This post will summarize the token issuance proposal (#4) brought forth by the e-Money / Validator Network team and present our evaluation. This proposal aims to find out whether there is interest in the ability to issue fungible tokens directly on the Cosmos Hub.

Quick Facts

  • If this proposal passes next steps are to find a team and determine funding for the implementation, then issue another proposal that would activate the implementation when it has been built

Planned Implementation:

  • Creation of a token issuance module on the Cosmos Hub
  • Creation of new proposal kind to issue (multiple) fungible tokens
  • Token proposals need to pass governance to be approved

Idea:

  • Bring usage to the Hub before IBC is enabled, at the same time respect that the Hub is a core piece of infrastructure that shouldn’t be overloaded by allowing permission-less issuance of tokens

Background:

  • e-Money is working on fiat collateralized stablecoins that could, should this proposal pass, be issued directly on the Cosmos Hub
  • Check out our Interview with Martin and Henrik from e-Money for a detailed discussion on the proposal

Evaluation

Before IBC is ready there is little value to the Cosmos Hub so the ability to issue tokens could bring some utility and usage to the network. Similarly, creating a different zone to issue tokens without IBC doesn’t help yet, because these tokens won’t be able to move through the Hub.

On the other hand, in the longer term, the hub should stay as lightweight as possible, as it is supposed to facilitate interchain communication between different hubs and zones connected to it. Any function that is added to the Hub should be considered carefully and only added if it supports this goal.

In addition, the proposed solution that requires governance approval for token issuance places overhead costs of voting on each token proposal on Atom holders and seems to imply that Atom holders have a responsibility of vetting token projects. This could become problematic, as it ideally should not be possible to hold Atom owners accountable if they approved the issuance of a token that e.g. turned out to be a security.

Our Vote

This was a difficult decision to reach, since we are supportive of e-Money’s plans to issue fiat tokens on Cosmos. We are not categorically opposed to token issuance on the Cosmos Hub, but we are unconvinced at this point that the proposed solution, which relies on using the governance process is the best solution.

Another possibility that seems promising to us is to create a separate token issuance zone that could be validated by the Cosmos Hub validator set as well. We are interested in collaborating on possible designs for such a zone.

For these reasons, we view the current proposal as premature and vote “No”. We hope that work on token issuance mechanisms on Cosmos proceed and a more carefully designed and justified solution can emerge soon.

Resources

Proposal #4
Forum Discussion
e-Money Website
Interview with Martin and Henrik of e-Money / Validator Network, who issued the proposal
ICS Github issue for fungible tokens