Gate.io Research: Cosmos – New Phase and New Era

Key Points

● The Cosmos Team is stable now after a long time of turmoil. Original founder Jae Kwon, founder of Tendermint, has again become the leader.
● Cosmos Hub, the information center of the Cosmos public chain, will take on a more significant role after ATOM 2.0, targeting security between chains, liquidity staking infrastructure, and MEV redistribution.
● The technical characteristic of Cosmos of easy deployment and quality IBC cross-chain protocol makes applications coexist nicely with each other, without resource competition.
● The Cosmos ecosystem relies on low development costs and ease of deployment. However, the gap with Ethereum, BNB, and other top ecosystems is still evident. It is clear that the One Chian ecosystem still dominates the market.
● Cosmos ecosystem suffered during the 2022 Terra LUNA collapse over its value, but its ecosystem is not largely affected, there are still quality applications running.

1. Intro

Cosmos, the multichain network, is one of the hot topics in the crypto news in 2022. This unique network is officially described as "an ever-expanding ecosystem of interconnected apps and services". Cosmos has been providing a robust blockchain service for many DApps since its inception. But will Cosmos become the cradle of DApps and even the "Ethereum killer"? We hope our analysis will offer you some insight into this interesting network.
It has been 6 years since the launch of the Cosmos main net. Cosmos hub was built during the last 6 years from scratch. 2022 so far is a mixed year for Cosmos. The collapse of Terra is definitely a heavy blow to the ecosystem. But with the announcement of Cosmos hub 2.0, the Cosmos ecosystem has officially ended its first stage – Initiation, and entered its second stage – Integration. At the turning point of the project, we would like to revisit the history of the project and hope to gain some insights.

1.1. Team History

A good team always has a great leader, just like Ethereum has Vitalik and Binance has CZ. Jae Kwon is the captain of Cosmos.Jae Kwon and Ethan Buchman founded Tendermint. And the Cosmos whitepaper came into being two years later. The cosmos project raised 17 million USD in 2012 through ICO with the assistance of The Interchain Foundation from Switzerland.However, three years later, the Cosmos team had a fallout. Jae Kown left the Tendermint team and focused on projects, Virgo and Gno.land. Former CDO, Peng Zhong, took the spot of CEO of Tendermint, and the board member of Tendermint increased to five. Surprisingly, Tendermint separated into two entities in the middle of 2022, Ignite Inc. and NewTendermint Inc. Jae Kwon, founder or former CEO of the original Tendermint, will be the CEO of NewTendermint. NewTendermint will be focusing on the core technology of Cosmos and Kwon’s other projects, Gno.Land, Tendermint, and Cosmos SDK. Peng Zhong will be the CEO of Ignite Inc. Ignite CLI and Emeris will be their flagship products.

1.2. Tokenocomics

ATOM is the only token issued by Cosmos over the Cosmos hub, however, ATOM does not capture the value of the Cosmos chain very well. That is the reason why Cosmos is a project that is valued for its long-term ecosystem growth but the price of ATOM is acting weak. Let’s review the tokencomics of the original ATOM token.

1.2.1. ATOM 1.0

The main functions of ATOM 1.0 token:
1. Participating in PoS through staking
2. ATOM holders can help with Cosmos hub governance and reserve for putting proposals
3. System reward
4. Trading fees for Cosmos hub transaction validators. A point worth noting is that you can pay fees in other tokens and this is one of the reasons why ATOM can not capture the value of the chain well.
It is clear that ATOM, in its original form, can not capture the value of the Cosmos chain very well. The value of ATOM 1.0 mostly relies on the Cosmos Hub rather than the entire network. And the data transferred on Cosmos Hub only counts for a very small portion of the entire network, which depreciates the value of ATOM. According to the data of Map of Zones: Until the time of writing, 30 days(2022/11/08 to 2022/12/08) total IBC transfers is 7,129,600: 445,890 times of Cosmos Hub, ranked 4 of all Cosmos zones; turn to IBC volume part, 30 days total IBC volume is $2.72B, Cosmos Hub still ranks 4 and transfer $318.75M, which is 17.52% of the total.

