A Theory of the Cosmos
Thematic Analysis #11
Welcome back to Genesis Block!
It’s been a while - life got in the way and I got busy with school, work, and most of the time, school and work, but now I’m back in full force to publish my sometimes garbled, mostly coherent thoughts on the blockchain space. LFG!
This is the eleventh article in Genesis Block’s Thematic Analysis series. In this series, we talk about broader trends and emerging concepts in the crypto space, looking towards the future and analysing how Web3 is evolving in real-time.
This article touches upon the Cosmos ecosystem. While we’ve usually focused on the Ethereum ecosystem at Genesis Block, I wanted to expand my horizons and explore the far reaches of the Cosmos.
Let’s dive in!
A Theory of the Cosmos
In the midst of increasing focus on the appchain model with the narratives around Ethereum L2s, Optimism’s OP stack and Superchains, Polygon 2.0’s zk-based Chain Development Kit (CDK), and Rune Christensen’s vision of a Solana-enabled Maker appchain, it seems as if Cosmos, the pioneer of appchains, may not be the right play anymore. The drama around ATOM 2.0 and the lack of utility of the Cosmos Hub may reinforce this opinion. However, several concurrent narratives indicate that Cosmos may be a good non-consensus bet.
Firstly, Cosmos recently released its Liquid Staking Module. The DeFi ecosystem on Cosmos has grown a lot in the last few months, and the LSM capitalises on this by making ATOM liquid staking more efficient by allowing users to directly liquid stake their ATOM which is already staked and avoid the 21-day unbonding period. The high volume of tokens being staked on Cosmos indicates that adoption could be rapid. The IBC also enables LSTs to interact across networks – use cases include optimised yield farming, lending markets, and margin trading across any IBC blockchain. This enables liquidity to flow, which is crucial to a healthy ecosystem. The LSM release is a positive signal for Cosmos.
Secondly, there is active development on the future of the Cosmos network and Cosmos Hub. Shared security has been enabled, with validator sets being shared with other chains. This makes it easier to spin up chains on Cosmos without needing to bootstrap validator networks first. Roadmaps have also been created for the Interchain and the Hub. The roadmap aims to drive user adoption by 1) making it easy for developers to build on Cosmos by giving them education, support, and incentives, and 2) collaborating with established blockchain projects and ecosystems. This shows how Cosmos is focusing on integrating tightly across the ecosystem and building on Cosmos is not like building in a silo – the opportunity cost of building on Cosmos is being reduced.
Thirdly, the developer experience is very positive on Cosmos. There is still quite a lot of dev activity on Cosmos - it is the fourth-most active chain, has lost lesser developers over the last year than most chains, and has actually gained the most full-time devs over the last 2 years than any of the top 12 chains in the below list.
Fourth, Cosmos’ trustless bridges, IBC, and modularity via the SDK sets it apart. As projects start to use components from various blockchains in their tech stacks, Cosmos can be used for backend logic and interoperability with IBC chains while the product itself is on Ethereum. Teams like Polymer Labs and Electron Labs are working on connections with Ethereum, while projects like Sommelier demonstrate how this type of product can be engineered. Sommelier’s Cosmos backend handles governance, cross-chain communication, and security, keeping gas fees low by reducing the volume of transactions conducted on Ethereum mainnet, while its front-end takes advantage of Ethereum’s ecosystem. This enables users to have the best of both worlds – better UX, low fees, and higher liquidity and integrations across the entire blockchain ecosystem.
Fifth, there is a clear trend towards tighter integration with other blockchains, especially Ethereum, which makes it more attractive to build on Cosmos. The integration with MetaMask via Snaps helps bridge the gap, enabling easy swapping via Squid Router and onboarding via fiat through Kado. Being accessible via MetaMask exposes its 30M MAUs to Cosmos. Moreover, appchains like Noble are introducing native USDC and fiat-backed Japanese stablecoins to the Cosmos network – this allows Cosmos to directly compete (and interoperate) with other blockchains like Avalanche and Polygon which are aiming to become hubs for real-world asset issuance. Another example is how Movement Labs, which aims to create an ecosystem of modular blockchains using the Move programming language, is steaming forward with Cosmos / IBC integrations. M2, the first L2 on Ethereum using the Move VM, will use Celestia as its data availability layer, while Movement Labs intends to develop further integrations and collaborations with Cosmos wallets, infrastructure, appchains, and dApps, and ultimately wants to make the entire Movement Network IBC-compatible.
Sixth, there are a number of appchains being built on Cosmos that can advance the ecosystem. The first and potentially most impactful of these is Dymension, which is a settlement layer for Cosmos rollups called ‘RollApps’. Unlike L2s, which are deployed as smart contracts, RollApps will be built directly into the L1, which provides stronger security guarantees; for example, if a RollApp is hacked, validators within the Dymension chain can pull the chain back to the safe version prior to the hack. This contrasts with L2s, where Ethereum cannot revert the chain state since only that L2 is affected, and not the entire network. Dymension provides several other benefits to projects looking to build on Cosmos. Firstly, it ensures that each new chain on Cosmos does not need to bootstrap a new validator network – instead, the chain can simply deploy as a RollApp on top of Dymension. Secondly, appchains on Cosmos can deploy RollApps on Dymension to vertically scale, increasing throughput and performance across the Interchain. Thirdly, Dymension has perfect synergies with Celestia – Dymension can act as the consensus layer, RollApps can act as the execution layer, while Celestia can provide the data availability layer. As Celestia becomes ever-more prominent across the blockchain ecosystem, this has the potential to bring more users to Dymension and Cosmos. All in all, Dymension can significantly simplify the process of building and scaling appchains on Cosmos while bringing in users and builders from across the blockchain ecosystem.
