All you need to know about Cosmos: Use-cases, Valuation, Competition, and general thesis.
A Brief History of Decentralized Applications
Blockchains enable decentralized applications (dApps) to execute autonomously. The first of these blockchains is Bitcoin, which is a simple application that enables people to transfer value to other Bitcoin users. This blockchain can be divided into three conceptual layers:
- Networking: Responsible for the propagation of transactions.
- Consensus: Enables nodes to agree on the current state of the system.
- Application: Responsible for updating the state given a set of transactions, i.e. processing transactions
The networking layer makes sure that each node receives transactions. The consensus layer makes sure that each node agrees on the same transactions to modify their local state. As for the application layer, it processes transactions. Given a transaction and a state, the application will return a new state.
So, it was quickly discovered that blockchains enable a wide range of possibilities — markets for file storage, prediction markets, decentralized autonomous organizations, and so on. However, back in 2013, the only way to build these things was to build a new blockchain from scratch which served their intended purpose. At the time, there were two options to develop decentralized applications:
- write the entire application,
- networking, and consensus layer from scratch, or
- fork the Bitcoin codebase (messy, hard-to-read C++ code) and adapt it to its intended purpose.
The bitcoin codebase was very monolithic; all three layers — networking, consensus, and application — were mixed. Additionally, the Bitcoin scripting language was limited and not user-friendly. There was a need for better tools.
Then Ethereum came along and created a new paradigm shift. Ethereum built a new blockchain with a Virtual Machine on its application layer, allowing developers to write applications directly onto this virtual machine instead. This was a complete game-changer — developers did not need to worry about the networking or consensus layer, and could quickly write and deploy decentralized applications.
Ethereum was poised to become the “World Computer” that every dApp or smart contract would run on. However, two problems soon became pronounced: Ethereum could not scale past more than 15 transactions per second, and dApp creators were beholden to Ethereum’s implementation, unable to customize certain parts of their application like a custom consensus algorithm or new privacy features.
New projects were now faced with the decision of building on Ethereum (platform risk, cannot scale, but easy to deploy) or building on their blockchain (customizable, very difficult to build).
A bunch of new shiny blockchains DFINITY, Thunder, Tezos, etc are making the first option more attractive by building a super scalable, well-governed, blockchain — hoping to realize the dream of building a “World Computer” that runs every dApp. On the flip side, Cosmos took a fundamentally different approach — they imagine a world in which every dApp is run on its own blockchain, and to date, they are building the protocol to connect all these chains to create the “Internet of Blockchains”.
So, what is Cosmos?
Created in 2014 by Jae Kwon, Cosmos is based on the consensus protocol. It is an interconnected community of blockchains that communicate via the Inter-Blockchain Communication (IBC) protocol.
This IBC makes it easy for distinct blockchains to swap assets and interoperate without the need for specialized tooling, and it is currently the safest and most secure, and decentralized way to move assets across different blockchains, unlocking interoperability across multiple chains.
To develop the complete Cosmos interoperable ecosystem, Kwon was joined by Zarko Milosevic and Ethan Buchman. And since then, Cosmos has scaled into one of the largest blockchain ecosystems, with popular IBC-enabled chains like Terra and Osmosis reaching a combined market cap of nearly $70 billion (according to Cosmos builders Ignite).
Cosmos provides a space to build custom blockchains that easily connect. This allows devs to:
- Opt-out of high transaction fees/network congestion
- Avoid existing as only smart contracts on another chain
- Create personalized rules, security, and governance
Before Cosmos, blockchains had a siloed approach that didn’t allow communication between chains. To make this happen, Cosmos provides these three tools:
- Tendermint Byzantine Fault Tolerance (BFT)
- Cosmos SDK
- IBC (Inter-Blockchain Communication) Protocol
With this toolkit, security, and governance, Cosmos is customizable, making it optimal for various use cases and enabling the integration of multiple applications with ease.
But before we get pretty extensive about Cosmos, we must first understand the way it works under the hood. It is all driven by the Tendermint consensus algorithm.