1.2.2. ATOM 2.0

On Sept. 27, 2022, Sam Hart, who was responsible for Cosmos strategy before, published an article named “ATOM 2.0: A new vision for Cosmos Hub” in the community with the new whitepaper for Cosmos Hub. Although the proposal did not pass the community vote, the intention for change for Cosmos Hun and ATOM is clear.There are four keywords on ATOM 2.0:1. Interchain Scheduler2. Interchain AllocatorThe interchain scheduler and interchain allocator are two parts of the new Cosmos MEV market. It allows users to compete in the price of onchain space.3. Liquid StakingOriginal liquidity providers will have the chance to earn through staking and other opportunities. Cosmos will provide liquidity-staking infrastructure in the future,4. Interchain SecurityThe zone will be able to rent validators from Cosmos Hub to provide interchain security.

Cosmos Hub also made changes in ATOM token release mechanism to counter high inflation. The coming ten releases will be voted by token holders and this should be able to manage the concerns of token holders.
In general, the new whitepaper will redistribute the MEV and guide some of the incomes to the Cosmos official vault, which would allow the team to gain from the network development. Cosmos Hub will take on a bigger role in finance and technology, to allow ATOM to capture the network value better. Finally, ATOM’s inflation problem will be addressed by governance voting and a better ATOM with higher liquidity and better value capture is coming in the near future.

2. Technical Characteristics

Cosmos is a decentralized network with independent parallel blockchains. Every blockchain is constructed with the BFT consensus mechanism, the same with Tendermint. Unlike most public chains on the market that use a single chain structure, applications on Cosmos are all deployed on different blockchains, all of which communicate with the main Cosmos system through cross-chain communication technology. The Cosmos network has been through multiple interactions and the following discussion is based on Cosmos Hub v1.2.
Blockchain Trilemma is a well-known issue in the blockchain development community. Every developer will have to face the tradeoffs between decentralization, scalability, and security. Cosmos’s solution is a multichain structure framework. This structure and underlying technology of the Tendermint consensus mechanism, Cosmos SDK, and IBC interchain protocol made Cosmos a flexible and efficient network.

2.1. Zone and Hub

Cosmos network consists of multiple chains and the management and communication of different chains is a question that can not be avoided. In short, Cosmos assigns different tasks for different chains. The chains, where applications are run are called Zone. And the chains, where data is communicated are called Hub.

Zones rely on IBC to communicate with Hub for data transportation. Compared to other public chains where DApps are deployed on the same blockchain, Zone can offer all the resources on the chain to a single application, avoiding the network blockage problem when multiple applications are active and need to communicate with the main chain. The computing power on a single chain is limited, and good applications will be competing for computing power over time. This will be a huge limitation for the single-chain ecosystem. Blockchain trilemma would also come into play where blockchain scalability is a huge liability if decentralization or security are not sacrificed, all of which will compound the computing power issue. Zones in the Cosmos ecosystem do not compete with each other for computing power which gives the ecosystem a higher ceiling.
Zones are operated under the support of the Tendermint BFT security consensus engine, which allows the Zones to function even with intentional tampering. Tendermint allows different programming languages and consensus mechanisms to operate within the system. This allows the Cosmos ecosystem to include Zones with different consensus mechanisms, which gives developers great flexibility.Hub is very similar to Zone in design but it would take more responsibility for data transportation and connect Zones, acting as the center for multiple Zones. The first Hub in the Cosmos network was released by Cosmos officials and it has been a great medium for data. In the latest Cosmos whitepaper Hubs are given more roles in interchain security and liquid staking.

