What is Cosmos?

Cosmos was co-founded by Ethan Buchman and Jae Kwon in 2014 and is headquartered in Zug, Switzerland. It is a novel blockchain ecosystem composed of networks and tools, designed to address the interoperability issue of blockchain, thereby enabling cross-chain communication between different blockchains. Cosmos adopts a new design known as “interchain,” which allows it to connect different blockchains to form an interoperable ecosystem. Cosmos is also referred to as the “Internet of Blockchains” by its founding team.

Source: https://cosmos.network/

About the Founding Team & Institutional Investments

The founding team of the Cosmos blockchain consists of several technical and blockchain experts, including Jae Kwon, Ethan Buchman, and Zaki Manian. Jae Kwon is the founder of Cosmos and its core developer. He founded the Tendermint project in 2014, which lays the foundation for the core consensus algorithm of the Cosmos network. Jae Kwon graduated from Cornell University with a Bachelor’s degree in Computer Science and has worked for several tech companies such as Scramble.io and iDoneThis.

Ethan Buchman is the co-founder of Cosmos and previously served as the Chief Technology Officer (CTO) of Cosmos. He has many years’ experience in blockchain and is committed to building secure and scalable distributed systems. Ethan joined the Tendermint team in 2016 to develop the Cosmos ecosystem in collaboration with Jae Kwon. He holds a BSc in Biophysics from the University of Guelph. Zaki Manian is a core developer and advisor for Cosmos, working to provide strategic guidance for the development of the Cosmos ecosystem. He enjoys extensive expertise in cryptocurrencies and distributed systems, and is an entrepreneur and investor who has been involved in multiple cryptocurrency projects and startups.

Although the specific investment details and amounts for the Cosmos blockchain project are not fully disclosed, we can find some major institutional investors and supporters based on available information. These include Binance Labs, Polychain Capital, 1confirmation and other venture capital firms. Binance Labs is the incubator and venture capital arm of the Binance cryptocurrency exchange. It made an investment in Cosmos in 2019, with the exact investment amount being undisclosed. Polychain Capital and 1confirmation are both cryptocurrency venture capital firms headquartered in California, USA. They are among the early investors of Cosmos and participated in its initial fundraising round in 2017.

Introduction to Cosmos

Cosmos is an open-source blockchain ecosystem. The Tendermint core development team built Cosmos into a blockchain engine based on Byzantine Fault Tolerant (BFT) consensus algorithm, allowing developers to create scalable blockchain applications. The Cosmos ecosystem is mainly composed of two core components: the Tendermint consensus algorithm and the Cosmos SDK.

Tendermint is a BFT consensus algorithm that enables different nodes to reach a consensus, thereby ensuring the security and stability of the network. It packages the networking and consensus layers of a blockchain into a generic engine, allowing developers to focus on application development rather than complex underlying protocol.

Tendermint Core, the implementation of the Tendermint consensus algorithm, is an independent BFT consensus engine. It provides efficient, secure, and scalable consensus services and is used to connect different blockchains. It serves as the basis for realizing cross-chain interoperability. The Cosmos SDK, on the other hand, is a development kit that provides a set of generic blockchain modules, making it easier for developers to build and deploy their own blockchain applications.

The Cosmos blockchain ecosystem consists of a main chain based on Proof-of-Stake (PoS) and customizable blockchains called “zones”. The PoS-based main chain is often referred to as the Cosmos Hub. Each zone is highly customizable, allowing developers to design their own cryptocurrencies, with custom block verification settings and other features. These zones are created using the Cosmos SDK. The Cosmos Hub connects the other zones through the Inter-Blockchain Communication (IBC) protocol, which tracks the state of each zone. Through the IBC protocol, information can be easily transferred between any zone connected to the Cosmos Hub, thereby realizing cross-chain interoperability.

Source: https://coinculture.com/au/tech/cosmos-newly-released-whitepaper-revamps-cosmos-hub-atom-token/

The IBC protocol, created based on Cosmos’ Tendermint consensus algorithm and the Atomic Broadcast (ABC) protocol, allows for cross-chain interaction across any blockchain network that supports the IBC protocol. The IBC protocol enables the transfer of digital assets and data between different blockchains while maintaining interoperability among them. It effectively expands the usability and application scenarios of the Cosmos ecosystem.

Technical Overview of Cosmos

High Performance, Security and Scalability: The Tendermint Consensus Algorithm of the Cosmos Blockchain

The Tendermint consensus algorithm is the core component of the Cosmos blockchain network. It is a high-performance, secure and real-time fault-tolerant consensus algorithm that combines the Byzantine Fault Tolerance (BFT) consensus algorithm with blockchain technology, aiming to achieve efficiency, security and scalability in decentralized networks.

Source: https://tendermint.com/

The core principles of Tendermint consist of the following components:

Byzantine Fault Tolerance (BFT): The BFT consensus algorithm is a fault-tolerant algorithm that can tolerate a certain percentage of malicious nodes in a distributed system. In Tendermint, as long as more than 2/3 of the validator nodes behave honestly and are active, the system can reach a consensus. This means that Tendermint can still guarantee the correctness of the consensus process even if 1/3 of the validator nodes experience Byzantine faults or act maliciously.

