Introduction to Cosmos:
Cosmos, an innovative layer 0 blockchain, serves as the underlying infrastructure that enables the connection of various layer 1 blockchains, including Osmosis, Cronos, Evmos, Kava, and soon dYdX.
Through the Inter-Blockchain Communications (IBC) protocol, these blockchains can seamlessly communicate with each other, with the Cosmos Hub, powered by the ATOM token, serving as one of the key components of this interconnected network.
Unlike traditional scaling approaches such as Solana’s linear scaling or Ethereum’s modular approach of separating execution and settlement layers, Cosmos takes a unique approach to scalability. It achieves scalability by facilitating trust-minimized communication between different blockchains.
Each blockchain or hub within the Cosmos ecosystem can connect with multiple other hubs, creating a network of interconnected blockchains. Additionally, individual blockchains can establish their own application-specific blockchains called app-chains or zones to further enhance scalability within their respective hubs.
Cosmos envisions a decentralized platform that fosters collaboration, innovation, and competition, in contrast to monolithic layer-one chains. To realize this vision, Cosmos adopts a modular software stack known as the Cosmos SDK and utilizes a web of interconnected blockchains.
This framework enables hubs and zones within the Cosmos ecosystem to create new blockchains with customized execution environments while leveraging the IBC for seamless cross-chain communication.
The Cosmos tech stack revolves around two core components: the Cosmos SDK and the Tendermint Core consensus mechanism. The Cosmos SDK is an open-source development kit that facilitates the creation of application-specific blockchains from scratch, allowing interoperability with other blockchains.
Developers can build their custom blockchain by combining prebuilt and custom modules, test it with users, and iterate based on feedback before launching on the mainnet. Through the IBC, these blockchains can then connect to other Cosmos blockchains, enhancing adaptability and liquidity by linking to the broader Cosmos Network.
Tendermint, on the other hand, serves as the Byzantine Fault Tolerance (BFT) consensus mechanism within the Cosmos ecosystem. This mechanism ensures fast transaction finality at a low cost. Notable projects built with Tendermint Core include Binance DEX, Oasis Labs, and IRISnet.
ATOM, the native token of the Cosmos Hub, is closely associated with the Cosmos ecosystem. Similar to ETH on Ethereum, ATOM plays a crucial role in securing the Cosmos Hub and serves as the means of gas payment. However, since other hubs can have their own validators and native tokens, the value of the ATOM token has not been fully realized within the IBC.
As a result, protocol fees generated by Cosmos have remained minimal, causing frustration for ATOM holders.
Cosmos 2.0: The start of something New
To address the issues mentioned above, Cosmos introduced the Cosmos 2.0 update, outlined in its white paper released at the Cosmosverse conference in September 2022. This update presents a three-year roadmap that includes significant changes to the Cosmos ecosystem, enhancing the utility of the Cosmos Hub, improving tokenomics, and addressing existing weaknesses.
The key innovations introduced in Cosmos 2.0 are as follows:
- Liquid Staking: Liquid staking allows ATOM stakers to use their staked tokens across the entire Cosmos ecosystem, incentivizing staking and transitioning ATOM issuance from inflationary to deflationary over the long term.
- Interchain Security: The Cosmos Hub assumes a central role in the security model of the ecosystem. Other zones or app-chains have the option to rent security from Cosmos Hub validators, providing smaller app-chains with protection against validator attacks while maintaining decentralization. The Cosmos Hub receives payment in the form of chains’ tokens and fees, with 25% of these rewards allocated to ATOM stakers.
- Interchain Scheduler: The Interchain scheduler establishes a cross-chain marketplace for blockspace, addressing the issue of MEV (Miner Extractable Value). App-chains can trade tokenized NFTs representing the rights to order transactions for future blocks, enabling trust-minimized execution of transactions across the network.
- Interchain Allocator: The Cosmos Hub’s treasury actively seeks to fund decentralized autonomous organizations (DAOs) to develop public goods for the ecosystem. This alignment of incentives between ATOM holders and DAOs aims to make ATOM the most desirable and widely deployed reserve asset within the IBC protocol.
The updated tokenomics model in Cosmos 2.0 introduces a gradual decrease in the number of newly minted ATOM tokens over time.
In the first month, 10 million ATOM will be released, with the issuance gradually decreasing over 36 months. Eventually, the issuance will stabilize at 300,000 ATOM per month. Two-thirds of the newly issued ATOM tokens will be allocated to the Cosmos treasury to support initiatives that drive adoption, growth, and capitalization within the interchain ecosystem.
Transaction fees will also contribute to the treasury, creating a positive feedback loop between treasury growth and token value growth, with the goal of establishing ATOM as the interchain reserve currency.
