Cosmos Research

StakerDAO
StakerDAO
Oct 30, 2019 · 9 min read

By Christian Arita — October 30, 2019

Introduction:

Cosmos is a decentralized blockchain network with a mission to create interoperability between numerous and independent blockchains. Jae Kwon began this project in 2014 to address the issue of interoperability, but to also develop a better consensus mechanism to improve speed, scalability, usability, and sovereignty. The solutions Jae presented includes the Application BlockChain Interface (ABCI), which enables transactions to be processed in any programming language, and a modified Byzantine Fault Tolerant consensus algorithm to record transactions on every machine. Ultimately, the project is structured for developers so that the solution eases building and interaction across blockchain networks.

Factsheet — Metrics:

Price: $2.80

Market Cap: $530mn

Liquidity: $96mn

Circulating Supply: 191mn

2050 Supply: 2.2bn

Yield: 9.4%

Staking Ratio: 73.6%

Beta to BTC: 0.66

Correlation to BTC: -2.8%

ATOM Initial Investor Allocation:

Institutional and Retail 80%

Interchain Foundation 10%

ALL IN BITS (Tendermint Inc) 10%

Select Investors:

Paradigm, Bain Capital, 1confirmation

Indexed Price Performance:


History:

Jae Kwon created Tendermint as an open source project in 2014 with an idea for a better consensus system. Tendermint was used to create Cosmos, which intends to create a network of blockchains. The project released a white paper in 2016, which was followed by a $16.8mn ICO raise in April 2017. Cosmos further launched its mainnet in March 2019 and is rolling out in three phases. An experiment called Game of Stakes also occurred in early 2019 and was organized by the Interchain Foundation with the intention of preparing validators for the mainnet. A validator, bitfish, signed up a large number of family and friends that allowed for them to control a significant stake, but ultimately, the group was unsuccessful. Cosmos has completed Phase II of its launch, enabling ATOM token transfers, and is working on Phase III, which is the IBC protocol, scheduled for a late 2019-early 2020 rollout.

Team:

Jae Kwon • Ethan Buchman • Zaki Manian

Jae Kwon — CEO & Founder:

Jae graduated from Cornell University in 2005 with a Bachelor of Science in Computer Science and a Minor in Cognitive Studies. Prior to working within the blockchain and crypto space, Jae worked in the Bay Area as a developer. Eventually, Jae started to work within open-source projects, which led him to create the Tendermint consensus algorithm. Outside of Tendermint, Jae is also President of the Interchain Foundation, a Swiss non-profit with a mandate to push forward the vision around crypto with a particular focus on Cosmos.

Ethan Buchman — Co-founder:

Ethan graduated from the University of Guelph in 2013 with a Bachelor of Science in Biophysics. Ethan went on to pursue a Master of Applied Science in Engineering Systems and Computing. Prior to joining Tendermint and during his studies, he spent time in biophysics research and as a developer in the blockchain space.

Zaki Manian — Director of Tendermint Labs:

Zaki graduated the University of Pennsylvania in 2005 with a Bachelor of Arts in History and Sociology of Science. After he graduated, Zaki spent over a decade working within computer engineering. Zaki then joined the crypto space in 2014 by founding a company, which operated within the supply chain space. Outside of Tendermint, Zaki also co-founded iqlusion, a validator for the Cosmos network.


Technology:

Jae and the Cosmos team created Tendermint in 2014 as an open source project to address the networking and consensus layers of a blockchain so that developers can focus on application development. The Tendermint engine is set up by a socket protocol called the Application BlockChain Interface or ABCI. ABCI is an interface, which defines the boundary between the blockchain and the application so developers can use any language they choose to with the protocol. Tendermint’s engine is also capable of working with 1. both public & private blockchain networks, 2. as low as 1 second block times and thousands of transactions per second, 3. fast finality so that if less than 1/3 of participants are malicious then the block is final, and 4. creates fork accountability to determine the responsible validators.

Tendermint is also referred to when discussing the consensus algorithm. It is a BFT consensus mechanism that uses a fixed and known number of validators. In the network, a validator proposes a block and additional validators then vote on accepting the block. The initial validator is chosen deterministically in proportion to their voting power from their ATOM stake. Tendermint’s consensus algorithm uses optimal BFT through 2/3 voting power and a locking mechanism. Both attributes lead to at least 1/3 of voting power as necessary for collusion, and attempts to do so can be identified by the network.

The team has further launched the Cosmos SDK: a framework for developing a blockchain application within the network. The SDK’s two driving principles are modularity and capabilities-based security. For modularity, the team is building a set of basic modules for developers to easily run application-specific functionality without repeating the process for each application. For capabilities-based security, the team is limiting bad actor activity as “capabilities constrain the security boundaries between modules.”

The team is also currently developing the Inter-Blockchain Communication protocol or IBC, a method for blockchains to connect with each other. IBC is meant to allow for heterogeneous blockchains to transfer both tokens and data to each other. Heterogeneous blockchains are defined as having different layers (differences in how they implement networking, consensus, and application), but all have fast finality and sovereignty. An example where fast finality does not occur is in Proof-of-Work blockchains like Bitcoin, which have probabilistic finality. Otherwise, sovereignty is achieved as each chain has its own validator set.