Tendermint Consensus Algorithm
A consensus algorithm is a ways for nodes in a distributed system to agree on some state of the world. In public-blockchain-land, we are only concerned about algorithms that can tolerate malicious behavior, i.e “Byzantine Fault Tolerant”, or BFT. Within this class of algorithms, we have seen two families of consensus protocols — classic consensus protocols such as Paxos or PBFT, and Nakamoto Consensus like Proof-of-Work.
Cosmos SDK (Software Development Kit)
After developing and testing Tendermint, Jae and Ethan built the Cosmos SDK — a software development kit for developers to quickly and simply build blockchains using the Tendermint consensus algorithm and pair it with a Sybil resistance mechanism using Proof-of-Stake. Using the Cosmos SDK, developers can easily build and deploy blockchains without worrying about the consensus layer and networking layer, only needing to focus on writing their application logic directly.
Developers have 2 options when building their applications: write their own blockchain from scratch, or build on Ethereum (or variants of it). Building on Ethereum is quick and easy — you can piggyback on their consensus and networking layer and build your dApp on top of the EVM, but the tradeoff here is customizability. Using the Cosmos SDK, you do not have to follow the conventions of building on the EVM (Solidity, gas metering system, opcodes, limited cryptographic primitives, etc.). Instead, you can quickly deploy a Proof-of-stake Tendermint blockchain while retaining the flexibility to customize some things like validators, governance, staking, etc.
How does the Cosmos Network fit in the broader blockchain ecosystem?
Having done a deep dive into Cosmos, it is clear that the success of the Cosmos Network relies on 3 big components:
- The proliferation of Tendermint-based blockchains
- Reliability and effectiveness of Cosmos Validators
- Speed of deployment & out-executing the competition
To understand these three components, I’ll try to explain the vision behind Cosmos, starting from the beginning.
Cosmos is generally seen as an interoperability solution, something to connect blockchains. While it is certainly a part of what we are trying to achieve, this conception of Cosmos leaves out many important pieces. Cosmos is much, much more than just an interoperability solution.
The vision of Cosmos is to make it easy for developers to build blockchains and break the barriers between blockchains by allowing them to transact with each other. The end goal is to create an Internet of Blockchains, a network of blockchains able to communicate with each other in a decentralized way. With Cosmos, blockchains can maintain sovereignty, process transactions quickly, and communicate with other blockchains in the ecosystem, making it optimal for a variety of use cases.
Now, this vision is achieved through a set of open-source tools.
Some examples of these open-source tools are the Tendermint, the Cosmos SDK, and IBC which have been designed to let people build custom, secure, scalable, and interoperable blockchain applications quickly.
Let us take a closer look at some of the most important tools in the ecosystem as well as the technical architecture of the Cosmos network.
The technical architecture of the Cosmos Network
As we go through this, it is important to remember that Cosmos is an open-source community project initially built by the Tendermint team. Anyone is welcome to build additional tools to enrich the greater developer ecosystem.
Until recently, building a blockchain required building all three layers (Networking, Consensus, and Application) from the ground up. Ethereum simplified the development of decentralized applications by providing a Virtual-Machine blockchain on which anyone could deploy custom logic in the form of Smart Contracts. However, it did not simplify the development of blockchains themselves. Much like Bitcoin, Go-Ethereum remains a monolithic tech stack that is difficult to fork from and customize. This is where Tendermint, created by Jae Kwon in 2014, came in.
What are Tendermint BFT and the ABCI?
Tendermint BFT is a solution that packages the networking and consensus layers of a blockchain into a generic engine, allowing developers to focus on application development as opposed to the complex underlying protocol. As a result, Tendermint saves hundreds of hours of development time.
The Tendermint BFT engine is connected to the application by a socket protocol called the Application Blockchain Interface (ABCI). This protocol can be wrapped in any programming language, making it possible for developers to choose a language that fits their needs.