The Ecosystem of Powerhouse(s)
The Cosmos ecosystem boasts a vibrant and rapidly expanding collection of projects. Some notable projects within the Cosmos network include:
- Osmosis: An automated market maker (AMM) facilitating cross-chain trading within the Cosmos ecosystem. Osmosis is one of the most connected hubs within the network and offers various features such as NFT support, order books, and lending functionality.
- Axelar: A project focused on cross-chain transfers and application composability across different blockchain ecosystems. Axelar acts as a bridge between networks, enabling message translation between Ethereum and the IBC standard. It also serves as the main issuer of non-IBC assets in the ecosystem, such as IBC-native USDC.
- Juno: A layer-one blockchain offering significantly lower costs compared to other layer-two solutions. Juno utilizes the CosmWasm framework for smart contract deployment and boasts a diverse range of DApps and DAOs covering various areas of blockchain, including gaming, DeFi, NFTs, and privacy tools. Juno is entirely community-owned, with a significant portion of the genesis supply allocated to ATOM stakers.
- Evmos: An EVM-compatible layer-one chain aiming to become the “EVM hub” within the IBC ecosystem. Evmos allows protocols to build applications compatible with both Evmos and Ethereum, leveraging the increased speed and modularity provided by the IBC network.
- dYdX: A decentralized exchange (DEX) specializing in perpetual future contracts. While originally built on an Ethereum layer-two solution called Starkware, dYdX is transitioning to a Cosmos app-chain for its v4 version to achieve full decentralization and improved performance.
- Celestia: A modular blockchain network that outsources components such as execution, settlement, consensus, and data availability to separate chains. Celestia enables developers to deploy blockchains without the need to establish a consensus network, offering flexibility in execution environments and the ability to update applications without forking the main chain.
- Secret Network: A blockchain emphasizing customizable privacy. Smart contracts on Secret Network hide data from nodes, allowing users to control access to their assets and data while selectively revealing content and ownership. Secret NFTs enable private ownership and control over data, providing enhanced privacy for creators.
- Sei Network: A DeFi-focused layer-one chain designed for trading, positioning itself as the “decentralized NASDAQ.” Sei Network offers deep liquidity, zero fees, and high order throughput, aiming to provide a robust exchange infrastructure.
- Kujira: A layer-one chain focused on community-selected projects that aim to create real value. Notable products within Kujira include FIN, an order book-style DEX, and Orca, a public marketplace for liquid collateral. Kujira aims to become a hub for high-quality protocols in the DeFi space.
These are just a few examples of the projects within the Cosmos ecosystem, showcasing the diverse range of applications and innovations being developed on the platform.
Cosmos is an ecosystem designed to enable blockchain interoperability and facilitate the exchange of data between different blockchains. It aims to create a “universe of systems” where independent blockchains can communicate and interact with each other in a permissionless manner. By addressing the lack of interoperability in the blockchain space, Cosmos seeks to overcome the problem of capital inefficiency caused by siloed blockchains.
Cosmos achieves interoperability through its Inter-Blockchain Communication (IBC) protocol, which allows independent blockchains, referred to as Zones, to communicate and transfer data and assets with each other. The Cosmos Hub serves as the central connector or Hub that facilitates communication between these Zones. The Cosmos ecosystem currently secures over $62.67 billion in digital assets across 28 IBC-enabled chains.
Key Components & Timeline of Cosmos
- Tendermint: A protocol that enables communication between blockchains within a network and with external blockchains. Tendermint Core, a blockchain engine, is used in the Cosmos ecosystem to create proof-of-stake (PoS) consensus algorithms.
- Cosmos Software Development Kit (SDK): It provides a development framework, called Cosmos SDK, that allows developers to build custom, scalable, and interoperable blockchain applications on top of Tendermint. IBC is a module within Cosmos SDK that standardizes inter-chain communication and enables multi-chain data interoperability.
- App-Chain: An independent blockchain optimized for a specific application or use case, built using the Cosmos SDK.
By utilizing the Cosmos SDK, developers have the flexibility to deploy their own Tendermint blockchains without adhering to the conventions of building on Ethereum. This ease of use and customization has attracted numerous developers and projects to the Cosmos ecosystem. The ecosystem has seen significant growth in decentralized finance (DeFi) applications, decentralized exchanges (DEXs) like Osmosis, and other financial programs.
While Cosmos and Polkadot both focus on interoperability, they differ in their approaches. Polkadot uses a shared validation logic model where independent blockchains, called Parachains, communicate through the Polkadot relay chain. In contrast, Cosmos allows each chain to be independent and connects them through a bridge-hub model. The Cosmos Hub, the first blockchain on the Cosmos network, provides services such as security and decentralized exchange to the connected blockchains.
