The Governance of Cosmos Interchain Security

Interchain security (ICS) allows the Cosmos Hub to provide security to other blockchains (‘consumer chains’) and represents a significant revenue model for the Cosmos Hub. This paper investigates the economic and governance aspects of these ICS agreements with a focus on ensuring that the agreements are value adding and robust. The paper identifies potential risks such as vertical integration, challenges in adapting to incomplete contracts, and opportunism in asset-specific investments. It proposes recommendations to enhance the sustainability of ICS relationships, including the establishment of individual governance bodies for each ICS agreement, strategies to manage foreign exchange risks, and a decision tree for the Cosmos Hub to assess new consumer chains. A draft template for consumer chain onboarding is also presented, detailing essential elements like governance, payment terms, and exit clauses. This paper aims to offer actionable insights for improving the governance structures in ICS agreements, thereby fostering robust and enduring interchain security dynamics.