Following the Playbook for adding new collateral types to Inter Protocol’s Vaults, we want to open the floor for the community to evaluate and comment on the potential integration of dATOM. This post is to kick off a 10-day discussion which will determine whether moving forward with adding dATOM as the next collateral asset to mint IST is warranted.
This post will be organized as per the Collateral Onboarding Template for BLD Community Consideration suggested by Inter Protocol’s Economic Committee.
1. Name and affiliation of applicant and association with collateral
The current discussion concerns the integration of dATOM as a collateral type for Inter Protocol’s Vaults. dATOM is the liquid staked token of Cosmos Hub’s ATOM issued by Drop.
2. High level overview of the project with a focus on the proposed collateral
Drop is a liquid staking protocol for Interchain assets, whose mission is to strengthen the economic viability of sovereign blockchain economies by transforming stagnant, frozen capital into flowing streams of opportunity. Drop enables seamless smart contract interactions, supporting capital-efficient use cases like leveraged staking without slippage or trade fees.
Backed by Lido and led by ex-Lido and P2P Validator contributors, Drop is built as an Integrated Application on Neutron. Its smart contract architecture leverages the Inter-Blockchain Communication (IBC) protocol and Neutron’s Interchain Transactions (ICTX) and Interchain Queries (ICQ) modules, enabling the protocol to provide trust-minimized liquid staking services and scale with minimal additional overhead and risk.
3. How old is the project, and when was the genesis block or token generation event?
Launched in Q2 of 2024, staking on Drop is currently invite-only. Only users accessing the protocol via a referral link are guaranteed to receive DROP rewards and airdrops. The DROP token, i.e., the Drop Protocol’s governance token, is not launched yet.
The tokenomics for the DROP token have not been announced yet, either. After the token generation event, the DROP DAO will vote on how the fees collected by Drop Protocol are used or distributed.
4. Provide a brief history of the project
Since its launch, Drop has attracted over 15,000 unique users and enabled $20M worth of digital assets to be deployed across different dApps and DeFi opportunities. It has recently closed a $4M seed funding round.
As a member of the Lido Alliance, Drop enjoys access to distribution, liquidity, networking opportunities, and strategic and technical insights via Lido, positioning it ahead of other Interchain liquid staking providers.
5. Describe the paths (such as the specific bridges and IBC denoms) that allow users to bring the token to the Agoric chain.
When users stake with Drop, they receive dAssets, which are receipt tokens representing a staked position. For example, if a user stakes ATOM with Drop, they receive dATOM, a liquid staked token representing staked ATOM. Drop currently supports liquid staking for ATOM, with support for TIA coming soon. Other Interchain assets will be added in the future.
6. Describe the uses of the token (does it have governance rights, cash-flow rights, is it staked to provide security, etc.)
Unlike traditional staking which involves locking assets with a validator in exchange for staking rewards, Drop doesn’t prevent stakers from transferring, selling, and generally using their underlying assets. Liquid staking with Drop allows you to:
- Earn staking rewards without locking your assets
- Deploy your staked assets in Drop’s DeFi ecosystem for additional yield
- Auto-compound your staking rewards
- Exit your position at any time
- Remain eligible for airdrops
- Support the growth of your favorite ecosystems
In addition, Drop’s dAssets, like dATOM, auto-compound staking rewards, turning static assets into productive ones. Staking rewards are auto-compounded and automatically accrue to dAssets, so users don’t need to claim. Every day that you hold a dAsset, it will be redeemable for slightly more native tokens than the day before.
How is that achieved in practice? With the aim to coordinate market participants to maximize the economic welfare of the Interchain and measure each participant’s contribution to the protocol’s success, Drop has introduced the Droplets Program. A total of 100,000,000 DROP tokens (10% of the total supply), the governance token of Drop Protocol, will be distributed to participants in the program. Users earn 1 Droplet per day for each dollar of dAssets they hold, but they can also receive Droplets by using dAssets in ecosystem applications and referring friends. When the program ends, Droplets holders will receive DROP tokens and become the first members of the Drop DAO.
7. Links to the white paper and documentation portals for the core system(s) that interact with the proposed collateral.
Here are the links to Drop’s Documentation, FAQs, and GitHub / HadronLabs / Drop Contracts.
8. Have there been any significant cryptoeconomic changes to the proposed collateral token since launch or since the creation of the white paper?
dATOM has existed for comparatively short period of time, and no significant changes to its design have occurred.