Cosmos is also exploring compatibility with other blockchain ecosystems. For example, EVM-on-Cosmos (previously Ethermint) enables EVM-compatible applications to integrate into the Cosmos ecosystem, serving as a gateway for Ethereum assets to enter Cosmos.
The Cosmos community has grown rapidly, with a strong developer community and active social channels. The Cosmos development team, including organizations like Interchain GmbH and Informal Systems, maintains and supports the core Cosmos software.
As the ecosystem continues to expand, there have been discussions about the role and value of the native token, ATOM. While ATOM currently has staking and potential airdrop benefits, there is ongoing exploration to enhance its value within the expanding Cosmos ecosystem.
Overall, Cosmos aims to address the interoperability challenges in the blockchain space and create a multichain universe where different blockchains can communicate and collaborate seamlessly.
IBC (Inter-Blockchain Communication) is a protocol designed to enable interoperability between independent blockchain networks within the Cosmos ecosystem. It allows for the transfer of tokens and data between different blockchains while maintaining security and consistency. Here’s how IBC generally works:
- Tracking: Each blockchain within the Cosmos network maintains a record of the validator set of every other participating blockchain by continuously receiving the headers of other chains. This information is stored in a light-client, allowing chains to track and verify the state of other chains.
- Proof Relay: When a token transfer or any other transaction is initiated from one chain (let’s say chain X) to another chain (chain Y), proof of the transaction is sent from chain X to chain Y. This proof demonstrates that a certain amount of tokens on chain X is being transferred to chain Y.
- Validation: Chain Y verifies the proof against the header information of chain X. If the proof is valid, meaning the transaction actually occurred on chain X and the tokens are available for transfer, chain Y creates a representation of those tokens on its own chain. These representations are often called “vouchers” and serve as a proof of ownership of the original tokens on the source chain.
- Tokenomics: The tokens created on chain Y are not the actual tokens themselves but rather representations of them. The real tokens still exist on chain X. Tokens on chain Y represent a claim on the locked tokens on chain X, backed by the proof provided during the transaction. Similarly, when the tokens are returned to their original chain, the process is reversed, and the vouchers are burned, unlocking the original tokens.
As for the ATOM token specifically, it serves multiple purposes within the Cosmos Hub:
- Spam Prevention: ATOM can be used to pay fees on the Cosmos Hub, acting as a spam prevention mechanism. Fees ensure that malicious actors don’t misuse the blockchain by requiring them to pay for the computation required by their transactions.
- Staking: ATOM can be staked to participate in the consensus and security of the Cosmos Hub. Stakers lock up their ATOM as collateral, and in return, they earn rewards in the form of additional ATOM. The more ATOM staked, the better the economic security of the network.
- Governance: ATOM holders have the ability to participate in the governance of the Cosmos Hub. They can vote on proposals and decisions that affect the development and direction of the network.
Regarding the initial token distribution of ATOM, it involved private and public fundraising events conducted by the Interchain Foundation. Private contributors, public contributors, All in Bits Inc (AiB), and the Interchain Foundation were recipients of the newly created ATOMs. The distribution was based on the contributions made during these events, with different participants receiving varying percentages of the initial supply of ATOM tokens.
Cosmos is a modular blockchain ecosystem that utilizes an SDK (software development kit) and the Inter-Blockchain Communication (IBC) protocol to enable interoperability between different blockchain networks. It allows projects to retain their sovereignty while benefiting from interconnectivity within the Cosmos economic zone. Here’s a recap of Cosmos and why modular blockchains are considered the future:
- Modular Blockchains vs. Monolithic Blockchains: Monolithic blockchains, like Bitcoin, Fantom, and Solana, have transactions, data, and consensus all occurring on the same network. In contrast, modular blockchains separate the data and processing elements or allow transaction processing and consensus to happen at separate layers. Cosmos embraces modularity by providing a hub for other networks to build on and connect with each other.
- Benefits of Modular Blockchains: Modular blockchains offer advantages such as individual project sovereignty, the ability to capture individual value, and the benefits of interconnectivity. Projects within the Cosmos ecosystem can run their own chains, retain their own governance and security systems, and still benefit from being part of an interconnected network.
- Active Users and On-Chain Statistics: Cosmos has seen significant activity within its ecosystem. In the last three months, it averaged 500,000 transactions per day, with a daily trading volume of 20 million ATOM tokens. While its daily active users may be lower compared to some networks, this metric doesn’t account for the projects connected via IBC, which expands the overall activity and usage.
- Network Performance and IBC Ecosystem: Despite increasing transactions, the Cosmos hub has maintained or even improved its block times and throughput. Block delay timing and block counts have an inverse relationship, indicating that the network is handling increased transactions efficiently. The number of ecosystems building on Cosmos has also been growing, with 54 chains connected, showcasing the strength of the IBC ecosystem.
