The Cosmos network is not only a Proof of Stake blockchain network but also one that utilizes on-chain governance. In order for the blockchain to continually upgrade and improve over time, community members will coordinate formally on-chain and informally off-chain to participate in discussions and debates surrounding the trade-offs of specific changes. As some networks like Ethereum do not offer any sort of on-chain governance features, on-chain governance blockchains like Cosmos offer a lot of exciting potential and differentiation around participatory engagement from all stakeholders involved.
What kind of changes are made via on-chain governance with Cosmos? Right now, text-based signalling proposals are when a text-based description of a change is shared with the network to describe the problem and potential solution the proposer is suggesting. This could be a poll or announcement.
Secondly, parameter changes or software upgrade proposals are technical changes to how the network runs, ideally, that will not halt or disrupt the network in a significant way in terms of downtime.
Examples include but are not limited to:
- the inflation rate of the network
- how slashing parameters are applied
- how rewards are distributed
- levels of quorum required
- how long the unbonding period is
To understand process-wise how Cosmos governance works, it’s best to think of these network upgrades in the following stages which are enforced on the protocol level. It is also important to note that delegators (you) inherit the vote of the validators that they delegated to unless they cast their own vote, which will overwrite validator decisions.
Anyone can submit a proposal on the Cosmos network for others to view. The only cost associated with submitting a proposal is the transaction fee as little as 0.000001 ATOM. However, over the course of the voting period, a proposal must have at least 512 ATOM deposited to it in order for it to proceed to a vote. This period lasts at most 2 weeks, but if the minimum amount of 512 ATOM is reached sooner the proposal will pass to voting immediately. Currently, there is no penalty for delegators and validators who do not participate in governance, though there is a risk to individuals who deposit ATOM to a proposal if the proposal does not pass the voting stage.
The next stage in the governance process is the voting stage which also lasts 2 weeks. Rather than depositing ATOM, participants in this governance stage are actually voting Yes, No, No(With Veto) or Abstain. If a proposal reaches quorum or the minimum threshold defined by the protocol of votes it will pass to the next stage for tallying. Only staked tokens are eligible to be used for governance voting. The amount of voting power is measured in terms of stake. The number of ATOM a person or group has determined how much influence your vote will have on the outcome of a proposal. Voters can also change their vote right up until the closing period.
After two weeks the proposal voting will end and the following condition will be taken into consideration to determine if it passes or not:
- Quorum: more than 40% of the total staked tokens at the end of the voting period need to have voted
- Threshold: More than 50% or a majority of the tokens that participated in the vote, excluding “Abstain” votes must have voted “Yes”
- Veto: Less than 33.4% of the tokens that participated in the vote, not counting “Abstain” votes, have vetoed the decision “No (With Veto)”.
If any of these conditions are not met, the deposit associated with the denied proposal will not be refunded. These funds will be sent to the community pool.
Once a parameter change or software upgrade proposal is voted on and passes all conditions it will need to be integrated into a new version of the Cosmos network software by validators while the previous working version continues to run. This is signalling that a switch will occur. Once more than 2⁄3 of the validators download this new version and signal they are ready to make the switch the rest of the network is expected to do the same.
And this is how you would have seen the first versions of the Cosmos Network get upgraded all the way to the current version today!