But that is not all. Here are the properties that make Tendermint BFT a state-of-the-art blockchain engine:
- Public or private blockchain ready: Tendermint BFT only handles networking and consensus for a blockchain, meaning that it helps nodes propagate transactions and validators agree on a set of transactions to append to the blockchain. It is the role of the application layer to define how the validator set is constituted. Developers can therefore build both public and private blockchains on top of the Tendermint BFT engine. If the application defines that validators are selected based on how many tokens they have at stake, then the blockchain can be characterized as Proof-of-Stake (PoS). If however, the application defines that only a restricted set of pre-authorized entities can be validators, then the blockchain can be characterized as permissioned or private. Developers have all the freedom to customize the rules that define how the validator set of their blockchain changes.
- High Performance: Tendermint BFT can have a block time on the order of 1 second and handle up to thousands of transactions per second.
- Instant finality: This means that forks are never created as long as more than a third of the validators are honest (byzantine). Users can be sure their transactions are finalized as soon as a block is created (which is not the case in Proof-of-Work blockchains like Bitcoin and Ethereum).
- Security: Tendermint consensus is not only fault-tolerant, it is also accountable. If the blockchain forks, there is a way to determine liability.
Cosmos SDK and other application-layer frameworks
Tendermint BFT reduces the development time of a blockchain from years to weeks, but building a secure ABCI-app from scratch remains a difficult task. This is why the Cosmos SDK exists.
The Cosmos SDK is a generalized framework that simplifies the process of building secure blockchain applications on top of Tendermint BFT. It is based on two major principles:
- Modularity: The goal of the Cosmos SDK is to create an ecosystem of modules that allows developers to easily spin up application-specific blockchains without having to code each bit of functionality of their application from scratch. Anyone can create a module for the Cosmos SDK, and using ready-built modules in your blockchain is as simple as importing them into your application. As the Cosmos network develops, the ecosystem of SDK modules will expand, making it increasingly easier to develop complex blockchain applications.
- Capabilities-based security: Capabilities constrain the security boundaries between modules, enabling developers to better reason about the composability of modules and limit the scope of malicious or unexpected interactions.
The Cosmos SDK also comes with a set of useful developer tools for building command-line interfaces (CLI), REST servers, and a variety of other commonly used utility libraries.
Like all Cosmos tools, the Cosmos SDK is designed to be modular. Today, it allows developers to build on top of Tendermint BFT. However, it can be used with any other consensus engine that implements the ABCI.
As time goes by, we expect more multiple SDKs to emerge, build with different architecture models and be compatible with multiple consensus engines — all within a single ecosystem: the Cosmos Network.
Cosmos — Hubs and Zones
Now that we have a protocol that allows two heterogenous chains to exchange tokens with each other, how do we create a network of blockchains?
One idea would be to connect each blockchain in the network with every other via a direct IBC connection. The main problem with this approach is that the number of connexion in the network grows exponentially with the number of blockchains. If there are 100 blockchains in the network and each of them needs to maintain an IBC connection with each other, that’s 4950 connections. This quickly gets out of hand.
So let’s not connect each blockchain with every other. A problem we then face is that the level of “trust” required between blockchains increases, and the risk of blockchains double-spending each other gets higher. Indeed, when a blockchain receives a token from the chain that created it, only one level of trust is required. In this case, the receiving chain only has to trust the validator set of the original chain not to unfreeze or double-spend the tokens. But when a blockchain receives a token from a chain that did not create it, several levels of trust are involved. That’s because the receiving chain must not only trust that the origin chain did not unfreeze the token, but also that all the chains that received the token before did not double-spend it. As the number of chains relaying the token grows, the number of chains the receiver needs to trust grows as well. This is not practical.
To solve this, Cosmos proposes a modular architecture with two classes of blockchain:
- Hubs and
- Zones.
Zones are regular heterogeneous blockchains while Hubs are blockchains specifically used to connect Zones.
When a Zone creates an IBC connexion with a Hub, it can automatically access (i.e. send to and receive from) every other Zone that is connected to it. As a result, each Zone only needs to establish a limited number of connexions with a restricted set of Hubs. Hubs also prevent double-spend among Zones. This means that when a Zone receives a token from a Hub, it needs only trust the origin Zone of this token and the Hub.
