A Comprehensive Understanding of the Popular Project Evmos: Basic Introduction, Economic Model, and Participation Risks

Written by: Coinbase

Compiled by: TechFlow

Key Points:

1) Evmos achieves decentralized interoperability between Ethereum-based applications and the independent decentralized blockchain ecosystem of Cosmos, including Cosmos, Terra, Crypto.org Chain, Osmosis, and many more.

2) The launch of Evmos's EVM compatibility and IBC allows developers to build using the functionalities expected from Ethereum in a Tendermint environment, enabling users and their assets across the entire Cosmos ecosystem to access programs visible on Ethereum.

3) Due to its EVM compatibility, Evmos is likely to become a hotspot for web3 development within the Tendermint ecosystem.

4) Validator operators can earn participation rewards by helping secure the network and adding new blocks on-chain, while any token holder can delegate their Evmos tokens to validators to earn rewards.

Introduction to Evmos

Evmos is a decentralized proof-of-stake blockchain within the Cosmos ecosystem. It is based on the Ethereum Virtual Machine (EVM), meaning it is fully compatible with the Ethereum network.

The goal of Evmos is to bring the world of Ethereum-based applications and assets into the interoperable network of the Cosmos ecosystem while aligning the incentives for developers and users and focusing on innovation in the composability space between EVM and inter-chain.

Evmos is built using the Cosmos SDK with Tendermint core consensus, providing fast finality and high throughput for Cosmos-based blockchains. By utilizing Ethereum's EVM, developers can deploy their Ethereum-based applications in a Tendermint consensus environment, resulting in lower transaction fees, faster transaction speeds, and security provided by proof-of-stake consensus.

Evmos also enables the Inter-Blockchain Communication protocol (IBC) of Cosmos, which allows for the direct sharing of tokens and data between Tendermint-based chains using it. Therefore, EVM applications deployed on Evmos can also be accessed by network participants across the broader Cosmos ecosystem, including Cosmos, Terra, Crypto.org Chain, Osmosis, Cronos, Sentinel, and Secret Network.

Users from all 28 independent blockchains supporting IBC will be able to access a variety of programs seen on Ethereum, including decentralized exchanges, marketplaces, lending protocols, NFT applications, games, and more, all thanks to developers deploying their mature application logic from Ethereum directly on Evmos.

Evmos is the evolution of Ethermint, which was a proof-of-concept launched in 2016 as a way to deploy EVM-based smart contracts on Tendermint to achieve consensus using proof-of-stake.

The vision of Ethermint was to support all Ethereum tools, just like today's Evmos, creating the same developer experience for Solidity smart contract developers on Tendermint as for developers on Ethereum.

After the launch of IBC in March 2021, the Tharsis core development team proposed advancing Ethereum initiatives through community governance in Cosmos Proposal 44. This proposal, now known as Evmos, quickly passed in April 2021 with a community support rate of 98.31%.

EVMOS is the native token of Evmos, used for paying transaction fees, securing the network, and participating in Evmos governance to determine decisions regarding changes to core protocol parameters, allocation of community funds, and more. Any EVMOS holder can submit or vote on proposals using the protocol's governance module for the use of the Evmos community fund pool. The community fund pool will collect 10% of the tokens minted in each epoch.

Why is EVM Compatibility Important for Evmos?

Deploying and using Ethereum-based applications in other blockchain environments has become a multi-billion dollar part of the web3 ecosystem.

The push for deploying Ethereum-based applications in alternative environments is driven by many factors, based on the consistency of built-in interoperability and incentive mechanisms:

1) Achieving proof-of-stake consensus,

2) Faster transaction speeds,

3) Lower transaction fees,

4) An expanded available user base.

The maturity and large user base of Ethereum make it a great place to build web3 applications, but it has also led to congestion, resulting in high operational costs and slow transaction speeds. Layer 1 solutions compatible with EVM, like Evmos, allow developers to launch these same applications to more token holders, who in turn can benefit from the utility offered by the applications.

While the concept of EVM compatibility on Tendermint consensus has been in the spotlight since 2016, Evmos is the first permissionless, proof-of-stake, EVM-compatible environment launched within the broader Tendermint ecosystem.

How to Participate in Evmos Activities

There are two types of nodes on Evmos: validator nodes, which are responsible for validating transactions and submitting new blocks to the blockchain; and full nodes, which store the complete state of the blockchain and retrieve blockchain data when called upon. A validator must operate both a validator node and a full node simultaneously (both included in the Coinbase Cloud validator node cluster), while read/write infrastructure only requires the use of a full node.

The active set of Evmos consists of 150 validators with the highest total EVMOS stake (including self-bonded and delegated stake). A validator is chosen to propose the next block.

This is based on its total stake relative to the total stake of all validators (for example, if 10 EVMOS stake is given to validator A and 100 EVMOS stake is given to all validators, validator A will be chosen to propose a block 10% of the time). A block cannot be included in the chain in the form of signatures from other validators unless it has at least two-thirds (66%) pre-commitment from the previous block.