Separated architecture: Tendermint separates the consensus algorithm from the application state and communicates with various blockchain applications through an application interface called the Application Blockchain Interface (ABCI). This architecture makes Tendermint highly versatile, allowing it to support various types of blockchain applications, including smart contracts, cryptocurrencies, and decentralized applications.

Consensus process: The Tendermint consensus process involves two main roles, which are proposers and validators. Proposers are chosen to propose a new block, and validators vote to validate the block and check the validity of the transactions included. When over 2/3 of the validators vote for the block, consensus is reached and the new block is added to the chain.

Round-robin strategy: Tendermint uses a weighted round-robin strategy to select the proposer. The voting weights of a validator are proportional to its stake (usually represented by tokens) in the network. This mechanism increases the likelihood of validators with larger stakes being selected as proposers, thereby enhancing the system’s resistance to attacks.

Real-time fault tolerance: Tendermint has real-time fault tolerance capabilities, meaning that nodes can detect potential Byzantine errors in real time during the consensus process. When an error is detected, the system pauses the consensus process and waits for the error to be corrected. This mechanism allows Tendermint to promptly identify and respond to malicious behaviors in real time to ensure system security.

High performance: Tendermint is designed to reach consensus quickly, enabling high block generation speeds and the processing of thousands of transactions per second. This provides higher throughput and lower latency compared to many traditional consensus algorithms, such as the proof-of-work algorithm used in Bitcoin. The high performance of Tendermint makes it an ideal underlying technology to support large-scale decentralized applications.

Scalability: Tendermint supports cross-chain communication, allowing the transfer of value and information between various blockchains in the Cosmos ecosystem. This is achieved through the implementation of the Inter-Blockchain Communication (IBC) protocol, making Tendermint a scalable consensus algorithm. By enabling interoperability between different chains, Cosmos aims to address the isolation and congestion issues in existing blockchain networks.

Environmental protection: Compared with the proof-of-work (PoW) consensus algorithm, Tendermint’s proof-of-stake (PoS) algorithm is more eco-friendly. By eliminating the need for extensive computing power and energy consumption to maintain network security, Tendermint significantly reduces its negative impact on the environment.

Incentive and punishment mechanism: To ensure that validators behave honestly, Tendermint introduces an incentive and punishment mechanism. In this mechanism, validators are rewarded, through participation in the consensus process, block production, and voting, with incentives such as inflation or transaction fees. If a validator commits malicious behavior (such as double signing or going offline), part of its stake will be confiscated. This mechanism encourages validators to remain honest and actively participate in network maintenance.

Delegated stake: Tendermint allows token holders to delegate their stake to validators. This enables ordinary users to participate in the consensus process and earn rewards while enhancing the decentralization of the network. Delegated stake also increases the security of the network as attackers would need to control a larger proportion of stake to influence the network.

In short, the Tendermint consensus algorithm is the core component of the Cosmos blockchain network. By combining the BFT consensus algorithm with blockchain technology, it achieves high performance, security, and scalability. Tendermint is designed to support various types of blockchain applications and realize interoperability between blockchains through cross-chain communication.

Building Future Blockchain Applications: Cosmos SDK

Cosmos SDK (Software Development Kit) is another key component of the Cosmos ecosystem, which is a framework designed specifically for building blockchain applications. The Cosmos SDK is based on the Golang programming language and aims to lower the barrier for developers to build custom blockchain applications while improving security and performance. Its main features include modularity, scalability, and compatibility. Here we are going to discuss in detail the various aspects of Cosmos SDK.

Source: https://tendermint.com/sdk/

Modularity: Cosmos SDK uses composable modules, allowing developers to easily integrate already-built modules into their own applications without writing code from scratch. These modules include Auth, Bank, Governance, Distribution, Leverage, and more. Developers can choose the modules they need to quickly build blockchain applications that meet their specific needs.

Scalability: Cosmos SDK allows developers to build custom modules, enabling them to add specific functionalities to their applications. By using the scalability of the Cosmos SDK, developers can implement highly customized blockchain applications to meet the needs of different industries and scenarios. For example, blockchain applications with specific functionalities can be developed for industries such as finance, gaming, and supply chain.

Compatibility: Blockchain applications built using Cosmos SDK can communicate with other applications built using Cosmos SDK through the IBC protocol to achieve cross-chain interoperability. This compatibility allows for seamless transfer of value and information in the Cosmos ecosystem, which helps address the isolation and congestion issues in existing blockchain networks.

Security: Cosmos SDK has a series of built-in security mechanisms to ensure that the built blockchain applications have high security. For example, the Cosmos SDK uses an Auth module to manage user accounts and permissions to ensure the security and compliance of transactions. In addition, the Cosmos SDK also utilizes the Tendermint consensus algorithm to achieve secure consensus in the blockchain network.

Performance: Blockchain applications built using Cosmos SDK can benefit from the high performance feature of the Tendermint consensus algorithm. Tendermint supports processing thousands of transactions per second with low latency, which enables applications built using Cosmos SDK to meet the performance requirements of large-scale decentralized applications.

Usability: Cosmos SDK provides rich documentation and code examples, allowing developers to get started and build custom blockchain applications quickly. In addition, Cosmos SDK is written in the Golang programming language, a high-performance, easy-to-learn language suitable for concurrent programming, which meets the needs of blockchain development.