The first Hub to launch in the Cosmos Ecosystem is the Cosmos Hub. The Cosmos Hub is a public Proof-Of-Stake blockchain whose native staking and transaction token is called Atom. The launch of the Hub marked the launch of the Cosmos network.
Practical use cases of Hubs and Zones
- ICO Zone: Now, let us say we want to build an ICO Zone on Cosmos. This Zone would be able to accept virtually any existing token while maintaining transparency and decentralized custody for backers. Also, it would scale and not run concurrently with other decentralized applications. In short, users would be able to participate in all ICOs from a single, highly-performant platform.
We want to ease our lives as developers and therefore choose to build on top of the Cosmos-SDK. Our ICO Zone is a public Proof-Of-Stake Zone, which means it needs the following modules:
- Staking: To handle Proof-Of-Stake
- Accounts and Bank: To keep track of each user’s coins
- Governance: To manage upgrades and contentious issues
- IBC: To send and receive tokens
These are already available, we don’t need to code them again. The only thing we need to do is to create an ICO module for our specific application.
And that is it! Coding a fully-fledged public, interoperable and scalable blockchain just boiled down to coding a simple module. Now we still have to develop the front-end for our blockchain application, but this is not the hardest part. If we are nice, we can also open source and document our ICO module, so that other developers can import it into their applications to support its functionalities.
2. Decentralized Exchange: Building a decentralized exchange on Cosmos is fairly simple. The blockchain part of the exchange will deal with funds custody and clearing. As for order matching, it will still be handled by centralized operators to allow for a satisfying user experience and deep order book.
Let’s say we want our decentralized exchange to support FIAT-token. The problem with FIAT-token is that they are submitted to regulations, and therefore can’t be emitted on public blockchains. As a result, our decentralized exchange will have a 2-chains infrastructure. One chain will be a private Proof-Of-Authority chain that handles FIAT-tokens, and the other will be a public Proof-Of-Stake chain for crypto-to-crypto trading, both running on top of Tendermint Core. These two chains will be connected to the Cosmos Hub via IBC connections.
Now, what do we need to do to build such a complex infrastructure? Not much, actually. The staking, governance, accounts, bank, and IBC modules that we need already exist. What we need to code is:
- A Proof-Of-Authority module: To have a private validator set for our FIAT chain.
- A FIAT-token module: To handle emission and transfer of FIAT-tokens according to the regulations of my specific jurisdiction.
- A settlement module: To allow settlement of trades between tokens on both chains
With these three modules, we have the building blocks we need to deploy the base blockchain layer of our decentralized exchange architecture.
At this stage, we have covered most of the building blocks of Cosmos. Now, let us try to recap and summarise what Cosmos is about in three concise points.
Cosmos in 3 points
- Make blockchains powerful and easy to develop with Tendermint and the modularity of the Cosmos-SDK.
- Enable blockchains to transfer value with each other with IBC and Peg-Zones while retaining their sovereignty.
- Make blockchain applications scalable with both horizontal and vertical scalability.
More than anything, Cosmos is not a product. It is an ecosystem built on a set of modular, adaptable, and interchangeable tools.
So, what can we do with $ATOM (Cosmos blockchain’s token)?
At this point, we need to remember that Cosmos relies on the proof-of-stake mechanism.
This means the $atom token can be used for governance.
It also means that $atom holders can earn a share of the network’s block rewards and transaction fees through the staking program. They can also get these rewards through running their nodes or by delegating their ATOM coins to a validator.
Now, these validators stake or lock their ATOMs and run specialized software to maintain the cosmos network by proposing new blocks and validating transactions.
$ATOM’s Tokenomics and Funding
For some time now, the major argument for critics is that $ATOM is inflationary and its supply isn’t capped.
But the truth is that $ATOM inflation fluctuates between 7% & 20% per year. It increases when the staking ratio decreases, and decreases when the staking ratio increases. Users stake their $ATOM tokens to avoid dilution and receive incredible airdrops for that loyalty.
