Cosmos SDK: The Emerging Choice for DeFi
In the complex and dynamic world of building DeFi applications, product and development teams face a myriad of challenges, from guaranteeing strong security and high transaction throughput to achieving true scalability and interoperability. These challenges not only determine whether DeFi projects will succeed but also whether they can innovate and adapt to the changing needs of users.
General-purpose blockchains force DeFi applications to compete for blockspace, leading to congestion and scalability issues. Cosmos SDK emerges as a groundbreaking solution to overcome these problems, allowing developers to build application-specific blockchains that are sovereign, secure, and scalable.
What Does Cosmos SDK Enable for DeFi?
Customizable and Sovereign Appchains
Cosmos SDK enables developers to build application-specific blockchains that are independent of any base layer. This means that teams can build a blockchain tailored to their use case, ensuring that the underlying infrastructure aligns perfectly with their requirements. This type of sovereignty is crucial for DeFi as it allows for customization and optimization without being constrained by the limitations of a L1 or an Ethereum L2.
Cosmos SDK’s modules are highly customizable allowing developers to implement virtually any logic. From simple asset issuance to more sophisticated financial products, Cosmos SDK enables developers to tailor their blockchain’s functionality to match their specific needs.
Highly Performant at Ultra-Low Transaction Costs
Cosmos SDK addresses two primary concerns for DeFi projects: the need for high transaction throughput and minimizing transaction costs. Appchains built with Cosmos SDK are currently supporting blocktimes as low as 0.5 seconds and guarantee instant finality of transactions once included in a block thanks to the CometBFT consensus mechanism (formerly known as Tendermint). In DeFi, where market conditions can shift quickly and protocols need to rely on updated oracles, high throughput and instant finality is critical.
At the same time, operating on a Cosmos-based chain can be highly capital efficient, with gas fees as low as $0.001. This low-cost is especially beneficial for DeFi, where high transaction costs can erode profits and deter users. The SDK’s FeeGrant module further enhances this by allowing developers to waive network fees for users, lowering entry barriers and improving users’ onboarding experience.
Permissioned, Secure, and Decentralized
DeFi projects can have varied requirements regarding the openness and security model of their blockchain. Cosmos SDK accommodates these needs by supporting different security models, such as delegated Proof of Stake (dPoS) or Proof of Authority (PoA). This versatility ensures that DeFi projects can select a model that balances the need for security, speed, and decentralization according to their specific requirements, whether that involves a permissionless set of nodes, a trusted consortium, or something else.
Cosmos SDK provides all the tools necessary to define the level of decentralization for your project. This flexibility allows DeFi projects to start with a centralized model for rapid iteration and scalability, and transition towards decentralization at their own pace, balancing control, security, and efficiency according to their evolving needs.
Language Agnostic and EVM Compatible
Cosmos SDK’s architecture is fundamentally language-agnostic, with the core technology written in Golang, and support for various VMs, including the Ethereum Virtual Machine (EVM).
Starting in H2 2024, SDK modules can be written in any WASM-compatible language, including Rust. This flexibility dramatically reduces development time by allowing developers to write code in languages they are already familiar with.
Leveraging Best-in-Class Interoperability
Cosmos SDK’s seamless integration with the IBC Protocol positions it at the forefront of blockchain interoperability. This is a game-changer for DeFi, allowing permissionless bridging and enabling frictionless exchange of assets and information across different blockchain networks. The result is a vastly expanded pool of liquidity and user base, making your DeFi project more accessible, versatile, and powerful.
Explore the Cosmos DeFi ecosystem and the synergy between projects.
Additionally, the native deployment of major stablecoins like USDC on Noble and USDT on Kava within the Cosmos ecosystem brings hundreds of millions of stablecoin liquidity within reach of your DeFi project via a single IBC connection. This is crucial for DeFi projects, providing the foundation necessary for a wide range of financial services and operations, from lending and borrowing platforms to payment solutions.
Notable Projects
dYdX, the largest perps DEX, migrated from an Ethereum L2 to their own Cosmos SDK blockchain. This strategic move was aimed at increasing throughput, enabling base layer customisation, and achieving complete decentralization. During this transition, dYdX’s primary goal was to make the switching process as seamless as possible for their users. They accomplished this by maintaining compatibility for popular Ethereum wallets on their new chain. Since switching to Cosmos, dYdX has achieved full decentralization of their protocol, with a 1-second block time and $5 billion in weekly trade volume.
Osmosis, the first DEX of the Interchain, has stood its ground as the undisputed leader in Interchain AMM trading volume and IBC transfers. As a permissioned appchain, it enables the deployment of smart contracts on Osmosis through a governance process. This approach has recently transformed Osmosis into a bustling DeFi hub, attracting multiple third-party products and significantly enhancing the chain’s network effect. Osmosis distinguishes itself with a TVL exceeding $200 million, and the highest user retention rate among DEXs, surpassing Uniswap, Sushi, and Pancake.
Conclusion
With its unparalleled customizability, flexibility, and performance, Cosmos SDK stands at the vanguard of DeFi development. It equips DeFi projects to solve present challenges and easily navigate future advancements in this ever-evolving space.
Get in touch to unlock the full potential of your DeFi project!
About Cosmos SDK
Cosmos SDK is the world’s leading framework for building application-specific blockchains and rollups.
With Cosmos SDK, developers can quickly and easily build and deploy appchains and rollups using a framework that is stable, secure and highly performant.
Learn more at https://cosmos.network/appchains.