Flexible governance: Cosmos SDK supports the creation of blockchain applications with flexible governance mechanisms. Developers can design governance models according to their own needs, such as allowing token holders to vote on important matters like protocol upgrades and parameter adjustments. This decentralized governance model helps blockchain applications better adapt to market changes and technological innovations.

Cross-chain asset management: Cosmos SDK supports cross-chain asset management, allowing developers to create custom blockchain applications to manage assets across different chains. Through the IBC protocol, these assets can be seamlessly transferred between various blockchains in the Cosmos ecosystem.

Adaptability to multiple use cases: Cosmos SDK is suitable for building various types of blockchain applications, ranging from simple token transfers to complex smart contracts, decentralized finance (DeFi), and decentralized autonomous organizations (DAO). This makes the Cosmos SDK a flexible and powerful blockchain development framework.

Open source and community support: Cosmos SDK is an open-source project, which means that anyone can view its source code, submit suggestions for improvements, and even contribute code. In addition, Cosmos SDK is supported by a large developer community, which provides a continuous impetus for the development and innovation of the project.

In conclusion, Cosmos SDK is a high-performance, secure and user-friendly framework designed for building blockchain applications. It adopts a modular design that allows developers to add functional modules to their applications easily. Furthermore, Cosmos SDK supports cross-chain communication and asset management, realizing interoperability between different blockchains. By using Cosmos SDK, developers can build custom blockchain applications that meet the needs of various industries and scenarios, and promote the development and innovation of the entire crypto ecosystem.

The Logic of Cross-chain Communication: Principles and Applications of the IBC Protocol

The Inter-Blockchain Communication (IBC) protocol is also one of the core components of the Cosmos ecosystem, designed to achieve interoperability between different blockchains. Through the protocol, various blockchains can transfer value and information to each other, thereby overcoming the isolation and congestion problems in the existing blockchain ecosystem. Continue reading to explore the principle, features and application scenarios of the IBC protocol in depth.

Source: https://tutorials.cosmos.network/academy/3-ibc/1-what-is-ibc.html

Goal of the protocol: Existing blockchain networks are often isolated from each other, making cross-chain communication challenging. This restricts the seamless flow of value and information, resulting in slower transaction speeds, network congestion, and rising transaction costs. In response to these issues, the IBC protocol was developed to dismantle barriers between blockchains and achieve interoperability.

Principle of the protocol: The IBC protocol defines a set of standards for achieving cross-chain communication. First of all, each blockchain needs to implement the interface of the IBC protocol to support cross-chain communication. When two blockchains want to achieve interoperability, they need to establish a “connection” through a process known as “handshake”, which is a two-way verification process that ensures that both parties support the IBC protocol. Once the connection is established, the blockchains can transport data packets using the IBC protocol.

Data packets and transport: The data packets are the basic unit of cross-chain communication in the IBC protocol. A data packet contains information about the source chain and the target chain, as well as the data to be transported. When a blockchain sends a packet to another blockchain, it first needs to submit the packet to the source chain. The source chain will process the data packet and generate a “commitment proof”. Upon receiving the proof, the target chain verifies it to confirm the legitimacy of the data packet. Once verified, the target chain will perform corresponding operations.

Cross-chain smart contracts: In addition to asset transfers, the IBC protocol can also call cross-chain smart contracts. For example, the smart contract on chain A can interact with the smart contract on chain B through the IBC protocol to achieve collaboration between decentralized applications (dApps). This cross-chain interoperability provides more synergy and composability possibilities for blockchain applications, and promotes innovative applications of blockchain technology in various fields.

Interchain routing: The IBC protocol supports interchain routing, allowing data packets to be transported between multiple blockchains, not just through direct communication between two blockchains. This routing capability provides higher flexibility and stability for cross-chain communication and ensures reliable data transport in complex networks.

Communication security: The IBC protocol provides a certain level of security for cross-chain communication. Both the sending and receiving of data packets need to be verified by the source chain and the target chain to ensure data legitimacy and integrity. Additionally, the IBC protocol supports security mechanisms such as encryption and authentication to further improve communication security.

Cross-chain governance: The IBC protocol also enables cross-chain governance, allowing one blockchain to influence the governance decisions of another blockchain. For example, chain A can submit a proposal to chain B via the IBC protocol, requiring chain B to adjust a certain parameter or upgrade the protocol. This cross-chain governance model helps to achieve synergy and self-adjustment between different blockchain networks, thereby improving the stability and sustainability of the entire ecosystem.

Open standard: The IBC protocol is an open standard. Any blockchain can implement its interface to support cross-chain communication. This provides the IBC protocol with strong universality and adaptability, which contribute to the development and innovation of the entire blockchain ecosystem.

Community support: The IBC protocol has received extensive community support, with many developers and projects actively participating in its development. In addition, many blockchain projects in the Cosmos ecosystem have already implemented the IBC protocol, promoting the practical application of cross-chain communication and interoperability.

All in all, the IBC protocol is a key technology to achieve blockchain interoperability. It facilitates the seamless transfer of value and information between different blockchains, effectively addressing the isolation and congestion issues in the existing blockchain ecosystem. Through the IBC protocol, multiple blockchains can cooperate with each other to realize various application scenarios such as cross-chain asset transfer, the interaction between smart contracts, and cross-chain governance. The application of the IBC protocol not only improves the efficiency and usability of the entire blockchain ecosystem, but also unlocks more possibilities for innovative application of blockchain technology across different domains. As an open standard, the IBC protocol has received extensive community support and is expected further to drive the development and innovation within the blockchain ecosystem.