Now, it is important to note that $ATOM airdrops aren’t your typical everyday airdrops. It is more rewarding and comes from solid teams giving back to the $ATOM community for gifting them Tendermint & the Cosmos SDK. Almost all projects building on Cosmos, do this as it helps them build their community and usually turns out to be a net positive.
On the matter of funding, Cosmos Network raised a total of $17M in funding over 7 rounds, with their latest funding being May 27, 2021, from a Venture-Series Unknown round.
The Cosmos Network is funded by 6 investors, with 1confirmation and Paradigm being the most recent investors among them.
Cosmos Network has also made 2 investments. Their most recent investment was on Apr 12, 2022, when Nomad raised $22.4M.
The $ATOM public sale concluded in Apr-2017 and all the coins are now unlocked. This can be seen as a good thing, as it reduces the worry of VCs dumping.
Its current market capitalization is around $1.8b, with a daily trade volume of ~$350m.
Another important thing to note is that $ATOM is very decentralized. When Ignite un-staked 7.6M $ATOM last month, $ATOM didn’t perform any worse than the rest of the market.
What about value-accrual then?
This is where IBC routing comes in.
As more chains join the ecosystem, a Hub & Spoke connectivity model will be used to minimize the n° of hops & connections required.
Now, considering IBC has already facilitated over $118 bn in cross-chain txs that require fees to be paid in $ATOM on the Hub, it creates a bit of buy pressure.
Please don’t be carried away with this fact, as this buying pressure isn’t as much as that of Ethereum. This is because the Cosmos chain has very low fees. (This part of value accrual is only noticeable in a frenzied environment like the bull market. Even at that, it is still lower than that of its peers).
According to a report by Electric Capital, Cosmos had a 70% growth in developers in the Cosmos ecosystem in 2021.
This will possibly continue to grow as Cosmos technology improves and more tools come such as EVM-based chains. This report outlines that after a little over a year there are already around 48 active IBC chains; not counting all the projects within those chains.
Also, the Cosmos Hub $ATOM is a pivotal part of the community and can accrue value.
The Hub acts as a critical part of the IBC community as a router from the Hub to other chains. For example, entering the community as ATOM and then being able to move to any other chain and swap for other tokens.
The Hub is intended to become the most resilient chain to hold assets for other chains and provide security in the future to applications that would like to be secured by the Hub.
Cosmos Hub acts as a central ledger for the ecosystem providing an additional layer of security and it was also the first blockchain being powered by the $atom token, to launch on the Cosmos network.
Cosmos offers each blockchain its sovereignty; meaning applications can be custom-built and governed by users. The goal of Cosmos is to create a network that allows all other blockchains to communicate seamlessly and in the most efficient/fastest way possible.
Is Cosmos’ high-level strategy sound?…or is it flawed?
Cosmos has interoperability as its main focus, and with more blockchains and TVL than ever before, it’s evident why a high-level strategy is important.
But there is a problem. They have a lot of competitors.
Cosmos competitors
Now, I’ll outline Cosmos’ competitors and give a brief explanation of what they’re trying to achieve.
- Meter Labs: This is a high-performance infrastructure that allows smart contracts to scale and travel seamlessly through heterogeneous blockchain networks.
- Solana: Solana is a fast, secure, and censorship-resistant blockchain providing the open infrastructure required for global adoption.
- Chainlink: Chainlink’s decentralized oracle network provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain.
- Algorand: Technology that enables frictionless finance. It is the world’s first open, permissionless, pure proof-of-stake blockchain protocol that, without forking, provides the necessary security, scalability, and decentralization needed for today’s economy.
- EOS: Provides industry-leading transaction speeds and a sub-second block time latency rate, providing the ability for EOSIO to support mission-critical applications.
- Polkadot: Polkadot is a blockchain network being built to enable Web 3.0, a decentralized and fair internet where users control their data and markets prosper from network efficiency and security.
- Tezos: Security-focused. Upgradable. Built to last. Tezos is an open-source platform for assets and applications backed by a global community of validators, researchers, and builders.
