Cosmos’ Interoperability Makes It A Strategic Investment (Cryptocurrency:ATOM-USD)

By Matt Sullivan

The way forward for blockchains is probably going a multi-chain future, which suggests 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 might be the following 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 sure unsustainable long-term (see Wormhole hack, Ronin bridge hack, and Vitalik Buterin’s long-held and extensively shared concerns with cross-chain bridges). When you imagine the world has a multi-chain future, then Cosmos might turn out to be the dominant participant in that area.

The Cosmos Construction

There are 5 key elements of the Cosmos construction that lay the muse for the way it features:

1) Tendermint

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 permits present and future builders to focus solely on blockchain-specific utility growth utilizing quite a lot of programming languages through 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 Package (SDK)

A multi-programming language toolkit for builders to construct their blockchain-specific functions. Cosmos believes most functions 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 heart 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 through the inter-blockchain protocol (IBC).

5) Inter-blockchain (IBC) Protocol

The construction that permits blockchains to transmit information 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 completely on their utility growth utilizing quite a lot of languages through the Cosmos SDK, which might then safely interoperate with each other through the IBC protocol.

Adoption Metrics

Customers

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 in keeping with Atomscan:

Whole Worth Locked (TVL) on DeFi protocols

Whole worth locked in blockchain functions and protocols offers a common gauge of community demand from decentralized finance ((DeFi)). DeFi generates the most important demand for blockspace in the meanwhile 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 have been 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. Nevertheless, demand for something inside the Cosmos ecosystem is helpful long-term for ATOM-USD, notably IBC-enabled blockchains.

Blockchains Developed within the Ecosystem

In line with the Cosmos website, 49 blockchains have utilized Cosmos SDK to construct their blockchains, accounting for $66 billion of whole market cap. Additional, there are 28 blockchains which might be 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 latest LUNA/UST collapse was unlucky, its influence on ATOM-USD is a diminished demand for the general Cosmos hub ecosystem. Importantly, the LUNA/UST collapse has no structural or safety influence relative to ATOM-USD or the Cosmos ecosystem.

Further 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 plenty 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 growing demand for ATOM-USD.

Builders

Builders have been steadily on the rise primarily based on quite a lot of metrics, together with variety of builders, quantity and dimension of contributions, and the scale of the developer group (see chart under from Messari):

Tokenomics

The tokenomics are usually not 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 whole ATOM-USD staked. This is without doubt one of the few knocks on ATOM-USD.

Token distribution

In line with 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 might be essential and demand ought to improve, placing Cosmos in a fantastic place to learn from the interoperability development. Moreover, many tokens within the Cosmos ecosystem are usually not accessible on centralized exchanges like Coinbase in addition to ATOM-USD. Meaning there you have to purchase ATOM-USD tokens and bridge over to Cosmos to realize entry to different tokens within the Cosmos ecosystem, serving as one other demand driver for ATOM-USD.

Staking

As a result of continued inflation of ATOM-USD, it is strongly recommended to stake your ATOM-USD tokens to mitigate the influence of a rising circulating provide. In line with Staking Rewards, as of this writing the estimated actual yield (web of the inflation fee) is roughly 5-6%.

Dangers

Centralization Threat

One of many key dangers to Cosmos is the shortage 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?” Nevertheless, being conscious that Cosmos is sacrificing decentralization for larger transaction velocity and decrease transaction prices is essential and will influence the sizing of the place in your portfolio as a result of there’s an elevated danger to be hacked by a 51% assault

Tokenomics

Similar to within the inventory market, crypto traders merely don’t pay sufficient consideration to the general provide of a token; it’s the different finish of demand, which collectively impacts worth. 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 the event you purchase ATOM-USD, you could 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 worth and is now over 75% off the token’s all-time highs.

Management Turnover

Jae Kwon Departure: The founding father of Cosmos Jae Kwon left the challenge in 2020 to develop a brand new blockchain, Gno.land. There have additionally been rumors through the years of infighting amongst management. That is definitely one thing to watch shifting ahead.

Funding Advice

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 needs to be famous earlier than any consideration of ATOM-USD in a crypto portfolio.

With that in thoughts, ensuring you may have some publicity to ETH-USD opponents who’re additionally promoting blockspace is a good suggestion. Cosmos is compelling as a result of it looks as if a robust guess to coexist alongside Ethereum, having Cosmos be the blockchain that connects a majority of the present and future blockchains, whereas Ethereum can turn out to be IBC-enabled sooner or later whereas nonetheless offering the best-in-class blockspace round.

Value

The present worth is over 75% off ATOM’s all-time excessive, largely as a result of latest selloff and considerably direct publicity to LUNA/UST. Whereas it’ll take time to get better the community demand that LUNA created, it was really the decentralized change Osmosis doing essentially the most transaction quantity inside the Cosmos ecosystem, practically double that of LUNA previous to its collapse. You may see the place transaction quantity is coming from here.

Portfolio Sizing

ATOM-USD could also be a vital hedge towards the (present) monolithic construction of Ethereum and a robust guess alongside Polkadot (DOT-USD) on a multi-blockchain future. Cosmos deserves a 2% allocation in a diversified crypto portfolio – simply bear in mind to stake it.