The Core Network of the Cosmos Ecosystem: Collaboration and Complementarity between the Cosmos Hub and Zones

As a decentralized cross-chain exchange platform in the Cosmos ecosystem, Cosmos Hub is responsible for facilitating the intercommunication of assets and information across different blockchains. Cosmos Hub is designed to connect multiple independent blockchain networks, each with its own sovereignty, and break down the isolation within the existing blockchain ecosystem. Other blockchains apart from the Cosmos Hub in the Cosmos ecosystem are referred to as “zones.” Each zone is an independent blockchain network with its own sovereignty, capable of implementing specific applications and business logic to meet the needs of different scenarios. The Cosmos Hub acts as a special zone, serving as a connector and coordinator between other zones. In the Cosmos ecosystem, the Cosmos Hub functions as:

Source: https://cointelegraph.com/learn/what-is-cosmos-a-beginners-guide-to-the-internet-of-blockchains

Connector: As a cross-chain exchange platform, Cosmos Hub is responsible for facilitating the interoperability of assets and information between different zones. By implementing the IBC protocol, the Cosmos Hub can interoperate with other zones that support the IBC protocol to achieve cross-chain communication. This allows various zones within the Cosmos ecosystem to collaborate and develop together.

Coordinator: The Cosmos Hub not only serves as a connector between different zones but to some extent plays a role in coordinating their relationships. By implementing features such as cross-chain governance and shared security models, the Cosmos Hub helps to achieve collaboration and self-adjustment between blockchain networks. This contributes to the stability and sustainability of the entire Cosmos ecosystem.

Cross-chain interaction: Various application scenarios such as cross-chain asset transfers and interactions between smart contracts can be realized between the Cosmos Hub and other zones. This unlocks more possibilities for the innovative applications of blockchain technology across different fields.

Community support: As a core component of the Cosmos ecosystem, the Cosmos Hub has received extensive community support. Many developers and projects actively participate in the development and improvement of the Cosmos Hub, and an increasing number of blockchain projects choose to join the Cosmos ecosystem to achieve interoperability with the Cosmos Hub.

Overall, the Cosmos Hub achieves collaboration and complementarity with other Cosmos zones. As the core network of the entire ecosystem, the Cosmos Hub is responsible for connecting and coordinating various zones to promote the development and innovation of the entire blockchain ecosystem. Other Cosmos zones may focus on implementing their specific applications and business logic, leveraging their unique features and advantages. Through this collaboration, the Cosmos ecosystem can achieve more efficient, secure, and sustainable development.

Cosmos Ecosystem

According to the Cosmos website, there are currently 274 dApps and services built in the Cosmos ecosystem. These include decentralized finance (DeFi) applications that mainly focus on cryptocurrency lending, stablecoins, and derivatives transactions, such as Kava and Persistence; cross-chain service platforms that aim to achieve interoperability between different blockchain networks to enable asset and data exchange on different chains, such as IRISnet and Sifchain; decentralized cloud computing and storage projects that aim to provide users with decentralized computing and storage resources, such as Akash Network.

Additionally, there are also privacy and security applications that provide encrypted and secure network connection services, such as decentralized virtual private networks (dVPN). Sentinel is an example of such an application. Furthermore, there are domain name service projects that provide decentralized domain name registration services, aiming to simplify cryptocurrency address and identity management for users. An example of such a service is Starname. Lastly, there are ecosystem service projects that focus on environmental and climate change issues and provide trading platforms on ecosystem services. An example of such a project is Regen Network.

Source: https://cosmos.network/ecosystem/apps

Below are five intriguing and popular applications in the Cosmos ecosystem.

Kava (KAVA)

Kava is an important project in the Cosmos ecosystem. It is a decentralized finance (DeFi) platform that focuses on providing cross-chain asset lending and stablecoins. It currently ranks 106 on CoinGecko with a market capitalization of $450 million.

Source: https://www.coingecko.com/en/coins/kava

Kava aims to break down the barriers between different blockchain networks and achieve asset interoperability, enabling users to trade and invest across multiple blockchain networks conveniently.

The core components of Kava include Kava blockchain, the Kava token (KAVA), the Hard Protocol, and the USDX stablecoin. The Kava blockchain is built based on the Cosmos SDK and uses the IBC protocol in the Cosmos ecosystem for cross-chain interactions. The KAVA token is the native governance token of the Kava ecosystem and is used to pay transaction fees, participate in voting, and earn protocol rewards.

Hard Protocol is a decentralized financial application on the Kava platform that supports lending and borrowing with various cryptocurrencies as collateral. Users can collateralize their crypto assets on the Hard Protocol to obtain the corresponding loan amount. Compared with other DeFi platforms, the Hard Protocol has the advantage of supporting cross-chain assets like Bitcoin and Ethereum.

USDX is a decentralized stablecoin in the Kava ecosystem that is pegged to the U.S. dollar at a 1:1 ratio. Users can generate USDX by collateralizing other cryptocurrencies like Bitcoin and Ethereum. USDX can be used for cross-chain transactions, lending, and investing, thereby enhancing the liquidity of crypto assets.

Another important feature of Kava is its decentralized governance. KAVA token holders can participate in the governance of the Kava ecosystem by voting on proposals about platform upgrades and parameter changes. This ensures a high level of community participation and decentralization in Kava.

