ATOM is Coming to THORChain

THORChain recently announced two new chains are coming to the protocol. First in line is ATOM, the staking token of the Cosmos Hub. In this article we cover what ATOM is and why this is exciting news for liquidity providers on THORChain.

What is Cosmos and ATOM?

Cosmos is an ecosystem of application specific blockchains that can communicate with each other through a protocol called IBC (Inter-Blockchain Communication Protocol). If you are familiar with Avalanche Subnets, this is a similar idea. Instead of making a single L1 as fast as possible through ZK-rollups or other scaling solutions, Cosmos off-loads dApps to their own blockchain and allow the blockchains to communicate. This frees up block space and leads to low transaction fees even in peak trading periods.

In total there are currently 265 dApps and services in the Cosmos ecosystem, with key ones including Osmosis, the largest DEX in Cosmos, Secret Network, an L1 with customizable privacy, and Juno Network, an interoperable smart contract network. ATOM is the staking token of the Cosmos Hub, the centre chain of the Cosmos Ecosystem. Soon, new blockchains in the Cosmos ecosystem will be able to use the Cosmos Hub for security, adding value accrual to ATOM as the Cosmos ecosystem expands.

Why is adding ATOM good for Liquidity Providers?

ATOM provides a promising LP opportunity for 2 core reasons. First, it connects native BTC and ETH to the Cosmos ecosystem, meaning it should be a high volume trading pair with lots of fees to earn. Second, it is a low gas fee network, meaning it should see high arbitrage volume, again boosting trading fees.

Trading Channel between BTC and Cosmos Ecosystem:

The addition of ATOM to THORChain provides the first decentralised trading channel from IBC assets to BTC and ETH where all swaps are native. For example, if you wanted to swap Osmo (native token of Osmosis chain) to BTC, up until now your only option was a Centralised Exchange or bridging. Now, you can swap Osmo to ATOM on Osmosis DEX, and ATOM to native BTC on THORChain. This also applies to any Cosmos asset that is connected to IBC, meaning the ATOM pool on THORChain will likely be a high volume pool. This means high fee earnings and hence APY for ATOM LPs.

2. Cosmos Hub has low gas fees:

The Cosmos Hub has an average gas fee of 0.002 ATOM, equivalent to about $0.01. This means fees to swap in the ATOM pool on THORChain will be a few cents. Trading volume on THORChain is heavily influenced by swap fees, since low fees means there are more profitable arbitrage opportunities. For example, if an arbitrager can make $50 from a trade, this can be completely eroded by ERC20 swap fees. However, the arbitrager will make a profit close to $50 if swapping Binance Chain assets.

In the graph below, we can see the total trading volume by chain on THORChain since launch of MCCN. As we can see, despite BTC and ETH being the deepest pools on THORChain, Binance Chain dominates trading volume. This is mostly from the BUSD pool, but BNB, BNB.BTC and BNB.ETH collectively contribute over $1.8bn in volume too.

ATOM benefits from being a chain both with high authentic demand, connecting the Cosmos ecosystem to native BTC and ETH, while also being a low gas fee network, meaning high arbitrage volume. Together these two effects make it a high potential pool for providing liquidity too.

Feel free to hop into the TC University Discord to chat about this, or any other THORChain questions that you may have.

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