How Cosmos & Ethereum are converging
Both ecosystems share values and philosophies but have different technical roots. Interop’s Convergence event at ETHDenver explores the positive sum endgame for Cosmos and Ethereum.
In March 2023, the crypto researcher Hasu was a guest on the excellent Bell Curve podcast. He spoke about how the lines between Cosmos and Ethereum were becoming blurred, commenting on how the Ethereum community had outperformed on execution and disruption while praising Cosmos’ technology stack.
We’ve been thinking a lot about this topic at Interop Ventures and were pleased to host Convergence: Where Cosmos and Ethereum Collide during ETHDenver 2044. In partnership with Polygon and Noble, this intimate breakfast event featured a panel discussion with Jelena Djuric, Co-Founder of Noble, Sandeep Nailwal, Co-Founder of Polygon, Karel Kubat, Co-Founder of Union, Rushi Manche, Co-Founder of Movement Labs and 0xMuto, Co-Founder of Ethos. Sebastien Couture, GP at Interop Ventures, moderated the panel.
Understanding Cosmos
To many Cosmonauts and people outside the community, Cosmos appears to be in a perpetual identity crisis. Depending on who one asks, Cosmos can be viewed from different angles: as a technology stack, as a chain (and its staking asset), and as a community.
Since its genesis, the multi-chain thesis has been a cornerstone of the Cosmos community’s ethos. While Ethereum users grappled with rising gas costs in times of high demand, the community iterated on several approaches to scalability before settling on a rollup-centric roadmap. Before this was generally accepted, Cosmos and Polkadot departed from the idea of monolithic chains, proposing a new model of sovereign application chains made composable by trust-minimized interoperability protocols — in the case of Cosmos, IBC.
Cosmos was initially synonymous with ATOM and the Cosmos Hub. As the most secure chain built on the Cosmos SDK, the Hub was well positioned to become a focal point of the IBC network, acting as a port city between IBC-connected chains and the outside world. Over time, and as new chains sprouted, the importance of the Hub diminished, and the definition of Cosmos shifted to encompass a powerful and versatile technology stack: the Cosmos SDK, CometBFT (aka Tendermint), and IBC.
At the center of Cosmos’ philosophy is the concept of sovereignty, where chains choose their validator sets, are governed by token holders, and are custom-tailored to the application’s needs. Sovereignty also exists as a political statement opposing the monolithic L1 model, in which applications must pay high gas fees while capturing little to no direct value for users and stakeholders.
“I always see Cosmos as the teams who value sovereignty. And for me, that’s the most defining thing of the Cosmos community.”
— Sandeep Nailwal
As the Cosmos stack becomes more widespread, the consensus definition of Cosmos is the IBC-connected world — the Internet of Blockchains.
The Alignment Meme
There are two ways to look at Ethereum alignment.
One opts to align with Ethereum’s gas token, ETH. In this paradigm, anything that accrues value to ETH is considered aligned. Maximalists almost irrevocably fall in this category, according to Sandeep, who sees this form of alignment as purely profit-driven. Karel points out that Eigen Layer has seen massive popularity among ETH holders because it aligns itself with the asset and accrues value for token holders.
The other opts to align with the Ethereum philosophy. Herein lies the belief that trust-minimized, open, and censorship-resistant systems are a net good for society and that building Web3 is noble and just. Those who align in this manner don’t care about money but want to see the Ethereum project achieve its end game. According to Sandeep, people who fall in the category number in the dozens.
For Cosmos chains like Noble, where sovereignty is highly valued, aligning with the ETH asset makes sense as it means benefiting from the most decentralized and secure chain. This insight from Jelena offers a different perspective, suggesting that off-protocol consensus chains can align with the asset purely for practical and functional reasons without falling into either of the previous camps.
To 0xMuto, alignment helps with business development and community building and has its strongest effects in bear markets when liquidity is low. Alignment is a meme that fades in bull markets with high liquidity and abundant incentives to chase yields. Ultimately, alignment should be leveraged as a community-building tool but never as an impediment to first principles.