2.2. Tendermint

Tendermint is a consensus mechanism developed by Tendermint Inc and it is the first protocol to support BFT. In the Tendermint consensus, every node has different voting rights, and nodes with a certain amount of voting rights will be validators. The system will make decisions based on the proportions of voting counts not node counts. And voting rights are based on the number of tokens staked. This design will lead validators to own more tokens and keep the economic interest of mode nodes in line with the Cosmos network.
Tendermint has a special data port – Application BlockChain Interface (ABCI), for connecting to the different blockchains with different technological designs. ABCI is responsible for converting blockchains with different programming languages and consensus mechanisms to the Tendermint standard, which will be transferred and executed in the Tendermint BFT program where the Tendermint protocol lies. Due to the versatility of ABCI, the Cosmos ecosystem can be linked with a variety of blockchains.
ABCI divides transactions into three categories: Deliver TX, Check TX, and Commit TX. Deliver TX is responsible for transporting transaction information in the blockchain. Check TX is similar to Deliver TX but is more close to transaction validation. Commit TX is responsible for calculating encryption permission for current software and putting it into the next block.
The general mechanism is as follows:
Source：https://docs.tendermint.com/v0.34/introduction/what-is-tendermint.html#abci-overview Although Tendermint is very outstanding in compatibility, there is a significant limitation: validation speed will be slowed with the increase of validators. This is the reason that Cosmos puts a limit to the max validator number. The starting number is 100 and will grow linearly to 300 in 10 years.
Source：https://v1.cosmos.network/resources/whitepaper

2.3. Cosmos SDK

SDK refers to a software development kit, a combination of special applications used in development for software engineers, which usually contains API and DLL. The Cosmos SDK is a specially developed open-source framework for blockchain project development on the Cosmos network. Many famous blockchain projects are built using Cosmos SDK, this is the reason why Cosmos SDK is called the most widely used blockchain development framework. Notable projects built using Cosmos SDK are BNB Chain, Terra, Cosmos Hub, Cronons, Osmosis, and Evmos.
Through Cosmos SDK, developers can easily create a customized blockchain and decide if the blockchain can link to the Cosmos network. Therefore, it is very simple for developers to create a Zone for their application and optimize the application on its own chain without the worries of competing with other applications, which is very important for application security and function.

2.4. IBC

Usually, cross-chain data transportation uses Bright protocols, a group of protocols dedicated to cross-chain data transportation. But due to the difference in technical specifications and parameters for different chains, the efficiency and security for cross-chain protocols are very low and vulnerable, which is always a heavy security concern. Cosmos, a blockchain with a multi-chain structure, uses the IBC protocol to combat the problems mentioned above.
Inter Blockchain Communication Protocol (IBC) is a reliable and secure protocol for inter-module communication. IBC can be used by any application built on a reliable and secure module.

Source：https://www.panewslab.com/zh/articledetails/6sznqfc7.html It is worth noting that the IBC protocol is not a normal protocol, the IBC organization definition is as follows:1. IBC is not an application-layer protocol: it handles data transport, authentication, and reliability only;2. IBC is not an atomic-swap protocol: arbitrary cross-chain data transfer and computation are supported;3. IBC is not a sharding protocol: there is no single state machine being split across chains, but rather a diverse set of different state machines on different chains which share some common interfaces;4. IBC is not a layer2 protocol: all chains implementing IBC exist on the same "layer", although they may occupy different points in the network topology, and there is no t necessarily a single root chain or single validator set.Traditional cross-chain bridge protocols will lock A token on the A chain and inform the smart contract on the B chain through an oracle and await the miners on the B chain to mint new B tokens for transfer. And when the user wants to move back to the A chain, the B token on the B chain will be burnt and release the locked A token for the user.Cosmos cross-chain transportation and traditional bridge protocols a similar in some ways, but IBC uses Hub as transportation media for validation. As the following graph shows, Zone 1 will first validate the transaction information on its chain and then transport the information to Hub. Then the Hub will validate the information through SPV and pass the information onto Zone 3. Zone 3 will first validate if Zone 1 proposed the transfer and ask Hub to transfer assets from Zone 1 once the proposed transfer is validated. When the Hub receives the ask from Zone 3, the asset will be sent to Zone 3 from the Hub.