In the Cosmos ecosystem, Kava facilitates the liquidity and interoperability of crypto assets by providing cross-chain asset lending, stablecoins, and decentralized governance. Kava provides users with a secure and efficient decentralized financial platform that enables them to trade and invest across multiple blockchain networks, thereby promoting the development of the entire Cosmos ecosystem. In short, Kava is an essential and integral component of the Cosmos ecosystem.

ThorChain (RUNE)

ThorChain (RUNE) is a cross-chain decentralized transaction protocol designed to enable seamless, secure, and efficient transactions between cryptocurrencies. By allowing users to trade native assets across different blockchain networks, ThorChain solves the interoperability issue faced by many centralized and decentralized exchanges. It currently ranks 97 on CoinGecko with a market capitalization of $500 million.

Source: https://www.coingecko.com/en/coins/thorchain

ThorChain’s key components include cross-chain liquidity pools, the native token RUNE, node operators, and continuous incentives.

Cross-chain liquidity pools: ThorChain realizes decentralized asset trading by establishing cross-chain liquidity pools. Users can deposit their assets into liquidity pools, thereby providing liquidity for transactions. Compared with liquidity pools on a single blockchain network, cross-chain liquidity pools have the advantage of being able to support assets on multiple blockchain networks.

Native token RUNE: RUNE is the native token of the ThorChain ecosystem and has multiple uses. Users can add RUNE along with other assets to the liquidity pool to earn transaction fees and rewards. In addition, RUNE is also used for network governance, ensuring network security, and paying transaction fees.

Node operators: ThorChain’s network security and stability rely on its node operators who support the operation of the network by validating transactions and maintaining cross-chain communication. Node operators are required to stake RUNE to ensure network security while obtaining rewards in return.

Continuous incentives: To encourage users and node operators to participate in the ecosystem, ThorChain provides a series of continuous incentives, including transaction fees, block rewards, and liquidity mining rewards. These rewards help to attract more users and node operators to join the ecosystem, thereby enhancing the security and liquidity of the network.

A key feature of ThorChain is its cross-chain functionality. By using cross-chain communication protocols like IBC and other technologies, ThorChain is able to support multiple cryptocurrencies, including Bitcoin, Ethereum, BNB, etc. This allows users to conduct decentralized transactions between different blockchain networks, improving asset liquidity and interoperability. In short, ThorChain (RUNE) is an innovative cross-chain decentralized exchange protocol designed to address the interoperability issue faced by many exchanges.

Akash Network (AKT)

Akash Network (AKT) is a decentralized cloud computing marketplace that aims to provide developers and enterprises with more efficient and cheaper computing resources. Akash Network creates an open, permissionless computing market by leveraging idle data center capacity, allowing providers and users to participate freely. This decentralized model helps reduce cloud computing costs, improve resource utilization, and provide users with more options.

Source: https://www.coingecko.com/en/coins/akash-network

The core components of Akash Network include a decentralized computing marketplace, the native token AKT, smart contracts, validators, and delegators.

Decentralized computing marketplace: At the core of Akash Network is a decentralized computing marketplace that allows resource providers (such as data centers and miners) to rent out their idle computing resources to those who need them, for example, developers and enterprises. This model facilitates the efficient allocation of computing resources and reduces the cost of cloud computing.

Native token AKT: AKT is the native token of Akash Network and has multiple uses. For example, AKT can be used to pay fees for using computing resources, while providers can earn AKT for their service. In addition, AKT is also used for network governance and incentivizes validators and delegators.

Smart contract: Akash Network utilizes smart contract technology to ensure transparent allocation of computing resources and fair trading. Users can publish computing tasks on the marketplace according to their needs, and providers can choose whether to participate according to the rewards and conditions of the tasks.

Validators: Akash Network’s network security and stability are supported by its validators. Validators support the network’s operation by validating transactions and maintaining the consensus of the network. Operators are required to stake AKT to ensure network security and can also obtain rewards for their contributions.

Delegators: Akash Network allows ordinary users to participate in network governance and incentives through a delegation mechanism. Users can delegate their AKT to validators to obtain rewards. This delegation mechanism helps to improve the security and decentralization of the network.

A key advantage of the Akash Network lies in its open and permissionless nature, allowing any providers to join the market and provide computing resources and allowing any users to find suitable computing resources in the market. This gives Akash Network a strong competitive edge, enabling it to compete with traditional centralized solutions in the cloud computing market.

Band Protocol (BAND)

Band Protocol (BAND) is a decentralized data oracle platform designed to provide reliable and secure external data for blockchain applications. Data oracles play a vital role in the crypto space because they provide smart contracts with real-world information, enabling smart contracts to interact with various real-world application scenarios. Band Protocol solves the problem of data reliability in blockchain applications by creating a decentralized, scalable data solution.

Source: https://www.coingecko.com/en/coins/band-protocol

The core components of Band Protocol include data providers, the native token BAND, aggregators, validators, and delegators.

Data providers: Band Protocol’s data providers are responsible for collecting and providing real-world data. These providers can be enterprises, individuals, or other entities who submit data to the Band Protocol network for use by smart contracts.

Native token BAND: BAND is the native token of Band Protocol and has multiple uses. For example, data providers can earn BAND by submitting data, while smart contract developers need to use BAND to pay for data requests. Further, BAND is also used for network governance and incentivizing validators and delegators.

