A Cosmos Thesis: Why Sovereign Chains?
Building a layer 1 blockchain is no easy task, but one of the chief reasons it is undertaken is because it means a blockchain can retain complete sovereignty over its operations. Its validator set, its consensus, its uptime, its throughput and its security can all be defined by the progenitors of the blockchain itself, without having these inhibited by, or reliant upon, the performance of other blockchains and protocols. Onomy is a layer 1 application-specific blockchain, using the Cosmos SDK, as it enables performance and security required to deliver a convenient product ecosystem.
How Cosmos Helps Create Layer 1 Blockchains
Cosmos is a blockchain that seeks to create an interoperable network of sovereign blockchains that set their own rules, while using the IBC to establish a shared communication protocol that allows these blockchains to interact without sacrificing their own custom security and consensus. To maintain network integrity, the IBC is an ‘opt-in’ process, whereby blockchains can choose which members of the network they wish to interact with.
Cosmos-built blockchains split the governance of blockchains into two layers: the application layer and the underlying environment.
The Cosmos SDK provides a robust toolset of modules that enable efficient creation of Layer 1 blockchains with staking, governance, example, and more. The SDK serves as a strong foundation that any team, such as Onomy, can leverage, contribute to, and build on top of to add functionality. Each individual blockchain built with the Cosmos SDK is sovereign unto itself, works by itself, and validates itself with no reliance on the Cosmos network itself functioning. Much in the case of sovereign nations, “trade routes” are established between nations through the IBC that bridges Cosmos SDK chains. However, the functioning of each application-specific layer 1 blockchain in the network — such as Onomy — is not at all predicated on the overall Cosmos network working. It is sovereign unto itself, works by itself, and validates itself.
Why Sovereignty Is Important
Compare this, say, to a DEX on Solana, which recently suffered another outage. Through no fault of the protocol’s own, that DEX won’t work while the ‘parent’ blockchain is out of action. This is because protocols built on Solana (or any other Layer 1 blockchain) are reliant upon the validation from the main Solana network in order to function. Or, say you build on Ethereum, and gas fees spike due to congestion, your dApps functioning is adversely affected by the other activity on the network.
It leads to a situation where dApps are in thrall to their parent networks. It neuters innovation, and stops protocols being about to pivot their operations easily, as well as slows down throughput as the application and governance layers are intertwined — with the application layer stunted by the governance requirements.
Whereas, with Cosmos, a sovereign layer 1 blockchain can operate at the speed it needs for custom, difficult tasks — say as a hub for Forex trading as in Onomy’s case. By splitting application and governance, scalability can be achieved. Yet, because everything in the Cosmos network shares the same underlying environment, this scalability does not mean it needs to be cut off from the rest of the blockchain economies it relies upon.
What is MEV and How Does Sovereignty Help?
A further advantage of a sovereign blockchain is it is more MEV-resistant. MEV, or miner extractable value (maximal extractable value in Proof of Stake chains), is where advantage is gained by reordering, inserting, or censoring transactions within a block. This happens when bots (or humans) pay miners or validators an excessive fee to ensure that their transaction ‘goes first’ (i.e, frontrunning), or is otherwise placed optimally — sandwiched between the trades executed by the user.
This happens because bots spot large trades, jump in, bribe the miners to go first, and thus profit by taking advantage of arbitrage opportunities. The miners themselves, who have discretion over what transactions and what order to include in the next block from the mempool, can also extract value through this ordering.
A sovereign blockchain is far more resistant to MEV, as the makers of the chain can enforce rules that stop it occurring (e.g, the Cosmos Hub enforces all transactions to occur in batches), and because it is a solitary application unto itself, rather than a soup of all transactions on the entire Cosmos (or any other environment) chain, means there is far less opportunity for this ‘invisible tax’ on traders to occur, and easier to stamp out when it does.
King of the Castle
Of course, having complete sovereignty does have its issues. Security being chief among them, as there is a separate validator set that needs to be trusted when it comes to operating on that layer 1 chain. However, if that validator set is sufficiently decentralised and incentivised, this ceases to be an issue. It’s also, naturally, harder for developers to launch their own layer 1 chains rather than simply plugging the products into the Ethereum or Solana ecosystem.
Sovereignty is worth it, however. The fact that sovereign blockchains can create bespoke environments for their function and that they are not reliant on other blockchains remaining cheap enough, active enough, or operable enough to enact their functioning is a massive bonus for any new enterprise. On top of that, the ability to set their own rules, run their own validator sets (with specific requirements), and create blockchains that are lightning fast as their entire codebase is geared towards the execution of one function, make having a sovereign blockchain a huge advantage in delivering the experience promised.
Onomy Protocol is a layer-1 Cosmos chain powering a multi-chain & intuitive DEX that combines AMM liquidity pools with an order book UI facilitating market, limit, and stop orders, alongside FX markets via its stablecoin minting system, and multi-protocol asset management through the multi-chain Onomy Access wallet.