Cosmos Alignment = IBC Alignment
While the question of Ethereum alignment opposes its native asset and philosophy, Cosmos alignment takes a different form. As there is no canonical gas token or central value accrual mechanism, chains align with Cosmos only in a technical sense.
To align with Cosmos means to align with the stack and the glue that binds chains: IBC. Or perhaps, whoever proudly displays their Bad Kid.
Teams like Neutron, Stride, and Aether are leading in aligning with the Cosmos Hub and accruing value to ATOM. Their efforts represent an optimistic exploration of the Hub’s potential as a security provider. While the path to long-term success and sustainable value for the Hub continues to develop, these initiatives signify promising progress toward achieving its vast potential.
Indeed, Cosmos alignment appears to mean opting for a technological solution rather than pumping someone else’s bags. Few viable options exist for frontier applications that want to build out-of-protocol, and the Cosmos stack stands out as the most mature and versatile.
Take Celestia as an example. Its modular thesis is based on the idea that rollups will outnumber application-specific chains. Data availability is needed for a rollup ecosystem to be possible. Ethereum DA is insufficient and too expensive to scale. The logical conclusion is to build out of protocol, and the best stack for the task is the Cosmos SDK.
dYdX had a single sequencer rollup on StarkNet but was insufficiently decentralized. Putting the order book on-chain while maintaining low gas costs requires multiple nodes to achieve consensus. CometBFT is the right tool for the job, and it’s built to work in tandem with the Cosmos SDK.
Mirroring statements by Ethan Buchman and Sam Hart on a recent episode of Empire, the end-game of Cosmos is for every chain to be connected to IBC.
Future of Cosmos
In its early phases, Cosmos was a means to launch a sovereign L1. But as the bear market set and asset prices dwindled in 2022 and 2023, many chains struggled to keep the lights on as the market cap decreased and the value of staked assets significantly dropped. At the same time, many L2s came into existence — a much easier and more attractive option to launch new chains.
Part of the problem is that building an L1 is very difficult. Chains must build a validator set, which implies inflating the token supply by 20% at TGE to have a security set. This puts pressure on the token and chain to find PMF and generate revenues quickly.
In the last year, it has been demonstrated that launching an L2 is far easier than launching an L1. Many L2s chose to delay their token launches and have implemented points and airdrop systems to distribute tokens to the community. This led to innovations like yield stacking and other long-term aligned incentive mechanisms, which led to this bull market.
The Cosmos stack gives chains the flexibility to choose their execution environment (Cosmos SDK modules, CosmWasm, Move, EVM) and the freedom to build on the underlying security layer that is best for their application. Ethos addresses the cold start problem by making it as easy to launch an L1 as it is to launch an L2 while maintaining most of the sovereignty benefits. Through Ethos, chains have access to high-quality, cheap, and very liquid security in the form of restaked ETH.
In this sense, the Cosmos stack is modular, allowing chains to leverage different infrastructure components, including external DA and security, to provide superior UX at a lower cost. Rushi points out that alternative VMs are an important part of the modular narrative as chains can build on more secure and scalable VMs like Move. With billions of dollars of funds lost to EVM smart contract bugs, emerging VMs with properties like formal verification and parallelization are growing in adoption and TLV.
Cosmos’ future is modular.
Cosmos + Ethereum: Positive Sum End-Game
The Cosmos endgame is about allowing developers to build sovereign applications that interoperate with the rest of crypto.
From this perspective, Ethereum needs IBC. In a rollup-centric world with thousands of chains and applications, atomic composability breaks down, and interoperability becomes a key tenet of crypto. At the same time, Cosmos needs Ethereum and possibly Bitcoin for security. The Cosmos stack is unopinionated regarding which underlying security layer chain leverage.
The best alignment Cosmos gets from Ethereum is that horizontal scaling and a modular stack are technically superior to monolithic L1s. Hopefully, we will move towards a future where blockspace is fungible and secured by a swarm of validators connected over IBC.
