On the Cosmos Network, Participation Affects Price

By Crypto Li

For most Proof of Work currencies, participation in the network is beyond the reach of the average token holder. Mining generally requires time, electricity, and expensive hardware. But the world of Proof of Stake is different, and there are signs that on at least one PoS network, participation and price are strongly correlated.

Consider, for example, the Cosmos network and its native token, the Atom. Atom token holders can get rewards and increase their returns by staking their Atoms and participating in the interaction and governance of the entire network. More Atoms staked means more people participating in network governance, which increases the quality of network consensus. 

And that growing participation, it seems, has a positive effect on Atom’s price. 

Below, you can see a chart that compares the Atom price to the number of “bonded Atoms” (Atom tokens that are staked) since the network’s hard fork this past spring. In this chart, the blue line represents the change of total Atoms staked in the entire network, and the pink line reflects the price of the Atom token in USD. 

Bonded ATOMs vs ATOM Price_en.png

Although there was a brief moment when a drop in token holders corresponded with an increase in price, the two lines share many of the same features and the same general trend. 

In this chart, there is no major drop in the number of bonded Atoms. But it’s worth noting that if stakers want to unbind the Atoms to trade their tokens on the secondary market, they need to wait for 21 days under the Cosmos PoS mechanism. This means that if there is a sharp decline in bonded Atoms on the chain, it could be that someone is seeking to cash out a large amount of Atoms and has thus unbound their staked tokens. In that case, we might see a price drop as a lagging indicator after 21 days, since that’s the amount of time required between when the tokens can be unbound and when they’re available for trading elsewhere.

A downswing or even slowing growth in the number of bonded Atoms might thus portend a price drop a few weeks in the future. Watching the trend in bonded Atoms on Cosmos is thus important for anyone who’s seeking to trade this token. 

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