To incentivize better networking between non-empty block proposals and validators, the percentage of rewards earned by a validator for successfully proposing a block increases as the percentage of pre-commitments included in the block rises from 66% to 100%. You can learn more in the "Rewards and Economics" section below.

Delegation on Evmos has no minimum requirement for an individual to stake their EVMOS with a validator. Delegators who do not actively participate in Evmos governance will automatically inherit the votes of the validators they delegated to. Evmos validators charge a certain percentage of commission fees to their delegators in exchange for the participation services they provide, which is deducted before the delegator's reward distribution.

When registering a validator on the network, referred to as "announcing candidacy" on Evmos, the validator operator must declare the validator's initial commission rate, the maximum daily commission rate change (the highest percentage by which the commission rate can change in a day), and the maximum commission rate. Once a validator announces its candidacy, these parameters cannot be increased, although operators can reduce them at any time.

Evmos Rewards and Economics

These parameters are set at the protocol level and are not determined by validators or Coinbase. This information may change based on network decisions and is accurate as of 2.4.22.

Since EVMOS is used to pay transaction/computation fees (gas), the current target staking rate is approximately 50%. The Evmos team notes that if liquid staking is naturally achieved on Evmos in the future, the target staking rate may increase.

There are four types of rewards on Evmos: transaction fees are averaged and distributed to active validators in EVMOS, although in the future, governance may enable the ability to pay in any Cosmos-based token. Application developers will also receive a certain percentage of EVM transaction fees, distributed between the validating validators and the application developers in the Evmos dApp Store.

Inflation rewards (Block Provision) are a percentage of EVMOS inflation, proportionally distributed to all active participants in the network. Proposer rewards are 1-5% rewards given to validators who successfully propose a consensus block, with rewards increasing based on the number of pre-commitments included in the previous block.

Using rewards accounts for 25% of the block issuance, as an additional incentive, including deferred gas rebates and liquidity mining, with the possibility of additional rewards through governance.

As mentioned earlier, to encourage non-empty block proposals and networking between validators, proposer rewards increase from 1% to 5% as the pre-commitment inclusion rate of the block rises from 66% to 100%.

Thus, validators can optimize their participation by waiting long enough to include their signatures in the proposed block without missing the opportunity to propose the next block. The validator's commission rate is applied to all rewards of the delegator before the delegator calls rewards from the protocol.

Risks of Participating in Evmos

Slashing is enabled on Evmos. If a validator behaves unexpectedly in the network, both the validator's self-bonded stake and the delegators' stakes will be reduced, incentivizing delegators to stake their EVMOS with securely operating validators. Certain behaviors of malicious validators can lead to slashing penalties on Evmos:

Double Signing: Signing two blocks at the same block height will lead to a slashing penalty on Evmos, although the punitive parameters for double signing have not yet been defined.

Downtime: A validator missing over 95% of the previous 10,000 blocks will incur a 0.01% slashing penalty.

Inaccessibility: A validator being offline for a certain number of blocks will lead to a slashing penalty, and if the number of missed blocks exceeds the limit, it will be unbonded and removed from the active set, although the parameters for inaccessibility have not yet been defined.

Poor Security Leading to Malicious Behavior: If a validator is a victim of a distributed denial-of-service (DDoS) attack, if its private key is compromised, or if its other bad behavior is similarly unintentional, its total stake may still be subject to slashing penalties—highlighting the importance of choosing secure, highly available participation infrastructure.

Evmos is expected to implement Cosmos's jail parameters, where slashed validators will automatically enter a jail period before being eligible to rejoin consensus. In Cosmos, this jail period is currently 2 days, after which validators can submit a transaction to unjail and rejoin the active set.

Governance of Evmos

Governance will be a feature of the Evmos protocol, although it has not yet been fully defined. Validators will play a significant role in governance, as non-active validators may inherit the votes of the validators they bond.

Additionally, validators on Evmos may be slashed with a minor penalty for neglecting to vote on governance proposals, although this is not defined. The EVMOS token is the primary tool for participating in Evmos governance. Any EVMOS holder will be able to submit proposals for protocol upgrades or use funds from the Evmos community treasury.

Evmos is expected to implement Cosmos's governance parameters. Cosmos employs a "one token, one vote" system, meaning any EVMOS holder can vote on governance proposals without giving extra weight to certain votes—however, since delegators will inherit the votes of their bonded validators if they do not actively vote themselves, validators will naturally have a larger vote if participation is limited.

Users on Cosmos can submit governance proposals with a deposit, and once the minimum deposit is reached, the proposal enters the voting period. If the proposal is accepted or never reaches the minimum threshold for the voting period, the deposit will be refunded; if the proposal fails, the deposit will be reclaimed by the Cosmos treasury.

Why Run an Evmos Node?

Validators have significant influence in governance votes affecting network parameters, reward rates, transaction fees, accepted transaction fee currencies, etc., as non-active delegators will automatically inherit the votes of their bonded validators.

As Evmos connects Ethereum-based and EVM-compatible applications to the interoperable Tendermint and Cosmos ecosystems, it is expected to become a hotspot for web3 applications and asset transfers—making it highly suitable for developing blockchain-supported web3 applications.