Aggregators: Band Protocol’s aggregators are responsible for bringing together data from different providers to provide more reliable and accurate information. Aggregators ensure data consistency and accuracy by comparing multiple data sources.

Validators: Band Protocol’s validators support the operation of the network by validating transactions and maintaining network consensus. Validators are required to stake BAND to ensure network security while earning rewards for their contributions.

Delegators: Band Protocol allows ordinary users to participate in network governance and incentives through a delegation mechanism. Users can delegate their BAND tokens to validators to obtain rewards. This delegation mechanism helps enhance the security and decentralization of the network.

The key advantage of Band Protocol lies in its decentralized nature, which makes the data oracle network more transparent and reliable while reducing the risks of manipulation and censorship. In addition, Band Protocol supports cross-chain interoperability and can provide data services for multiple blockchain networks, including Ethereum, Cosmos, and others.

Osmosis (Osmo)

Osmosis is the project that launches the OSMO token. It is an automated market maker (AMM) and decentralized exchange (DEX) in the Cosmos ecosystem. Osmosis aims to provide liquidity and trading services for various tokens within the Cosmos ecosystem. One notable feature of Osmosis is that it focuses on providing transaction services for tokens based on the IBC protocol in the Cosmos ecosystem.

Osmosis allows users to provide liquidity and engage in trading through liquidity pools. Liquidity providers can deposit their tokens into liquidity pools to earn transaction fees and Osmo token rewards. Osmo token holders can also influence the future development of the Osmosis platform by participating in governance, including voting on protocol parameters, proposals, and other issues related to the development of the platform.

In general, as a decentralized exchange in the Cosmos ecosystem, Osmosis aims to facilitate token transactions between different blockchains and promote the development of the Cosmos ecosystem.

Source: https://app.osmosis.zone/?from=ATOM&to=OSMO

According to CoinGecko, the OSMO token currently ranks 101 among global cryptocurrencies with a market capitalization of $446 million.

Source: https://www.coingecko.com/en/coins/osmosis

Cross-chain Iteration: The Cosmos 2.0 Upgrade

At the Cosmoverse conference from September 26 to September 28, 2022, the Cosmos ATOM 2.0 whitepaper was officially released. The 27-page document, authored by Buchman, Manian, and eight other key figures from Cosmos, provides a series of proposed new features about the Cosmos Hub. It also outlines the new role that the Cosmos Hub will play in the Cosmos ecosystem and provides updated ATOM tokenomics.

Upgrade of the Cosmos Hub

The Cosmos ecosystem has matured as it now has multiple blockchains working together, with billions of funds locked in multiple chains. Therefore, the role of the Cosmos Hub is shifting from building the infrastructure to assisting the growth and prosperity of the entire Cosmos ecosystem and its app chains, which requires iterations within the Cosmos Hub itself.

The iterations within the Cosmos Hub will be facilitated by four new technologies built on the Cosmos stack: Interchain Security (ICS) and Liquid Staking which will contribute to secure economic scaling, as well as the Interchain Scheduler and Interchain Allocator that will facilitate hub-specific functionality.

Source: Atom 2.0 Whitepaper

Enhance Cosmos Security through Interchain Security

Let’s start with Interchain Security (ICS). ICS aims to transform the Cosmos Hub into a secure platform for others to build the next generation of interchain-native infrastructure and applications, paving the way for new cross-chain opportunities and innovations.

Source: Atom 2.0 Whitepaper

Cosmos blockchains adopt the proof-of-stake mechanism, and thus their security depends on the financial value of the staked assets of the chain validators. Basically, the higher the token’s market cap, the safer the chain becomes, as attackers would require more resources to attack the network. However, maintaining a high market cap is not easy, especially for new blockchains. When a new chain is created, they often feel it difficult to find a good fit between the community, product, and market, and market participants may be hesitant to invest and stake the PoS assets to secure it. To solve this dilemma, many new Cosmos chains initially offer high inflationary rewards to incentivize validators to buy and stake tokens.

However, this is not a good long-term solution as it would put significant selling pressure on the token price over time. The selling pressure may also deter investors from buying the token. If the token market cap decreases sharply due to inflationary selling, it will face greater vulnerability to attacks and potentially revert back to square one.

To address this issue, Interchain Security was created. Interchain Security allows the validator set of a larger chain (referred to as a provider chain) to provide security to a smaller chain (referred to as a consumer chain). In exchange for providing security, the provider chain receives a portion of gas fees and staking rewards from that chain. For example, Cosmos hub, a mature chain, can secure a newer chain like Quicksilver, a promising liquid staking chain. This mechanism will allow the validator set of the Cosmos Hub to generate blocks on Quicksilver’s chain. It will also use $ATOM as a staked asset, and so if a user misbehaves on the Quicksilver Zone, their $ATOM will be automatically slashed on the Cosmos Hub. The provider chain can also have its core functions built on a consumer chain, thereby reducing its own development costs and time.

Therefore, Interchain Security helps Quicksilver import the entire economic security of the Cosmos Hub, which is secured by the value of billions of dollars worth of staked $ATOM, which is one of the most secure validator sets in the Cosmos ecosystem. In exchange, transaction fees and staking rewards from Quicksilver will also go to $ATOM stakers, increasing the value accrual and returns for $ATOM stakers, and allowing the Cosmos Hub to leverage and integrate Quicksilver’s liquidity staking functionality.