Currently, Drop Protocol allocates 10% of the staking rewards from liquid staked assets into a dedicated pool. Once the DROP token is launched, the DROP DAO will have the power to decide how these assets are used. Potential uses could include distributing them to DROP stakers, creating an insurance fund, or any other initiatives that the DAO believes will benefit the protocol and its community.
9. List any possible oracle data sources for the proposed collateral type.
Inter Protocol will use a custom oracle solution for the price of dATOM.
10. Is the supply of the token fixed, or does it have an issuance rate?
- If fixed, provide the total supply
- If there is an issuance rate, please provide the current supply and projects of issuance out for 5 years.
dATOM comes into being as the result of staking ATOM. In order to mint dATOM, users must deposit ATOM, and accordingly, when dATOM is burned, users redeem the underlying ATOM token. Thus, there is no supply schedule and no allocations; rather, dATOM is minted and burned by users - similar to IST. dATOM is fully backed by ATOM at all times.
As of today, Cosmos network’s backbone token, ATOM, has a total supply of over 390M tokens, resulting in a market cap of $1.81B. ATOM is available on most major exchanges, and has a daily transaction volume of over $122M. Liquid Staking ATOM allows holders to continue earning staking rewards while maintaining liquidity of the underlying token, allowing participation in DeFi activities across Cosmos.
As a representation of ATOM, dATOM inherits the properties of ATOM. Since ATOM is a top cryptocurrency with high confidence and minimal volatility, these properties are passed down to dATOM, making dATOM likewise very suitable for collateral.
11. What % of the supply is current available in public markets (as opposed to locked up in vesting or reward, or controlled by a shared treasury)?
One of Drop’s revolutionary features is that its dAssets, like dATOM, as well as the underlying ATOM collateral, are liquid at all times. Stakers don’t need to lock up ATOM in order to receive LSTs to use in other DeFi strategies.
In terms of the % of dATOM currently available in public markets, check the trading stats on Astroport.
12. How concentrated is ownership over the token? To the best of your knowledge, how many unique users hold more than 2% of total supply (regardless of locking, staking or vesting arrangements). How many addresses hold more than 2% of total supply?
Since its founding, Drop has attracted more than 15,000 unique users and enabled $20M worth of digital assets to be deployed across different dApps and DeFi opportunities.
13. How many different markets is it traded on?
- What are these markets? Currently, dATOM is traded Astroport (primary DEX), Demex, and Pryzm.
- How liquid is token supply on those markets? The current dATOM liquidity is $15.3M (both sides) on Astroport across dATOM/ATOM, dATOM/USDC, dATOM/NTRN pools with trading volume of $374K.
- How do users access these markets (user account, wallet connect, other)? Wallet connect.
- Are these markets accessible over an IBC transfer from the Agoric chain? Yes.
14. Provide pricing history of the asset
- A chart of prices going back to token generation: A dATOM price chart is available on CoinGecko.
- A chart of market capitalization (fully diluted) going back to token generation: Not applicable
- A chart of market capitalization (floating supply) going back to token generation: Not applicable
The staking rewards earned by the staked ATOM underlying dATOM are auto-compounded and accrue to the value of dATOM. Due to this feature, the amount of ATOM redeemable by burning one dATOM constantly increases. And so the value of dATOM against ATOM continually rises.
15. Does the project or the DAO have a legal identity in a specific legal jurisdiction? If so, please provide details.
The Drop Foundation is an ownerless Cayman Foundation.
Drop is developed by Hadron Labs, a fully remote software development company, founded in 2021. They are also the studio behind the Neutron blockchain.
16. Please provide any legal documentation that the project may have commissioned.
Not applicable.
17. Set out the business case for Inter Protocol accepting the asset.
Introducing a wider variety of collateral types into Inter Protocol’s Vaults contributes to the stability and security of IST. Moreover, having one more ATOM LST as collateral would potentially encourage more people to stake their ATOM funds, and thus benefit the economic stability of the wider Interchain.
dATOM is currently the best ATOM LST in terms of the liquidity available for the USDC liquidation, which is relevant for IST protocol. dATOM->USDC swap spread on $100k+ swaps is orders of magnitude lower than for the other ATOM LSTs.
18. Are there any new expected use cases of the IST that would be generated by onboarding the collateral asset?
Although no new use cases are expected in the short term, the dATOM onboarding would significantly solidify IST’s image as the stable token of the Interchain, and promote IST and Inter Protocol as a key-component of the Cosmos-based DeFi.
19. What is the expected demand for the vaults using the proposed collateral?
Drop and its liquid staking services are still a comparatively novel product, but it quickly generates significant interest. With the imminent opening of TIA staking, and dTIA issuing, it is expected to attract even larger community of users and stakers.
