ATOM Staking Report: On-chain Data Analysis 2020-2022

Everstake improves staking analytics with in-house tools

Most staking data resources track only primary data: APR, number of validators, price, and block time.

Everstake is a responsible validator trusted by 625k users across 70+ blockchains. The Everstake team is familiar with the problem of staking analytics, so our engineers have developed their own analytics tools, Slurp and Staking API.

Staking, delegation, transaction validation, block creation, and reward accrual happen on-chain, which means that all transactions are recorded in the blockchain and are readable. Slurp collects this data and transforms it for further analysis.

We chose Cosmos (ATOM) Staking data for the first Staking Report. Cosmos implements an adaptive inflation mechanism depending on the ratio of total stake to the whole ATOM token supply, which makes it most interesting for analyzing validator and delegator behavior and identifying correlations.

Methodology of Everstake’s Cosmos Staking Report

The methodology of this report provides a general framework for conducting on-chain data analysis of the Cosmos Hub blockchain and the ATOM token. The main steps we followed are as follows: 

1. Collect on-chain data for the Cosmos and the ATOM token using blockchain raw transaction data and data obtained from API, such as the Cosmos API or a third-party API. The data include information about staking, transactions, inflation, staked ratio, and other relevant metrics.

2. Clean and prepare the data for analysis using a data analysis tool like Python and PowerBI. This involves filtering the data, merging multiple data sources, and formatting the data for further research.

3. Analyze the data to identify trends and patterns in the staking, transactions, and other metrics. This involves visualizing the data using graphs and charts, calculating statistical measures, and testing hypotheses about the data.

4. Interpret the analysis results and provide insights and conclusions about the state of the Cosmos Hub blockchain and the ATOM token based on Everstake’s experience. This may involve discussing the implications of the analysis, comparing the results to other data sources or benchmarks, and making recommendations for further action or research.

Intro: What does it mean to stake cryptocurrency?

Validators maintain the operation of Proof-of-Stake-based blockchain protocols. They validate and execute transactions, keep copies of the blockchain, and add new blocks. For this, validators receive rewards in native blockchain tokens. 

Cosmos produces a block every 7 seconds.

Any user can become a validator. To do so, it must launch a blockchain node and deposit a certain number of tokens (a stake) into the staking. Blockchain protocols use stakes to implement a slashing mechanism: if a validator deliberately harms the network, the protocol takes away a part of its stake.

There are 481 validators in Cosmos Hub, with 175 active ones.

The staking reward amount depends directly on the validator’s stake volume. The larger it is, the more often the protocol trusts the validator to create and validate blocks for a fee.

Cosmos Network reward rate is 10.73 ATOM per block.

The security of a blockchain protocol depends on the total stake. If the value of the total stake is $1M, it will take a dishonest actor $2M to get the majority of votes and take control of the network. If the total stake is $1B or more, the potential profit from taking over the network is likely lower than the takeover’s cost. This is why many blockchain protocols use delegation to attract additional assets into staking.

Cosmos Network’s total stake is worth $2,44B.

Delegation is a process where regular users delegate their tokens to a trusted validator in order to earn staking rewards without launching their own node. As the network’s total stake grows, the validator makes more and can share more rewards with the delegator. 

There are 481K delegators in the Cosmos Network.

The number of delegators has grown fivefold over two years

Despite considerable fluctuations in the total stake, it has seen a noticeable increase over the past two years. The number of delegators was increasing more uniformly, though the process visibly accelerated starting January 2022.

Cosmos is continuously developing over the last few years. And ATOM, as the native asset of, shows a positive dynamic in total staked value (201M ATOM or $1.9B on Dec 22). 

Even though starting from 2022, we entered a bear market, Cosmos’ total stake increased by 19.7%. Furthermore, the number of unique delegators increased twice from 240K to 481K at the end of 2022. It shows the health and interest in the development of Cosmos blockchain.

As staked ratio fell below 66%, APR increased from 10% to 21,7%

ATOM inflation started increasing in late 2021 reaching 14% in 12 months.

Other important metrics include the staked ratio, inflation, and APR. In Cosmos, if less than ⅔ of ATOM supply were staked, inflation slowly grew from 4 to 14%. We can find such behavior in the chart starting from Sep 2021. As a result, inflation almost reached 14% at the end of 2022. It also positively affects APR (21.72%) rate and engages delegators to stake more ATOM and contribute to Cosmos’ security. 