In the future, just as thousands of applications are being used by people around the world today, if thousands of app chains emerge and are secured by $ATOM’s validator sets, it may generate substantial value back to the $ATOM token.

However, ICS is completely optional, and one can choose to opt out even after using it. Quicksilver stated that they will adopt this mechanism in the early stages of their protocol to provide maximum security for stakeholders from day one. However, once the Quicksilver chain becomes more mature, they plan to move to a layered security arrangement with the Cosmos Hub.

Interchain Security also lowers the barriers and costs of entry for consumer chains and enables many potential applications, including:

Rollup Settlement: A standard rollup settlement system and scaling solution where external data availability providers (such as Celestia) can issue fraud proofs and resolve fork-choice disputes.

IBC Routing: A marketplace for IBC relay contracts and multi-hop connections, aggregating relay providers to create simple, cost-effective, and reliable IBC connectivity subscriptions for wide coverage areas.

Multiverse: An application deployment utility for projects to launch consumer chains permissionless in sandbox environments like CosmWasm. Infrastructure automation will make creating a Hub-secured blockchain as easy as deploying a smart contract.

Chain Name Service (CNS): A secure identification and authentication service for IBC-connected blockchains will provide chains with a single place to manage information about themselves permissionless.

However, ICS also has some drawbacks. In exchange for the security of the chain, the staked $ATOM will face the risk of consumer chain faults. Although it seems impossible now, if a chain becomes too large and is worth attacking even while being secured by the largest chain, it would be similar to $ATOM itself being attacked. So, at the end of the day, the financial success of the feature is still largely speculative, and remains to be seen whether it will generate significant income for $ATOM stakers.

In conclusion, Interchain Security provides faster, easier, and cheaper routes to market for smaller chains, helping to foster innovation and allowing for more opportunities for integration and collaboration with other chains in Cosmos.

Liquid Staking Improves Safety and Capital Efficiency

In a proof-of-stake blockchain like Cosmos Hub, its staked assets cannot be used, which affects cross-chain composability. Liquid staking will allow users to use their staked collateral, such as staked $ATOM, as a liquid token that can be traded with and sent across other Cosmos chains. Note that liquid staking may extend not only to $ATOM but to other PoS Cosmos assets as well.

This increases capital efficiency for users by unlocking additional capital while still securing the network as their $ATOM remains staked, improving the overall user experience.

This concept is similar to liquid staked $ETH, $stETH, which was popularized by Lido and is used as collateral by multiple DeFi dApps like AAVE! It’s not hard to imagine how liquid staked $ATOM could achieve a similar level of popularity in the Cosmos ecosystem as Ethereum, allowing users to earn $ATOM staking rewards when using their staked $ATOM on other DeFi protocols.

Interchain Security reuses the same validator set and staked collateral to secure additional state machines, but Liquid Staking reuses the same staked collateral for other purposes. Together, Interchain Security and Liquid Staking create a secure base layer for other Cosmos chains to help enable secure economic scaling and facilitate the growth of Cosmos application chains and activities.

Interchain Scheduler Improves Price Efficiency of Cosmos

The Cosmos ecosystem consists of multiple application chains, many of which have the same assets. For example, $ATOM can be traded on multiple chains, and when they are traded in the market, the price of $ATOM can vary from one chain to another, similar to how the price of $ATOM varies slightly across different centralized exchanges (CEXs). This creates a lot of arbitrage opportunities, where arbitrageurs will find DEXs that offer the same token but at different prices and exploit the price differences to equalize prices and make profits.

This presents a significant Maximal Extractable Value (MEV) opportunity. In addition to arbitrage, there are two other common forms of MEV:

Liquidations: MEV bot searchers compete to be the first to submit a liquidation transaction to earn liquidation fees in protocols that have liquidations such as derivatives protocols and money market protocols.

Sandwiching: A searcher bot monitors the mempool for large transactions and sandwiches them, effectively buying the asset at a lower price before the buyer buys it, and then immediately selling it back to the buyer at a higher price. This is a bad and unpopular type of MEV as it worsens the user experience for regular users as transactions are more expensive.

These types of transactions make up the MEV marketplace and they can be made more efficient, secure, and profitable for Cosmos chains and their users. The Cosmos interchain needs a safe block space market to avoid off-chain cartelization and more choices for chains seeking to optimize block space utilization. Besides, while MEV is a large and growing market on Ethereum, MEV in the Cosmos ecosystem remains small. According to Skip Protocol, which focuses on MEV products on Cosmos, more than $6.7 million in arbitrage MEV has been withdrawn from Osmosis alone since its launch. Compare this to MEV on Ethereum, where gross extracted arbitrage MEV by Flashbots reached over $490 million (data collected from August 2020, before the Merge). Also, existing MEV solutions on Ethereum like Flashbots’ are off-chain markets, but it lacks on-chain transparency.

Interchain Scheduler brings MEV markets on-chain, promoting a fairer and more transparent system.

Source: Atom 2.0 Whitepaper

The Interchain Scheduler system works as follows:

When the consumer chain enables the Scheduler module, it can enter into a cross-chain contract to provide a portion of its block space (for example, one block per minute). A chain can sell as much block space in the marketplace as long as it exceeds some minimal threshold.

