The main drivers of the ATOM's value could be more than transaction fees. ATOM-holders should be able to somehow extract value related to the "assets under management" that the Cosmos Hub secures (via products like DeFi). In a world of thousands of connected blockchains, credibility could be the scarcest resource, and the Hub aims to be the most credible. Owning staked ATOMs is ownership of the Cosmos Hub, entitling ATOM stakers to set/change the rules of the Hub.
Jan 31, 2020 update:
This article may not have been clear enough. What's the value of ATOMs besides capturing the value of transaction fees? If the Cosmos Hub becomes a chain used to secure assets (eg in products like DeFi), the ATOM is what will protect these assets. The guess is that the ATOM's value will be related to how much value in assets that the ATOMs protect.
New ATOMs are currently being created at an annual rate of just over 7% of the supply per year. We see about 1.4 million new ATOMs created each month, 98% of which are allocated to staking rewards, and 2% allocated to the Community Pool.
Many of us stake our ATOMs. The primary reason is that staking entitles us to staking rewards. By staking, we increase our ATOM holdings and keep pace with the rate of inflation (so that our holdings are not diluted).
But why hold ATOMs? What makes them worth anything?
Right now, you can trade them, use them to pay for transactions including making a governance proposal with deposit, stake them to earn rewards and vote on governance proposals.
In the future, we should expect to see ATOM-holders benefiting from the products and security that people use to anchor their wealth via the Cosmos Hub.
From what I can see, we can't say with certainty what gives the ATOM its value. But we can make some guesses.
While cryptography secures the Hub's history, economic incentives (ie. ATOMs) encourage the Hub's guarantees to hold into the future.
How do ATOMs provide economic security?
A would-be attacker must buy and stake enough ATOMs to launch an attack on the Hub. For example, over 1/3 of staked ATOMs must be controlled by an attacker that wishes to halt the Cosmos Hub (ie. prevent the Hub from producing new blocks).
The more valuable ATOMs are, the more expensive it is to attack the Hub. The attacker then risks having their staked ATOMs slashed or having their holdings forked out of the network. This economic cost and uncertainty decreases the likelihood of an attack.
However, it isn't obvious that keeping the network safe is a way to capture value. Why do I care to own ATOMs?
There are a few mechanisms by which the ATOM may capture value.
Transaction fees are probably the most apparent source of value captured by the ATOM. If you want your transaction to be prioritized on the Cosmos Hub, you'll want to incentivize validators by offering attractive transaction fees. These fees will then be divided amongst everyone staking.
Who will pay all of these transaction fees?
Right now, transaction volume is very low, so stakers primarily rely upon inflationary block rewards to earn staking rewards. However, the Cosmos Hub is expected to secure the exchange of value and data across many blockchains via IBC. What's IBC? I wrote a simple breakdown here.
Let's say I'm developing a new application and deciding where to launch. The nice thing about making my application a Cosmos zone using Tendermint consensus and the Cosmos SDK is that
1) it's relatively easy to do
2) they're tested & secure and
3) they allow me to exchange data & value across Cosmos while preserving sovereignty.
The Cosmos Hub itself can change, but sovereignty means that changes to the Hub won't disrupt my application. And with IBC, sovereignty does not prevent the exchange of data and value with other connected applications/zones in the Cosmos ecosystem.
Any user and any application that wants to move value and data across blockchains in the Cosmos ecosystem will likely pay the Hub competitive transaction fees.
For example, I may want to create a Kava CDP using the value of ETH as collateral (or perhaps some other token, like ATOM). I'll need a credible hub to facilitate these transactions to protect the value of my assets.
Credibility will be critical, because a corrupt hub can defraud any connected zones/applications. I'll want security guarantees ie. enough value at stake to secure these inter-blockchain transactions, and I'm willing to pay for this security via transaction fees. The Cosmos Hub aims to be the most credible hub in the ecosystem.
The most apparent value of the ATOM comes from earning transaction fees while staking, but there are likely other ways that the Hub will benefit from an expanding Cosmos universe.
If you're staking ATOMs, you have a right to introduce and/or vote upon governance proposals that may fundamentally change how the Cosmos Hub operates. Whether or not a governance proposal passes is entirely dependent upon how much stake is backing the vote options (yes, no, no with veto, abstain). Governance, for example, will likely decide whether or not the Hub will support a connection to a new zone/application, and owning ATOMs to influence these and other kinds of decisions may be valuable to Cosmos ecosystem participants.
In a world of many fast blockchains interoperating with one another with IBC, the ATOM secures the Cosmos Hub. Ideally the most credible hub in the Cosmos universe, the Cosmos Hub will facilitate secure transactions between all of these blockchains.
Part of the ATOM's value may be correlated to its assets under management ie. "assets originated, listed, and held inside of this ATOM-secured network," in Zaki's words. People may anchor their wealth in the Cosmos ecosystem and trust the Hub with securing transactions involving their wealth.
According to Zaki Manian, the ATOM is supposed to be the security token that anchors the strongest and most credible blockchain in the Cosmos ecosystem. By "credibility," we are assuming that the rules of the system will be relentlessly enforced so that in the future, people will anchor their wealth in the Cosmos Hub (eg. via DeFi, derivatives, or other products).
We don't know, other than the fact that ATOMs are used to determine governance decisions for the Hub. Effectively, ATOM-holders decide the rules of the Cosmos Hub.
Zaki believes that credibility will the be scarcest resource in a world of many blockchains, and thus the Hub and the ATOM's value should be based on the Cosmos Hub's credibility. The bet is that some other value will emerge from the power that ATOMs have over what's expected to be the most valuable and credible Cosmos network hub.
Hopefully you found this useful. Questions? Comments? Feedback is always welcome! I’m on Twitter.