Source：https://www.panewslab.com/zh/articledetails/6sznqfc7.html
There are two important premises to using IBC: 1. The blockchain is developed using Cosmos SDK2. Linked to the IBC protocol module
All the premises must be met. A non-Cosmos SDK blockchain can not be easily linked to the ecosystem. A blockchain developed with Cosmos SDK, but choose not to be linked to the Cosmos network, can not be easily linked to the ecosystem as well, like BSC.

3. Ecosystem

3.1. Major modules

Cosmos is the largest cross-chain ecosystem with a market cap of around 59.56 billion USD. The total asset transferred on its IBC protocol is around 8.79 billion USD. There are 51 Zones in the IBC network. Although the macroeconomic environment is not optimal in 2022, the Cosmos network is not quite affected.

3.1.1. Cosmos Hub

Cosmos Hub is the first official Cosmos ecosystem with ATOM as its token. The main function of Cosmos Hub is to provide data transportation for Zones connected. Because Cosmos Hub is officially operated, the following adjustments for the Cosmos network structure will soon be applied, and the new token, ATOM 2.0, may transform Cosmos Hub into a center of cross-chain security and liquidity. We are very excited about the upcoming changes.

3.1.2. Osmosis

Osmosis is at the center of the Cosmos ecosystem because the total asset transferred is more than that of the Cosmos Hub. The main application that runs on Osmosis is called Osmosis DEX, which utilizes the IBC to achieve interchain transactions within the Cosmos ecosystem.
The liquidity on Osmosis reached $1.8 billion in March 2022. At the time this article is composed, Osmosis can support IBC interchain transactions for 45 different networks, while the total number of networks linked to IBC is 51.

3.1.3. Evmos

Evmos is a scalable and high-volume PoS blockchain that is completely compatible with the Ethereum network. Evmos allows certain applications on Cosmos to run on the Ethereum network which gives the developers access to the Ethereum network. Since Evmos is built using the Cosmos SDK, it also offers the ability to transact with the Cosmos ecosystem through IBC.
As the public chain that is compatible with Ethereum, Evmos is compatible with projects operated on the Ethereum network, including famous projects like CMC, DeBank, and Autofarm, in a total of 25 projects according to the official website. Currently, the monthly trading volume on Evmos is ranked 6th in the Cosmos ecosystem and it will be a great start for Cosmos in the future.

3.1.4. Terra

Terra is the most controversial chain in 2022, which is the public chain known for stablecoins. The popular chain started a downward spiral, beginning with the UST depeg in May 2022, which eventually led to the total collapse of the project with a TVL of $ 20.77 billion. Terra used to be at a pivotal position in the Cosmos ecosystem, it is the single chain with the most value stored.

3.2. Ecosystem Comparison

After 6 years of development, there are a large number of quality projects on Cosmos. However, the market still prefers single-chain ecosystems. The direct competition of Cosmos is not Ethereum or Avalanche at the moment, but Polkadot which shares a similar structure. We will closely examine Cosmos and Polkadot first and then briefly discuss Ethereum in the context.

3.2.1 Polkadot

Often called Layer 0, Cosmos and Polkadot are the most compared projects due to their similarities in concept. But Cosmos and Polkadot are built with different philosophies. We will mainly discuss the framework and governance between the two.FRAMEWORK

