By Matt Sullivan
The way forward for blockchains is probably going a multi-chain future, which implies the blockchain that solves interoperability between blockchains has an enormous alternative. Cosmos (ATOM-USD) is in pole place to be the “blockchain of blockchains” in a multi-blockchain world.
The Cosmos blockchain is a novel, proof-of-stake blockchain specializing in an interoperable, multi-blockchain future. It was based by Jae Kwon all the way in which again in 2014. The native token for the Cosmos Hub blockchain is ATOM-USD. Within the evolution of application-based blockchain networks, Cosmos could possibly be the subsequent step past Ethereum (ETH-USD) and a direct competitor of Polkadot within the sense that it’s a “blockchain of blockchains.” Cosmos solves the issue of getting to make use of cross-chain bridges in a multi-blockchain world, which have confirmed time and time once more to be a safety danger and certain unsustainable long-term (see Wormhole hack, Ronin bridge hack, and Vitalik Buterin’s long-held and extensively shared concerns with cross-chain bridges). In case you consider the world has a multi-chain future, then Cosmos might develop into the dominant participant in that house.
The Cosmos Construction
There are 5 key elements of the Cosmos construction that lay the muse for the way it features:
Tendermint is each an organization and a blockchain software program, the previous constructing the latter. The tendermint group is the core developer group behind the Cosmos blockchain which runs on the tendermint consensus and networking layer. This enables present and future builders to focus solely on blockchain-specific software improvement utilizing a wide range of programming languages by way of the Cosmos SDK tooling. (Key Takeaway: Cosmos is simple to construct on which makes it simpler to draw builders).
2) Interchain Basis
The Interchain Basis is the Swiss-based basis coordinating the event of the Cosmos ecosystem.
3) Cosmos Software program Developer Equipment (SDK)
A multi-programming language toolkit for builders to construct their blockchain-specific purposes. Cosmos believes most purposes will function on their very own blockchains; subsequently, Blockchain interplay is the place Cosmos separates itself from different networks by using the Inter-blockchain (IBC) protocol.
4) Cosmos Hub
The Cosmos hub is the core blockchain on the middle of the Cosmos Ecosystem. The ATOM-USD token derives its worth from facilitating transactions between blockchains on the Cosmos hub. Blockchains are linked to the Cosmos hub by way of the inter-blockchain protocol (IBC).
5) Inter-blockchain (IBC) Protocol
The construction that permits blockchains to transmit knowledge and tokens between each other with out having to speak immediately. Extra importantly, bridges are not wanted. This was launched on the Cosmos Hub in early 2021 and already has 28 blockchains within the ecosystem.
The important thing takeaway is that Cosmos is constructed on Tendermint consensus and networking, leaving builders to focus solely on their software improvement utilizing a wide range of languages by way of the Cosmos SDK, which may then safely interoperate with each other by way of the IBC protocol.
The quantity and transactions on the Cosmos Hub, primarily based on month-to-month values, have been exhibiting regular indicators of accelerating over the previous 12 months based on Atomscan:
Complete Worth Locked (TVL) on DeFi protocols
Complete worth locked in blockchain purposes and protocols gives a basic gauge of community demand from decentralized finance ((DeFi)). DeFi generates the most important demand for blockspace for the time being behind solely NFTs, and people strains are already blurring in some cases. Additional, TVL on “Cosmos” is considerably troublesome to interpret. See the under picture from Defi Llama:
These are the blockchains which were constructed utilizing the Cosmos SDK, nonetheless, they’ve their very own blockchain tokens and subsequently the demand for these tokens doesn’t immediately profit the ATOM-USD token. Nonetheless, demand for something inside the Cosmos ecosystem is helpful long-term for ATOM-USD, significantly IBC-enabled blockchains.
Blockchains Developed within the Ecosystem
In response to the Cosmos website, 49 blockchains have utilized Cosmos SDK to construct their blockchains, accounting for $66 billion of complete market cap. Additional, there are 28 blockchains which are IBC-enabled since being launched in early 2021, accounting for $14 billion in market cap.
Essentially the most notable blockchain constructed utilizing Cosmos SDK was Terra (LUNA-USD), which additionally included the Terra stablecoin (UST-USD). Whereas the current LUNA/UST collapse was unlucky, its affect on ATOM-USD is a lowered demand for the general Cosmos hub ecosystem. Importantly, the LUNA/UST collapse has no structural or safety affect relative to ATOM-USD or the Cosmos ecosystem.