- Total Value Locked (TVL): The Cosmos ecosystem has experienced a rise in TVL. While Terra’s downfall affected the TVL distribution, other protocols have gained traction. Projects such as Cronos, Osmosis, Canto, Kava, and Thorchain contribute to the TVL on the Cosmos Hub. The top 17 projects collectively have a TVL of approximately $1.2 billion.
- Exciting Developments in 2023: Cosmos has a roadmap for 2023, which includes major upgrades and developments. Interchain Accounts (v8 Rho), Interchain Security (v9 Lambda), and Interchain Queries are proposed upgrades that aim to enhance interchain communication and expand use cases within the ecosystem. These developments can pave the way for features like collateral deposits on one blockchain and loans on another.
- Promising Projects: Within the Cosmos ecosystem, there are several projects making strides. Mars Protocol on Osmosis aims to enable traditional money market activities and expand into under-collateralized lending. Kujira has developed applications like ORCA and FIN, a decentralized exchange with an order-book style trading experience.
Cosmos continues to attract attention and drive innovation within the blockchain industry, offering modularity, interoperability, and a growing ecosystem of interconnected projects.
Unleashing the Potential of Interchain Modules
Prepare for a transformative journey into the world of Cosmos IBC and its game-changing Interchain Modules. Curious to know why? Join us as we explore the interplay of these modules within the larger Cosmos ecosystem, offering you an easily digestible guide to this complex subject.
The Cosmos ecosystem has been making waves recently, with notable developments such as dYdX’s decision to build its own blockchain using the Cosmos SDK, VanEck’s bullish stance on Cosmos in their latest article, and Syntropy’s migration to the Cosmos ecosystem from Polkadot. These developments highlight the growing importance and potential of Cosmos.
The Cosmos ecosystem comprises three key components: Cosmos Tendermint Core Consensus, Cosmos SDK, and Cosmos IBC. Together, they have revolutionized the developer experience in blockchain creation, making it as easy as building a website with Wix, while maintaining high performance. However, there’s still room for improvement.
Before we delve into the world of Interchain Modules, let’s first understand Cosmos IBC and its current limitations.
Unraveling the Cosmos IBC
Cosmos IBC, or Inter-Blockchain Communication, is a groundbreaking solution that addresses one of the biggest challenges in the blockchain industry – seamless communication between blockchains.
Imagine IBC as the TCP/IP for blockchains, a universal interoperability protocol that enables two different blockchains to communicate reliably, securely, and in a well-ordered manner. It consists of two layers: the transport layer (IBC/TAO) and the application layer (IBC/APP).
Transport Layer (IBC/TAO)
In the transport layer, messages are transported via data packets, which are authenticated, ordered, and transported by the key components of IBC/TAO: connections, light clients, channels, and relayers.
Connections establish the link between two chains, allowing them to communicate. It involves a mechanism similar to the 3-way handshake of TCP, ensuring secure communication.
Light clients provide a lightweight representation of a blockchain and enable verification of block headers.
Channels facilitate the transfer of data packets between different modules on different chains.
Relayers, which are off-chain processes, observe for messages from one chain to another and ensure their relay.
Application Layer (IBC/APP)
While the transport layer handles the reliable transmission of data, the application layer specifies how data packets should be interpreted. IBC’s separation of the application layer from the transport layer offers flexibility in designing new blockchain architectures.
One example of an IBC/APP protocol is ICS-20, which enables cross-chain token transfers without requiring the implementation of an entire blockchain interoperability mechanism.
The Need for Speed
Although IBC has facilitated seamless communication between chains, it has its limitations. The current process of developing new Interchain Standards on top of IBC/TAO requires significant time and resources. To fulfill its vision of becoming the Internet of Blockchains, Cosmos needs to expedite the development of Interchain Standards.
To address this need, Cosmos Hub has introduced a set of upcoming Interchain Modules in Roadmap 2.0. Let’s explore three specific modules: Interchain Accounts (v8 Rho), Interchain Security (v9 Lambda), and Interchain Queries (v10 Epsilon).
Interchain Accounts (v8 Rho)
Interchain Accounts empower any blockchain in the Cosmos ecosystem to securely control an account on another blockchain through IBC. This module saves developers valuable time by eliminating the need to create new Interchain Standards for specific features.
Traditional IBC transactions require the creation of new ICS standards for module-specific features. However, with Interchain Accounts, developers can leverage the native blockchain.
While existing layer 1 blockchain have their own strengths & use cases, Cosmos sets itself apart with its interoperability focus, scalability solutions, sovereignty, security, and thriving ecosystem.
This makes Cosmos a force to reckon with & giga-bullish on web3. The focus being implemented by Cosmos is truly going to bring a new experience for users of dApps and unlock cross-blockchain communication without the complexities of bridging assets repeatedly with insanely high gas fees.