What are the main risks of using Cosmos?
The main Cosmos risks are staking lockups, slashing, failed IBC transfers and chain bugs; ATOM is the Cosmos Hub token, not gas on every chain.
Vahe HakobyanEditor-in-chief
Updated Oct 6, 20263 min readFact-checked
On this page
- Cosmos is many blockchains, not one chain.
- Staking locks ATOM until unbonding ends.
- A halted zone can freeze tokens sent to it.
- Staking rewards count as income.
Cosmos is a set of independent blockchains, called zones, linked by IBC, and ATOM is the Cosmos Hub token. The main risks of using Cosmos are staking lockups and slashing, IBC transfers that need two live chains, app-chain bugs, and US tax rules for rewards and airdrops.
What are the main risks in Cosmos?
Staking bonds your ATOM to a validator, so you cannot move or sell it until unbonding ends. A validator that signs two blocks at one height, or stays offline long enough, is slashed, and the penalty comes from your delegated ATOM.
How do IBC and DeFi add risk?
IBC moves tokens between zones, so a transfer needs both chains to keep producing blocks. A halt on either side can leave it unfinished, and a bug in a zone can freeze tokens you moved there.
- A halted chain stalls every transfer in flight.
- A flaw in a smart contract can drain a pool.
- A loan against ATOM can be liquidated if its value falls.
How do US rules treat ATOM staking?
The IRS treats crypto as property, so staking rewards and claimable airdrops are usually income when you get them. Buying ATOM with dollars is not taxable, but trading it for another token, a stablecoin included, is. The CFTC classes Bitcoin and other virtual currencies as commodities under the Commodity Exchange Act.
What is Cosmos and who created it?
Cosmos began with a 2016 whitepaper by Jae Kwon and Ethan Buchman, and the Cosmos Hub is a multi-asset ledger whose native token, ATOM, pays fees and can be bonded for rewards and votes. Zones link to it through IBC and run on Byzantine fault-tolerant proof-of-stake consensus, such as Tendermint.
Frequently asked questions
No. ATOM pays fees on the Cosmos Hub, and other zones usually charge their own token for transactions.
It usually times out and the tokens return to the sending chain, unless a chain halt leaves it stuck.
A short outage costs you nothing. A validator offline long enough to be slashed loses part of the delegated ATOM, and your share goes with it.
Check the chain name and the address format your wallet shows, since each zone has its own prefix.