Extra noteworthy application-specific blockchains constructed utilizing Cosmos SDK embody Binance Coin (BNB-USD), Crypto.com coin (CRO-USD), Thorchain (RUNE-USD), Secret (SCRT-USD), Juno Community (JUNO-USD), Osmosis (OSMO-USD), and lots of others. Under is the checklist by market cap from the Cosmos website:
There’s an expectation that blockchains constructed utilizing Cosmos SDK will allow the IBC protocol over time, increasing the Cosmos ecosystem and rising demand for ATOM-USD.
Builders have been steadily on the rise primarily based on a wide range of metrics, together with variety of builders, quantity and dimension of contributions, and the scale of the developer group (see chart under from Messari):
The tokenomics will not be as clear as with Bitcoin (BTC-USD) since there isn’t any most provide. The inflation fee of ATOM-USD (the speed at which new ATOM-USD tokens are minted) is variable between 7% and 20% primarily based on the quantity of complete ATOM-USD staked. This is among the few knocks on ATOM-USD.
In response to Atomscan, 40% of the ATOM-USD provide is held by the highest 25 wallets, though a few of these are seemingly exchanges.
What drives demand for ATOM-USD? Interoperability between the blockchains inside the cosmos ecosystem. Because the blockchain universe matures, interplay between blockchains will likely be essential and demand ought to enhance, placing Cosmos in an incredible place to profit from the interoperability development. Moreover, many tokens within the Cosmos ecosystem will not be obtainable on centralized exchanges like Coinbase in addition to ATOM-USD. Meaning there you need to purchase ATOM-USD tokens and bridge over to Cosmos to achieve entry to different tokens within the Cosmos ecosystem, serving as one other demand driver for ATOM-USD.
Because of the continued inflation of ATOM-USD, it is strongly recommended to stake your ATOM-USD tokens to mitigate the affect of a rising circulating provide. In response to Staking Rewards, as of this writing the estimated actual yield (internet of the inflation fee) is roughly 5-6%.
One of many key dangers to Cosmos is the dearth of decentralization. There are at present 175 validators securing the community. For reference, there are over 350,000 validators supporting the Ethereum 2.0 community. At this level there isn’t any proper reply for “How a lot decentralization is sufficient decentralization?” Nonetheless, being conscious that Cosmos is sacrificing decentralization for larger transaction pace and decrease transaction prices is essential and will affect the sizing of the place in your portfolio as a result of there may be an elevated danger to be hacked by a 51% assault
Similar to within the inventory market, crypto buyers merely don’t pay sufficient consideration to the general provide of a token; it’s the different finish of demand, which collectively impacts value. Cosmos validators are rewarded for securing the Cosmos Hub community in two methods: transaction charges and newly minted ATOM-USD (ie. inflation). As talked about beforehand, this inflation fee can vary from 7% to twenty%, making it essential that in case you purchase ATOM-USD, it is advisable to be staking ATOM-USD to keep away from any potential dilution.
Terra (LUNA-USD) Publicity
Terra accounted for over 90% of the whole worth locked on IBC-enabled blockchains earlier than its collapse. Subsequently, the ATOM-USD token value and is now over 75% off the token’s all-time highs.
Jae Kwon Departure: The founding father of Cosmos Jae Kwon left the venture in 2020 to develop a brand new blockchain, Gno.land. There have additionally been rumors through the years of infighting amongst management. That is actually one thing to observe transferring ahead.
Any crypto portfolio, whether or not you might be an NFT flipper or a long-term holder, ought to comprise of no less than 50% of some mixture of ETH-USD and BTC-USD and will seemingly be nearer to 75%. That ought to be famous earlier than any consideration of ATOM-USD in a crypto portfolio.
With that in thoughts, ensuring you have got some publicity to ETH-USD opponents who’re additionally promoting blockspace is a good suggestion. Cosmos is compelling as a result of it looks like a powerful wager to coexist alongside Ethereum, having Cosmos be the blockchain that connects a majority of the present and future blockchains, whereas Ethereum can develop into IBC-enabled sooner or later whereas nonetheless offering the best-in-class blockspace round.
The present value is over 75% off ATOM’s all-time excessive, largely as a result of current selloff and considerably direct publicity to LUNA/UST. Whereas it should take time to recuperate the community demand that LUNA created, it was truly the decentralized alternate Osmosis doing probably the most transaction quantity inside the Cosmos ecosystem, almost double that of LUNA previous to its collapse. You possibly can see the place transaction quantity is coming from here.
ATOM-USD could also be an important hedge in opposition to the (present) monolithic construction of Ethereum and a powerful wager alongside Polkadot (DOT-USD) on a multi-blockchain future. Cosmos deserves a 2% allocation in a diversified crypto portfolio – simply keep in mind to stake it.