Paradigm leads the ecological project Osmosis. Can cross-chain technology enable Cosmos to gain momentum?

Text: Tangyuan

Recently, the automated market maker (AMM) application Osmosis received a $21 million investment, led by the renowned crypto venture capital firm Paradigm. This application is built on Cosmos. After this funding news broke, the blockchain network Cosmos became a hot topic of discussion in various communities, prompting people to reassess this long-quiet veteran public chain.

During the explosive period of DeFi applications, Cosmos, as a representative of veteran public chains, did not see any blockbuster applications. Its on-chain TVL is not advantageous compared to emerging public chains like Solana, BSC, and Fantom, yet it remains favored by application developers and capital. Why is that? What advantages and disadvantages does it have compared to other public chains? This issue of DeFi Hive will review the technical concepts and ecological progress of Cosmos.

Underlying Support of Cosmos

Cosmos is a decentralized network composed of multiple independently operating parallel blockchains. It is one of the underlying systems of basic blockchain networks, where multiple blockchains using the Tendermint consensus algorithm operate in parallel. The chains are independent of each other, but under certain conditions, they can establish connections.

The Cosmos blockchain network system consists of three core components: Tendermint consensus, Cosmos SDK, and IBC (Inter-Blockchain Communication Protocol).

• Tendermint Consensus Algorithm - The Cosmos network uses a general blockchain development framework, where blockchains developed under this framework share a common algorithm, and the data format is the same and interoperable.
• As early as 2014, the research team recognized the shortcomings of Bitcoin and Ethereum's PoW (Proof of Work) consensus algorithm and aimed to create a consensus algorithm that does not rely on energy-intensive mining, while enhancing the processing speed and scalability of the chain under the premise of ensuring network security.
• The Tendermint framework has developed corresponding software that helps the network replicate applications and ensures the security and consistency of the data.
• Cosmos SDK - This is a development template tool provided by Cosmos for developers. It standardizes and modularizes some common development technologies in blockchain, allowing developers to adjust or replace parts of the template (SDK) to complete the development of a chain. The goal of Cosmos SDK is to enable developers to easily build and customize blockchains.
• Notably, Cosmos SDK supports developers in building blockchain networks with various PoS (Proof of Stake) consensus algorithms. Developers can customize Cosmos-SDK modules according to their needs and then integrate these modules into new blockchain applications, merging them with existing network modules. The well-known stablecoin ecosystem Terra (LUNA) and the cross-chain asset trading application Torchain (RUNE) are both developed based on the Cosmos-SDK tool.
• Inter-Blockchain Communication Protocol (IBC) - This is the core protocol interface of the Cosmos network, enabling information transfer between blockchain networks, allowing blockchains to read and verify data from other chains. The connections between multiple blockchains in the Cosmos ecosystem are synchronized through IBC.
• For example: If there is an IBC interface between Chain A and Chain B, smart contracts on Chain A can be aware of the data facts occurring on Chain B, while smart contracts on Chain B need to use the block header storing block information from Chain A and verify the finality of its data and time.
• Recently, a proposal for launching IBC appeared in the Terra chain community. If the Terra chain ultimately launches the IBC interface, then assets and related data information such as LUNA, stablecoin UST, and ANC on the Terra chain can be seamlessly migrated to the Cosmos chain.

Operational Mechanism of the Cosmos Network

Compared to standalone blockchain chains like Ethereum, Cosmos is building a chain network system composed of multiple chains, where new blockchains can be easily created, and the consensus algorithm of each chain is unified as Tendermint consensus. Each chain operates independently in parallel, transferring on-chain assets between different chains through IBC.

Cosmos proposes a vision - each DApp runs on its own blockchain, and Cosmos connects all these chains and on-chain applications through protocols, forming a "blockchain internet."

How is information sharing between chains achieved in the Cosmos ecosystem? What is the operational method? We know that in the Cosmos network, chain-to-chain interaction can be realized based on the IBC protocol, so does each chain need to connect to the IBC protocol interface?

In fact, in the Cosmos network, blockchains form a central radiation model, with the Hub at the center. The Hub manages many independent branch chains called "Zones," tracking and recording the status of each Zone, while each Zone reports its block status to the Hub and synchronizes its state.

The Hub communicates directly with Zones, while Zones communicate indirectly with each other through IBC. When a Zone establishes an IBC connection with the Hub, it can automatically access other Zones connected to that Hub.

Central Radiation Model Diagram

You can think of the Hub as a "port," while Zones are the "ships" operating on various routes, and IBC is the "ticket" for sharing information entering the Hub port. A ship can enter this port with a ticket and enjoy various information from other ships without needing to contact each ship individually.

In the Cosmos network, the central hub is directly named "Cosmos Hub," serving as the central connection point for its network of branch blockchains, while other independent blockchains (Zones) connect to the Cosmos Hub in a branching manner.

ATOM is the native token of the Cosmos Hub, and staking ATOM can serve as a network validator node. This token is also an important tool for on-chain voting governance. ATOM currently has a market value of $10.9 billion, ranking 22nd in the entire crypto asset market.

Cosmos undoubtedly provides a very friendly development environment for DApp development - developers can create a dedicated blockchain tailored to the underlying needs of their applications without wasting excessive time and effort.

However, for users, the cumbersome operational process leads to an unfriendly experience, as in this ecosystem, each DApp has an independent blockchain. When users use different applications, they not only have to switch chains but also need to go through the IBC process for depositing and withdrawing crypto assets and transferring crypto assets among various applications.

For developers, the environment is friendly, and development is convenient, but the connections between applications have become distant. Additionally, maintaining the operation of a chain incurs relatively high costs compared to maintaining a DApp, requiring continuous investment in human resources, technology, and finances, which puts cost pressure on developers.