20. How correlated is the asset with other assets already accepted as collateral?
Since dATOM is the liquid staked representation of ATOM, it is correlated with all other ATOM LSTs already used as IST collateral, such as stATOM and stkATOM.
21. What economic/business risks would Agoric be exposed to if this asset were accepted as collateral?
Inter Protocol’s Economic Committee has evaluated the economic/business risks, and has concluded that integrating dATOM as IST collateral is warranted.
22. Proposed parameters for collateral type:
- Debt limits: X million
- Minimum collateralization ratio: xxx%
- Liquidation ratio: yyy% (usually 10-20% below the min collateralization ratio)
- Stability fee / interest rate for borrowing: (all other collateral types are at 0.75%)
- Minting Fee: (all other collateral types are at 0.5%)
23. Provide any audits that have been conducted of the proposed collateral.
Find Drop’s audit reports here.
24. Provide any details of any ongoing security programs, bug bounties or similar programs.
Drop offers up to $1M via its bug bounty program on Immunefi.
25. Does the collateral have a whitelist or blacklist function? If so, detail the process by which this function is exercised.
Not applicable.
26. Can the collateral or any contracts associated with the collateral be upgraded? If so, detail the process by which the upgrade can occur.
The Drop Protocol - and by extension the dATOM tokens - will be controlled by the DROP governance token and the Drop DAO. Any changes to the current functionality of the Drop Protocol will be proposed in an open and transparent manner, and DROP holders will be able to vote. However, the Drop DAO is not launched yet, and Drop smart contracts are currently managed by a multisig account that represents a diverse group of stakeholders, including DeFi protocols, validators, Neutron community members, and Hadron Labs members.
At the moment of writing, Drop’s modular smart contract architecture, built as an Integrated Application on Neutron, contributes to the overall security of the protocol:
- Protocol upgrades do not introduce systemic risk. Instead, they can introduce new functionality with minimal code changes.
- Modularization contains risk: If a component fails, the system simply pauses, improving the protocol’s security and recoverability.
- Modularization enables better risk response: If an issue is detected with a component, that specific component can be safely paused and a fix introduced while the rest of the protocol continues to operate properly.
- Due to components being standardized and reusable, the underlying code becomes increasingly battle-tested as time passes.
Other elements of Drop’s security culture include:
- Continuous security audits from industry-leading firms like Oak Security, Ottersec, and others.
- Rigorous unit and end-to-end testing.
- Real-time 24/7 monitoring and alerting systems.
- Formal verification by Informal Systems using Quint.
- $1M bug bounty program through Immunefi.
- Over $2B of economic security from ATOM via the Cosmos Hub.
User Benefits
Additional collateral assets integrated into the Inter Protocol ecosystem help enhance the protocol’s security and stability, as per the overcollateralization thesis.
Inter Protocol vaults provide users with a novel way to extend their DeFi strategies. When a staked asset serves as the underlying collateral, users can continue earning yields from the staking protocol. Simultaneously, they can utilize their minted IST to engage with other protocols, maximizing the potential of their underlying asset.
Onboarding new collateral types
Most collateral onboarding discussions are initiated by members of the Inter Protocol community and led by a Proposal Champion from start to finish. Typically, they are supported by technical assistance from Agoric Systems (Agoric OpCo), risk management by the Economic Committee (EC), and with DCF helping to analyze business value / expenses to the protocol.
DCF believes that having dATOM available as a collateral type would be a strategic business opportunity for Inter Protocol. With over 15,000 users and $20M deployed in DeFi opportunities, Drop’s liquid staking protocol continues to gain traction. Moreover, as a member of the Lido Alliance, Drop enjoys strategic access to liquidity and distribution, positioning it ahead of competitors.
We’re hoping for a positive response from the community to progress with this strategy and proposal to expand the supply and utility of IST in the wider Cosmos ecosystem and beyond.
We are eager to hear the community’s discussion regarding dATOM and would invite the community to not only reply, but to step up as the Proposal Champion and post an on-chain signaling vote, when appropriate.
About DCF
The Decentralized Cooperation Foundation’s (DCF) mission is to unite people and entities in the spirit of cooperation with Web3, blockchain and decentralization as a binding fabric.
At this point in time, we are focusing our efforts on Agoric’s proof-of-stake chain and the Cosmos-focused IBC environment. Engagement with — along with the acceleration of — those ecosystems is our purpose. As time passes, we will expand our purview to provide support for taking the technological foundation that the Agoric chain and IBC are built on to other chains, and even for non-blockchain ecosystems.