- Thorchain: This is a decentralized cross-chain liquidity protocol based on Tendermint & Cosmos-SDK and utilizing Threshold Signature Schemes (TSS). It does not peg or wrap assets, it simply determines how to move them in response to user actions.
- Orbit Chain: Orbit Chain supports 15+ public chains including Bitcoin, Ethereum, BNB, HECO, Polygon, Ripple, Klaytn, ICON, Celo, and Terra. Orbit Chain is committed to researching the interoperability of heterogeneous chains and further developing the overall DeFi ecosystem with better products and services.
- LayerZero: LayerZero is an Omnichain Interoperability Protocol designed for lightweight message passing across chains. LayerZero provides authentic and guaranteed message delivery with configurable trustlessness. The protocol is implemented as a set of gas-efficient, non-upgradable smart contracts.
- Terra: Anchor Protocol allows Terra stablecoin deposits to earn stable yield, powered by block rewards of leading proof-of-stake blockchains. Terra stablecoins offer instant settlements, low fees, and seamless cross-border exchange — loved by millions of users and merchants.
- Umee: Simplest way to start your DeFi experience for staking, rates, and interoperable solutions across blockchains. Umee is a layer one blockchain for cross-chain communication and interoperability, built on the Cosmos SDK and powered by Tendermint Consensus along with a self-sovereign validator network.
- Ethereum: Ethereum is the community-run technology powering the cryptocurrency, ether (ETH), and thousands of decentralized applications. Ethereum is a technology that’s home to digital money, global payments, and applications.
- Avalanche: Avalanche is an open, programmable platform for decentralized finance applications. Launch Ethereum dapps that confirm transactions instantly and process thousands of transactions per second, far beyond any decentralized blockchain platform today.
- Zilliqa: Zilliqa is powered by the first peer-reviewed and safe-by-design smart contract language called Scilla. Using functional programming design principles (as in OCaml) allows it to be more friendly toward static checks and formal verification.
- Elrond Network: A highly scalable, fast, and secure blockchain platform for distributed apps, enterprise use cases, and the new internet economy.
- Acala: Acala is the decentralized finance network and liquidity hub of Polkadot. It’s a layer-1 smart contract platform that’s scalable, Ethereum-compatible, and optimized for DeFi with built-in liquidity and ready-made financial applications.
- Neo: Neo provides a full stack of features out of the box, but doesn’t keep you boxed in. Native functionality provides all the infrastructure you need to build complete decentralized applications, while advanced interoperability allows you to harness the power of the global blockchain ecosystem.
- BNB Chain: BNB Chain, one of the most popular blockchains in the world, is dedicated to delivering its core infrastructure necessary for future public adoption, and always remains a community-first and open-source ecosystem built on a permissionless and decentralized environment.
- Evmos: Meet the inter-blockchain communication protocol, a.k.a. IBC; the IP layer for blockchains. IBC is currently the safest and most secure and decentralized way to move assets across different blockchains, unlocking interoperability across multiple chains.
- Persistence: Persistence is a Tendermint/Cosmos-based Layer-1 network powering an ecosystem of DeFi products aimed at making liquid staked assets the default assets of the PoS economy. Persistence is an interoperable protocol that provides developers with the ability to build applications that are either sovereign, modular, or built on top of Persistence’s CosmWasm layer.
- ICON: ICON is a blockchain protocol for decentralized applications. As an aggregator chain, it achieves interoperability, a web of interconnected networks aggregating all blockchain data into one layer.
- Cosmostation: Explore networks built with the Cosmos-SDK with Mintscan. Block Explorer for exchanges and everyday users. Sign transactions locally on a secure & convenient GUI. Decentralized mobile wallet for Tendermint-based chains.
As you can see, there are almost 25 other projects that in one way or the other, offer something that Cosmos also offers. This shouldn’t be pleasant news to any investor. The more the competition, the lesser the market share.
But what if Cosmos’ approach is actually better than its competitors? Or what if they’re not really competitors, and more interoperability helps increase the network effects of all these projects?
I guess we’ll know these answers a few months from now. When the upgrades are completed.
