosmos integration on app.shapeshift.com and default delegation to the ShapeShift DAO Validator. We also have support for Cosmos on/off ramping and will soon be listed on Staking Rewards as a verified validator as well as have data from Pendo on how many users are staking/claiming in the app.

This is a good start, but barely scratches the surface of what we could be doing. Here are some relatively low effort, high impact features we’re planning to execute on in the next few months that should directly support our TaxiStake relationship and that we’ll be able to measure results from:

  1. Osmosis staking in app
  2. Osmosis trading, LPing, and bonding
  3. Support for more Cosmos zones in app.shapeshift.com, including Juno and Umee (I think we should look at Evmos as the next one, but have heard their tech is messy). All of these opportunities will be listed in StakingRewards with a ‘Stake Now’ button pointing to ShapeShift. We discussed this yesterday at the roadmap discussion meeting and @kevin is prioritizing the docs for adding Cosmos zones.
  4. Axelar bridging between Ethereum (and other EVMs!) and Cosmos/Osmosis
  5. THORChain trading including support for Cosmos
  6. Support for Cosmos zones in metamask via the ShapeShift multi-chain snap

These are all already in progress and very attainable in the next 4.5 months, and I expect each to attract more users to ShapeShift and drive more delegations to our validators. Once we’re seeing some organic PMF, I’m v bullish on implementing FOX rewards for delegating to ShapeShift validators to pour fuel on the fire :rocket:

Executing on the above has taken longer than desired, but we really are close with a lot of these. In the meantime, there is already some great marketing we can do now, ie. buy/sell/manage cosmos in shapeshift and stake directly in the app; doesn’t cost you any extra as a user, but helps fund the development of the ShapeShift app, an open-source public good for the Cosmos ecosystem :fire: Growth put out a number of tweets today with this messaging. As we execute more on the baove, the marketing messaging becomes even more compelling.

In the meantime, I would support an additional FOX grant (either boosted or streamed) to TaxiStake for continued partnership while we work to catch up. There is also great potential for both the DAO and TaxiStake to get more grant funding/bounties/delegations from these protocols; The ShapeShift brand/product definitely adds value in that regard. TaxiStake just proved this model by securing a huge Umee delegation, and we’ve already received $20k from Axelar with $700k more up for grabs. Today we took action on this by forming a grant-committee with @0xean, @Marley, and myself, and tomorrow we are meeting to push this initiative forward.

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Gnosis Safe is actually deployed on Cosmos via Evmos. Granted it’s not very useful at the moment since there aren’t much contracts to interact with, but that’s why Evmos is giving out grants and the community pool is set to hit ~$200mil which is being used for public goods funding, bootstrapping projects, and a handful of upcoming hackathons. I’m 100% certain ShapeShift can receive a sizeable grant if Gnosis Safe currently deployed can be extended further.

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