Another appchain that has the potential to improve the ease of building applications on Cosmos is Neutron. While Cosmos’ entire thesis is built around appchains, the technical effort and time required to build an appchain and bootstrap a network of validators to ensure security is non-trivial. Cosmos’ proposal for Replicated Security aims to solve this problem, where a larger appchain like the Cosmos Hub (the ‘provider’) can provide security for a smaller chain (the ‘consumer’). Neutron is the first consumer chain that leverages Cosmos Hub as its provider and allows builders to launch dApps on top of it by using smart contracts. The dApps that launch on Neutron can benefit from the shared security provided by the Cosmos Hub, allowing projects to launch their applications on Cosmos without needing to spend significant resources on blockchain development or security. Neutron also has the potential to create a strong DeFi ecosystem on Cosmos, having already been selected by Lido to launch wstETH on Cosmos, and can create synergies across the ecosystem by strengthening ATOM’s position as Cosmos’ base asset.
Lastly, a recent (and much discussed) development in the Ethereum ecosystem could further reduce the opportunity cost of building on Cosmos and increase synergies between the two blockchains: restaking. A concept pioneered by EigenLayer, restaking allows ETH to be used as cryptoeconomic security for protocols other than Ethereum, in exchange for protocol fees and rewards. Ethos is a newly-launched restaking protocol that aims to reduce the difficulty of bootstrapping a validator set on new chains on Cosmos. As an Actively Validated Service (AVS) operated by ETH stakers on EigenLayer, Ethos aggregates the restaked ETH into a pool and acts as a provider for Cosmos chains. This creates a communication layer between Cosmos and Ethereum and allows Cosmos chains to use one of the largest security pools in crypto to quickly spin up new appchains. Moreover, shared security implies that a new appchain does not necessarily need to release a token at the launch of the chain to bootstrap security. This gives new projects the flexibility to launch tokens at a time of their choosing, rather than needing a token from the very beginning. This is a sea change in how projects build on Cosmos and can bring a new wave of developers and users onto the Interchain.
There are risks to building on Cosmos, primarily with the competition from Ethereum L2s, the OP Stack, and Polygon 2.0. Ethereum’s rollup-centric roadmap is looking more like Cosmos’ model with its L2s releasing various ‘stacks’ to easily spin up blockchains. Ethereum’s network effect and large user base make it very attractive to build on. L1s have also begun to turn into L2s, like Celo, and Base brings Coinbase’s 110M users directly to a L2. Between February 2023-24, the TVL on L2s has increased by ~263%, while the TVL on Cosmos chains has increased only by ~48%, showing the direction of liquidity and sentiment. Moreover, Cosmos’ development has been shaky with the rejection of ATOM 2.0 and conflict around its vision.
Another risk could be in monolithic (or ‘integrated’) chains drawing away users from modular chains like Cosmos. While Ethereum and Cosmos are examples of ‘networks of networks’, where execution, consensus, and data availability can be separated, integrated chains like Solana combine these elements to lower costs and increase throughput. There may be a risk that builders and users migrate in droves to monolithic chains, especially given Solana’s resurgence, the remarkable sticking power it has shown through this bear market, and the strength of its community. However, it is not necessary for there only to be ‘one winner’ – both types of blockchains are suited to different types of use cases. On the one hand, developers who prioritize lower complexity, greater composability, and (ostensibly) higher security can choose to build on integrated chains like Solana. On the other hand, a modular architecture like that of Cosmos enables higher scalability, increased flexibility for developers, and easier upgradability. There is room for both types of architectures to survive and thrive, with the success of integrated chains not necessarily signalling a death knell for modular chains, and vice versa.
A multichain future is likely due to the range of use cases for which the EVM or integrated chains may not be suitable, projects adopting modular tech stacks to optimise specific components of their tech stacks, and smoother dev experiences on other chains. In this world, safe bridging and transfer of assets is crucial. Cosmos’ cross-chain interoperability and native communication are advantageous, while the deeper integration with the rest of the ecosystem leads to lower opportunity cost for developers to build on Cosmos, which is only reducing with new developments in the space. Moreover, there are multiple efforts ongoing to increase the flexibility of the developer experience on Cosmos and make it a ‘no-regrets’ ecosystem to build on, which will drive more builders and users onto Cosmos. There also seems to be better collaboration over Cosmos’ roadmap, with the numerous teams coordinating in sync to build and grow the network. In conclusion, the concurrent positive narratives around Cosmos, the deepening integration with the rest of the ecosystem, the improvements in security conditions on the Interchain, and a developer experience with increasing flexibility and optionality, make building on Cosmos still a good play.
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