What’s likely to happen to Cosmos in the coming months?
To answer this question, I evaluated Cosmos across several different categories.
- We have to take a look at the performance of $ATOM. In the most recent bull market, it managed to pull a 7.5x which is not bad…but it is nowhere near the performance of $ADA, $DOT, or any of its other competitors.
This whole scenario birthed another question.
Why does $ATOM lag behind its peers so much? So many BIG projects use their SDK and IBC after all, so shouldn’t $ATOM be worth way more? Why isn’t the value reflected in the token price?
After long hours of research, I found the answer to be surprisingly simple.
$ATOM does a terrible job at capturing value!
Now, if you take a good look at Cosmos value capture, you could argue that Polkadot is the better interoperability play because it captures value better. This is because you need $DOT to stake for parachain auctions and to pay for fees on their relay chain. It’s the same with $AVAX and $MATIC and so many others as well.
The Cosmos ecosystem is indeed generating some economic activity, but very little of it flows to $ATOM.
Why is this so?
It is so because one can do a lot without $ATOM!
All those big and successful projects built with Cosmos SDK don’t need $ATOM. They also don’t need $ATOM for using the IBC bridge either. So their 2 most popular products don’t benefit $ATOM holders at all. (Although this may change with Shared Security and Liquid Staking, for now, there is no benefit.)
Until that is fixed, Cosmos would continue to leak value.
Asides from the value leak, the Cosmos ecosystem looks strong and healthy. It has about 250 apps & a lot of projects using the IBC protocol. There are also lots of different blockchains that were built using their SDK. It is really impressive if you ask me.
2. Another thing to consider is how active their developer scene is. In 2021, Cosmos grew its total active developers by 70%! This puts them at #3 in terms of overall dev activity! Their tooling, docs, and SDK, were all a massive hit.
3. It is also important to note that Cosmos-based chains have market capitalizations that are significantly lower when compared to their Ethereum counterparts.
This is not a good look, as other Layer 0 ecosystems are expected to outperform Ethereum. Yes, Ethereum has indeed blossomed over the last two years due in part to its composability standards but it is also true that in a bull market, competing alts are expected to outperform Ethereum due to their lower market capitalization. If any particular layer 0 isn’t outperforming Ethereum, isn’t it just wise to hold Ethereum itself?
Roadmap and Upgrades
One big thing I haven’t mentioned since is their upcoming roadmap. They have 4 main upgrades this year, 1 for each Quarter. Some highlights include interchain accounts, shared security, liquid staking, etc.
Cosmos already has 30 active zones connected to IBC, covering pretty much every popular aspect of decentralized finance. But the interchain security upgrade (coming in September this year) is expected to be a major catalyst for adoption, as every new crypto project realizes that Cosmos offers an unbeatable combo of scalability, security & interoperability. Until all these happen, we should just keep an eye on Cosmos.
My final verdict?
With the advent of the multi-chain world, it has been harder & harder to deny the fundamentals of Cosmos. I think Cosmos (Atom) can pull a 10x in the next bull market (if they find more ways to drive value to their token), but it is going to take longer than this year. Maybe -90% is more likely in the current market, but I think it’ll be ready to roll when the next bull market comes.
The potential for Cosmos applications is virtually infinite. Cosmos is designed to be modular, adaptable, and scalable. It exists to make the promise of blockchain a reality. Whatever your blockchain use case may be, you will find tools to quickly build it on Cosmos. This is not a promise that may come true in a few years, this is available now.
But as investors, we know that the entire crypto market is cyclical. Every four years birth a new narrative. Right now, Cosmos might seem like a good play but what would it be, in the next four years?
I would advise that as much as we keep a watchful eye on what is happening in the cosmos ecosystem, we must also watch out for a shift in narrative. In crypto, the narrative is money and not the other way round. If we sense a substantial change of narrative, we should begin to phase out any plans we have for Cosmos and embrace the new tech/narrative.
If we don’t, we might end up holding a new set of dino coins and would have to bear the repercussions (drawdowns) that come with that.
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