As the network grows, IBC is not scalable because of the number of connections that would need to be maintained — and thus Cosmos has created Hubs and Zones. Zones consist of heterogeneous blockchain networks while Hubs are blockchain networks designed to connect Zones together. Zones then only require a limited number of connections within a limited set of Hubs.

Cosmos has launched its first zone called Cosmos Hub. It is a multi-asset public Proof-of-Stake network that uses a token called ATOM for staking.

The Cosmos Hub Mainnet rollout is set for three phases; Phase I and II are complete:

· In Phase I, the network sought stability and any arising issues were secured.

· In Phase II, the network enabled ATOM transfers through its on-chain governance via validators.

· In Phase III, the IBC protocol will be released and become a part of the Cosmos-SDK.

Thus far, the report has touched on blockchain networks within Cosmos that have fast finality, but the team has also developed what is called a “Peg-Zone” for blockchains that may operate in something such as Proof-of-Work. A Peg-Zone is a blockchain whose purpose is to establish finality by tracking the finality/state of another blockchain network.

Validators & Staking:

Validators use Cosmos’ token, ATOM, to stake on the network to earn rewards in exchange for securing the network and to vote on proposals. Passive users and investors can delegate their stake to a trusted validator. In the case of delegation, ATOMs remain in control of the primary owner, but a 21-day un-bonding period exists to transfer tokens. The un-bonding period locks the tokens and the primary owner becomes subject to price fluctuations and penalties incurred by the validator. Penalties for validators revolve around “double-signing,” signing two blocks at the same height, which could lead to a 5% slashing penalty. Validators also only participate in securing the network if they are within the top 100 validators, but once validators begin participating, they can receive rewards. As of now, the protocol allocates inflationary rewards between 7–20% and the value is inversely correlated to the staking ratio such that higher participation leads to lower rewards. Since launch, Cosmos has been a beneficiary of great interest and thus its yield over the last few months has minimally fluctuated around 9–10% since.

Additional Validators: Link


Select Projects:

Ethermint’s proposal is to provide all of the same functionality as Ethereum itself. This would include smart contracts, the EVM, tooling, and client software work.

FOAM is developing a Proof-of-Location protocol to create a permissionless and privacy preserving network of radio beacons that is outside of external centralized systems such as GPS and securely provide location verification services.

Terra is a stablecoin project out of South Korea that aims to launch a payments network.

IRIS is incorporating service-oriented infrastructure into Cosmos and interoperability of those services across an internet of blockchains.

Full list of projects: Link

Community Statistics:

Tendermint:

7,506 commits

164 contributors

88 branches

Cosmos:

291 commits

22 contributors

16 branches

Cosmos SDK:

5,803 commits

116 contributors

115 branches

Twitter: 28.9k Followers

Telegram: 11.8k Members

Reddit: 7.1k Members


Conclusion:

Our view is that the project’s main differentiator versus other blockchain networks as well as its value is derived by its mission to enable interoperability. If one’s thesis centers around countless blockchain networks permeating around the globe then Cosmos will exist as crucial infrastructure in the form of a bridge between these networks. Cosmos is currently at an exciting crossroad as the project seeks to complete Phase III of its mainnet launch.


Sources:

Messari

CoinMarketCap

Cosmos Resources

Tendermint Medium

Tendermint Website

Cosmos Forum

Unchained Podcast

Figment Networks

Staked

Additional Links:

Appendix:

Beta: a measure of volatility for an asset in relation to a benchmark. One can think of beta as direction and magnitude of an asset’s move in relation to its benchmark’s move.

Blockchain: a system in which a record of transactions are maintained across a distributed network

Byzantine Fault Tolerant: a protocol capable of reaching consensus in the presence of malicious parties within a distributed system

Correlation: a measure of the linear relationship of an asset in relation to a benchmark. One can think of correlation as the direction of an asset’s move in relation to its benchmark’s move.

Consensus algorithm/mechanism: the method in which various parties agree on the state of a network

Forking: an event where a blockchain network can permanently or temporarily split into two or more branches

Multi Factor Rank: Each asset is percentile ranked within a factor. Each score within a factor is then equally weighted for a composite score.

Proof-of-Stake: a consensus mechanism requiring a stake to engage in validation

Proof-of-Work: a consensus mechanism requiring users to solve complex mathematical problems to propose new blocks

Smart contract: a contract where terms of agreement are programmatically written

Volatility: a measure of the variability around an average, specifically a calculation of standard deviation.

About:

StakerDAO:

StakerDAO is a platform for governing financial assets in a decentralized, secure, and compliant manner.

Christian Arita:

Christian is the Staker Ops Team Lead. His team is responsible for research, proposal development, and product implementation across all Staker products. Prior to working within crypto full-time, Christian worked at Deutsche Bank in research covering thematic topics with a focus on the US and major regions. Christian graduated from UC Santa Barbara with a degree in Economics & Accounting.

StakerDAO

StakerDAO is a platform for governing financial assets in a decentralized, secure, and compliant manner. Explore our original research, insights, and opinions here.

StakerDAO

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StakerDAO

StakerDAO is a platform for governing financial assets in a decentralized, secure, and compliant manner.

StakerDAO

StakerDAO

StakerDAO is a platform for governing financial assets in a decentralized, secure, and compliant manner. Explore our original research, insights, and opinions here.

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