APR = inflation/staked ratio.

Users prefer delegation during a bear market

ATOM price and total stake demonstrate inverse correlation.

ATOM’s stake remains relatively stable under varying market conditions. The chart suggests that ATOM price fluctuations positively influence the staking process. Moreover, we can find a negative correlation (-0.66) between stake and ATOM price starting from 2022. This means that the lower the price of ATOM, the more delegators stake. There are huge ups and downs in total stake value caused by Interchain Foundation (IFC) and big custody validators like Binance, Kraken, and Coinbase.

Retail delegators’ stake is rising continuously

The correlation between retail total stake and APR has become direct as of January 2022.

Since IFC and custody validators might make our picture less clear, we decided to exclude delegation transactions bigger than 100K ATOM ($1.2M in December 2022). That gives us a total stake dynamic related to retail delegators, making the picture much more apparent. We see a strong positive (>0.97) correlation between total retail stake and APR. It stands to reason that a bigger APR engages the retail segment to stake more. Retail delegators staked around 40m ATOM ($420M) in 2022.

Users delegate to the biggest validators uniformly

As of December 2022, 11 largest staking providers handle about 280,000 staked ATOM.

To dive deeper into the retail segment, let us look at the dynamic of stake distribution for retail validators. Our logic to define a retail validator is as follows:

• The validator has more than 5,000 unique delegators.

• Validator average stake (total stake/number of delegators) is less than 500 ATOM ($5,000) per delegator.

The number of delegators is increasing faster than the total stake, especially in the case of decentralized staking providers like Everstake, Provalidator, Citadel.one, and SG-1, indicating that user interest in staking is generally growing.

At the end of 2022, the top 10 validators staked 55.7M ATOM, with 278.1K unique delegators. The crypto market turbulence doesn’t affect the total stake, which is a positive indicator.

47% of Cosmos users delegate to the 11 biggest validators

Eleven biggest validators account for 47% of all ATOM delegations, with Everstake leading the chart by the number of stakers.

In continuation of the previous thought, we can note the same positive dynamics in the growth of the number of unique delegators for each validator. Interestingly, the combined number of delegators for the 11 biggest validators is around 350K, while there are 740K delegators in the Cosmos blockchain.

Less than 20% of delegators care to re-stake their rewards

While staking has grown more popular among ATOM holders, less than 20% of them re-stake their rewards for compound interest.

While staking ATOM, your staking rewards do not compound your stake automatically. It means that the delegator loses quite a significant percentage of gain if they don’t re-stake rewards. For example, a 20% APR with monthly re-staking rewards becomes a 21.94% APY. Last year, the interest in the compound effect in ATOM increased with its APR. The chart shows that ATOM’s re-stake amount (blue bars) increased 5-6 times.

Meanwhile, the re-stake ratio (yellow, re-staked rewards to total rewards) also increased with the percentage of unique delegators that decided to re-stake rewards (green line). It signals some interest in the additional profit and financial literacy among delegators. 

Conclusion

The process of staking in Cosmos Hub has shown positive growth over the last two years. The numbers are as follows: 

• The total staked value of ATOM, the main asset of the Cosmos ecosystem, has increased by 19.7% despite the bear market of 2022.

• The number of unique delegators doubled from 240k to 481k by the end of 2022. This growth indicates the health and interest in developing the Cosmos blockchain. 

• Lowering the stake ratio below ⅔ of the ATOM supply has resulted in inflation almost reaching 14% by the end of 2022. This has positively impacted the APR rate and has encouraged delegators to stake more ATOM and contribute to the Cosmos Hub blockchain. 

• While the ATOM price peaked at $44.6 in January 2022, the total stake almost fell to an all-time low at 167M ATOM. 

• ATOM price declined 87% from the peak, while the total stake increased from 167M to 201M ATOM.
  

In Cosmos Hub, staking rewards do not compound automatically to a delegator’s stake. This means that delegators will retain a significant portion of their rewards if they re-stake them. If the rewards are re-staked, the delegator will keep considerable potential gain. Re-staking rewards help maximize the delegator’s returns and ensure they are not losing out on potential profits. Additionally, re-staking rewards help increase the staked ratio on the network, which can positively impact the network’s security and performance.

Everstake is a responsible validator with the most powerful analytic tools in the industry. Staking with Everstake is a wise choice. Stake ATOM with us here.