It is important to note that the current DeFi requires "Lego combinations" to form the circulation between DApps and assets, as well as to expand crypto yields. Cosmos has not formed sufficient attraction to meet the current market demand, which may also be the reason why its overall TVL has not increased during this wave of DeFi storms. A positive trend is that Cosmos is addressing the barrier issues between chains within its ecosystem through applications.

Ecological Applications of Cosmos

Decentralized Exchange Gravity DEX

Introduction

Gravity DEX is the first native decentralized trading application on the Cosmos Hub mainnet, co-created by the Cosmos development company Tendermint and its acquired Cosmos information provider and node validator B-Harvest.

This DEX is built on the Inter-Blockchain Communication Protocol (IBC), supporting the issuance, exchange, trading, and creation of liquidity asset pools for Cosmos native tokens and their linked multi-chain asset tokens, all without the need for cross-bridging. For example, Terra is a Zone linked to the Cosmos Hub, issuing its own ecological token LUNA. Gravity DEX supports the exchange of assets such as ATOM and LUNA, UST, ANC on the Terra chain, and allows users to create liquidity pools like ATOM-UST on this DEX.

Operational Mechanism

Compared to traditional DEXs, Gravity DEX has made technical improvements, allowing users to trade at their own prices and ensuring that the prices they see are the prices that can be obtained on the exchange.

Taking Uniswap as an example, the trading orders of this DEX are executed in sequence, and Ethereum miners can choose which transactions to package first based on the miner fees paid by the traders. Naturally, normal miners will prioritize processing transactions with higher miner fees, but this leads to large transactions being front-run or squeezed by "scientists" with technical skills, ultimately causing ordinary users to suffer from high slippage losses and exaggerated price differences.

Gravity DEX uses batch execution of transactions to guard against the possibility of front-running or price manipulation. Batch execution of trading orders means that orders in the same block are processed simultaneously, fundamentally eliminating the opportunity for front-running.

According to data from the Gravity DEX official website, there were 710,000 transactions during the testing phase, with over 20,000 users participating, and the total value locked (TVL) in the liquidity pool reached $190 million.

One-stop DeFi Application Portal Emeris

Introduction

Emeris is a one-stop DeFi application portal launched by the Cosmos development company Tendermint. Currently, this application integrates DEX and native asset management functions within the Cosmos ecosystem. In the future, it will become a one-stop asset management platform for users to conveniently manage assets across multiple chains in the Cosmos ecosystem.

Emeris incorporates the functionality of Gravity DEX, allowing users to directly exchange and trade multi-chain assets within the Cosmos ecosystem without needing to navigate to the Gravity DEX page.

Emeris also provides an asset dashboard that displays real-time asset prices in the Cosmos ecosystem, and the assets and distribution in the user's wallet are visualized, enabling users to adjust their holding strategies based on asset yield at any time and manage their multi-chain assets.

Currently, the beta version of Emeris has been launched, and users can access this application through the multi-chain wallet Keplr. Users need a certain amount of ATOM in their wallets to experience this application. The Emeris application also supports users purchasing ATOM with credit cards. It is important to note that Emeris has not issued any tokens yet.

Bridge Linking Ethereum Cosmos Gravity Bridge

Introduction

Cosmos Gravity Bridge is a cross-chain bridge designed for asset transfer from Ethereum to Cosmos Hub, linking to IBC and allowing multi-chain networks built on Cosmos to bridge Ethereum's ERC-20 standard assets.

Cosmos Gravity Bridge Official Website

Gravity Bridge was created by the Althea team, primarily aimed at solving the asset interoperability and transfer issues between the Cosmos network and the Ethereum Layer 1 public chain.

Unlike common cross-chain bridges, Gravity Bridge operates as an independent blockchain, providing liquidity for the Cosmos Hub and the entire Cosmos ecosystem.

Gravity Bridge is also a bi-directional cross-chain bridge, capable of bringing ERC-20 assets (such as WETH, DAI, USDC, WBTC, etc.) from Ethereum into the Cosmos ecosystem, as well as bringing assets from the Cosmos ecosystem onto the Ethereum network. In the future, Gravity Bridge will also inject other Ethereum-compatible on-chain assets into the Cosmos ecosystem.

This means that the Cosmos ecosystem will be interconnected with other blockchains, allowing assets to circulate in a broader and more diverse range of applications. It is worth noting that the Gravity Bridge has not issued any tokens yet, and its mainnet launch date is November 8.

Automated Market Maker (AMM) Osmosis

Introduction

Osmosis is a decentralized trading application with advanced automated market maker (AMM) capabilities. It has built an independent blockchain using Cosmos SDK, allowing developers to design, build, and deploy their customized AMM strategies according to their needs.

Osmosis Official Website

In Osmosis, the underlying structure of the AMM can be modified, enabling developers to adjust and change parameters such as asset weight according to trading needs at any time. In simple terms, Osmosis provides developers with a template for decentralized trading applications using AMM, allowing them to fill in the content according to their needs without spending time and effort building a dedicated AMM application.

Osmosis has built-in IBC, allowing it to connect with native assets within the Cosmos ecosystem, and later, through the cross-chain bridge Gravity Bridge, it can also integrate Ethereum-based ERC-20 assets.

Currently, Osmosis supports the exchange and trading of multi-chain assets within the Cosmos ecosystem. Users can access this application through the multi-chain wallet Keplr, providing liquidity for ATOM-OSMO and assets within the Cosmos ecosystem to earn OSMO rewards. OSMO is the native token of Osmosis, with a total issuance of 1 billion tokens, currently priced at approximately $5.6.