Once the agreement is in place, the Scheduler issues non-fungible token (NFT) reservations representing each future block region on the consumer chain. Reservation tokens from all participating chains are then periodically auctioned in batches.

Optionally, tokenized reservations can be traded on a secondary market. This is possible until the reservation is redeemed to the appropriate validator on the partner chain, along with the desired transaction sequence.

Upon successful block execution, a split of proceeds from the Scheduler auction is sent back to the partner chain.

Source: Atom 2.0 Whitepaper

Use Interchain Allocator to Develop Cosmos Ecosystem

$ATOM was used by the Cosmos Hub to fund the development of the core components of Cosmos to reach the success it has today. Funding is crucial in the initial stages of any ecosystem. Therefore, when the next bull market starts, there may be many new chains appearing in the Cosmos ecosystem. In order to support and see the full impacts of the rapid growth, the current approach to on-chain monetary coordination may not be efficient enough to facilitate the needs of these new chains.

Therefore, the Interchain Allocator was created. It is a platform for allocating capital to delegated parties to incentivize long-term alignment by bootstrapping users and liquidity for new chains. Essentially, it’s trying to create a symbiotic relationship where the more “Coin A” the Cosmos Hub holds in its treasury, and the more $ATOM that “Chain A” holds in its treasury, the more aligned they are in incentives and goals.

Source: Atom 2.0 Whitepaper

The Allocator provides two tools that enable incentive-aligned communities to formulate economic coordination strategies on behalf of the Cosmos Hub:

Covenant: A system for establishing multilateral agreements with designated chains and IBC-enabled entities. Basically, it allows DAOs to enter into on-chain agreements with other chains, facilitating more cross-chain activities.

Rebalancer: A system for automatically managing asset portfolios with public liquidity. Basically, it enables more efficient execution of portfolio strategies by simplifying the buying or selling of assets on a fixed basis.

Source: Atom 2.0 Whitepaper

ATOM stakeholders can form DAOs and utilize the Interchain Allocator to achieve its goal, including:

• Increasing velocity of new Cosmos projects
• Accelerating project growth and sustainability
• Expanding economy for cross-chain block space
• Aligning incentives between new projects and Cosmos Hub

ATOM 2.0 Tokenomics

Pre-upgrade Tokenomics

As we know, the $ATOM token has no maximum supply with pretty high inflation. This inflation has caused investors to be concerned about the price of $ATOM. The inflation is needed to incentivize a target supply of the amount of $ATOM staked. When many $ATOM are being staked and the ratio is more than two-thirds of the total supply, inflation will be reduced to a minimum of 7%. However, if fewer $ATOM are being staked and the staking ratio is less than two-thirds of the total supply, inflation will increase to up to 20%.

Before the upgrade, the $ATOM inflation rate is approximately 18%, with a total supply of 311.8 million tokens. To address the inflationary issue, the upcoming liquid staking feature will increase the capital efficiency of staked $ATOM by allowing it to be utilized while still being staked. Therefore, the pre-upgrade tokenomics is being modified as users no longer have to choose between staking their $ATOM or using it for other DeFi protocols. As a result, the Cosmos team has proposed the new tokenomics.

New Tokenomics

The new tokenomics consists of two phases:

• Transitory phase: Starting with high inflation that decreases over 36 months
• Steady phase: Low constant inflation after the transitory phase

The transitory phase begins with a significant increase of issuance that lasts for 3 years before reaching a steady issuance rate that lasts indefinitely. The issuance rate starts at 10 million $ATOM per month before gradually decreasing to an issuance rate of 300,000 $ATOM per month.

Source: Atom 2.0 Whitepaper

The goal of this approach is to phase out security subsidies, starting from the current rate and reducing it by 10% per month for three years. By the end of this period, it is hoped that the revenue from Interchain Security will meet or exceed the original subsidy and that the inflation of 300,000 ATOM per month is negligible. This initial increase in token issuance is intended to bootstrap the Cosmos Hub treasury which will be used to support and expand the network over the next few years.

Currently, transaction fees on the Cosmos Hub are sent to the distribution module and distributed among the community pool, delegators, and validators. In 2023, the implementation of Interchain Security will add another revenue stream from each consumer chain to the distribution module, which will replace the current security subsidy.

Source: Atom 2.0 Whitepaper

Conclusion

Cosmos possesses some technical advantages, supporting customizable application chains while providing strong security, scalability, and censorship resistance. However, its biggest weakness lies in its ecosystem, as Cosmos’ Total Value Locked (TVL) is lower than that of Ethereum’s individual Layer 2 solutions. When compared with Polkadot, another blockchain project focused on solving the interoperability issue, Polkadot has 74 parallel chains covering over 550 projects, while the Cosmos ecosystem currently only has 287 dApps. In response to its shortcomings, Cosmos intends to accelerate ecosystem development through the ATOM 2.0 upgrade.

Whether it’s the updates to the Cosmos Hub, enhanced security of the Cosmos ecosystem through Interchain Security, or the utilization of liquid staking, Interchain Scheduler, and Interchain Allocator, these initiatives will bring comprehensive innovation to the Cosmos ecosystem and instill more confidence in developers to participate in the construction of the Cosmos ecosystem. All in all, the year 2023 would potentially usher in a more mature and growing Cosmos ecosystem. Let’s expect what a surprising future it will present to us.