Unlike the Hub-Zone framework of Cosmos, Polkadot is a Relay chain-Parachains mode.1. The Relay Chain is the core of Polkadot.Its role is to transfer data between different parachains, record and validate the result of the transaction, and thus ensure the safe transportation of the entire Polkadot.2. The parachain is similar to the zone in Cosmos and focuses on application scenarios.3. The bridge chain is a special design to connect other blockchains that do not comply with Polkadot's governance protocols. For example, when Polkadot connects to Ethereum, the data from Ethereum is first processed through the bridge chain to standardize them. Then they are transmitted to other Polkadot participants.Compared to Polkadot, the hub in the Cosmos network is used as the main chain to connect different zones, but it is not the only hub in the Cosmos network. Other chains such as Osmosis and Evmos can also serve as hubs to connect zones, but in Polkadot there is only one official transmission method, the relay chain, and other chains that want to access the relay chain have to participate in the auction slots based on their native tokens DOT and can only access after winning the slot, which is also a big gap to Cosmos' almost free flexible access way.GOVERNANCEIn the Polkadot ecosystem, governance must be discussed by multiple departments before an idea becomes a rule, and voting rights are determined by the number of tokens DOT. So if participation in the poll is low, the final execution of token allocation and prizes may be skewed.Cosmos is more flexible at this point, primarily through token voting, but since not all hubs are officially run, other hubs can use their native tokens as the basis for vote allocation without everyone having to go through ATOM to exercise governance.

3.2.2. Ethereum

Ethereum, as the dominator of the Blockchain, has already perfected its own ecology and is currently the most successful ecosystem. By comparing Cosmos to it, we can assess how far the multi-chain ecology is from the current mainstream market model. Technically, Ethereum has been exploring new ways to expand Ethereum itself in recent years, such as converting ETH 2.0 to PoS and slicing, which is essentially exploring a breakthrough in the impossible triangle of blockchain technology.
Compared to DApps on Ethereum, Cosmos has more access to application-specific chains: such as the cross-chain DeFi protocol Umee and the cross-chain liquidity Osmosis. The application-specific chain approach provides more flexibility for DApps and avoids the situation where different DApps compete for resources on one chain If we take the comparison back to the single chain level and compare Cosmos Hub with Ethereum, the following picture emerges.

According to the data, it is obvious that Cosmos Hub is a single chain, its current valuation and value storage are difficult to compare with Ethereum. This is also related to the characteristics of Cosmos Hub itself:
1. Cosmos Hub mainly performs the function of data transfer between the zones and is not the main chain of first chosen by ecologically relevant applications;
2. ATOM token has a low ability to capture value in the protocol in the first version. Although the Cosmos network itself has greater potential, the market does not trust the token, which indirectly leads to the subsequent adjustment of the hub function in the network and the modification of the ATOM token by Cosmos officials.

3.3. Current Ecosystem Situation

According to official data, the value of the entire Cosmos network is around $63.07 billion, with most of it from BNB (~75.11%); the top five projects account for 94.72% of the total value. However, the two chains with the highest value, BNB, and OKB, are not linked to the network through the IBC protocol.
We will use Map of Zone's data as a reference to measure the total valuation of the entire Cosmos network, $10,047,000,000, and the largest contributor to this figure is Cosmos Hub's native token: ATOM ($2,820,592,754), such a market cap level is currently only ranked 28th in the entire market.
As you can see, the Cosmos Network has an imaginative future, but compared to other single-chain ecosystems, it's not there yet. It is fortunate that Cosmos and other blockchains can be allies rather than competitors, but this need for Cosmos Network can further improve the overall value, and provide more functional and powerful application modules to comprehensively improve the financial value covered by IBC. We hope that the future of Cosmos is not a story full of battle fire, but a pattern of uniting.

Disclaimer

* This article represents only the views of the observers and does not constitute any investment suggestions. * Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.

Reference

[1]. The Cosmos Hub, V1.2 [2].https://www.coindesk.com/business/2022/05/25/jae-kwon-returns-to-newtendermint-to-battle-for-the-soul-of-cosmos/ [3].https://www.coindesk.com/business/2020/02/04/what-is-going-on-with-jae-kwon-and-cosmos/ [4].https://mapofzones.com/ [5].https://v1.cosmos.network/resources/whitepaper [6].https://ibcprotocol.org/ [7].https://hub.cosmos.network/main/hub-overview [8].https://docs.cosmos.network/main [9].https://ibc.cosmos.network/ [10].https://docs.evmos.org/ [11].https://osmosis.zone/ecosystem

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December 22nd, 2022