Is Cosmos Summer Coming? A Review of Recent Important Upgrades and Ecological Progress in Cosmos
The consumption chain is launched, firing the first shot of the ATOM 2.0 economic zone?Written by: flowie, ChainCather
At the end of September last year, at the Cosmoverse conference, Cosmos released an exciting 2.0 white paper, aiming to change the predicament of low utilization of the Cosmos Hub network and ATOM tokens.
In the following six months, Cosmos announced several developments regarding the above issues, such as upgrading Interchain Security to "Replication Security" through the Liquid Staking Module (LSM) proposal, but these did not seem to spark significant market discussions.
With the recent launch of the Neutron mainnet in the Cosmos ecosystem, Neutron is the first to utilize the upgraded security mechanism "Replication Security," and announced that it will airdrop to stakers of Cosmos Hub, discussions about Cosmos, ATOM value capture, and its ecosystem have gradually heated up.
In fact, since the beginning of 2023, the Cosmos ecosystem has performed quite well overall. First, the public chain Canto's daily trading volume once surpassed Solana, giving Cosmos a strong start. Then, the liquid staking protocol Stride, Layer 1 chains Injective and Kujira have seen their TVL continuously rise, increasing 2-6 times compared to January, with Stride and Injective tokens even rising nearly tenfold at one point. In April this year, according to token terminal data monitoring, the number of active developers on Cosmos SDK once exceeded that of Ethereum, currently slightly lower than Ethereum, ranking second.
Many users have shown high expectations for the various plans of Cosmos in the second half of the year, with voices in the market saying "Cosmos Summer is coming" and "the flywheel effect is starting." Recently, José Maria Macedo, a partner at Delphi Ventures, listed representative driving events in the Cosmos ecosystem to express optimism about Cosmos, such as the launch of dYdX v4, the launch of the permissionless chains Neutron and Sei, and support from Metamask.
This article provides an overview and analysis of the important developments following the release of the Cosmos 2.0 white paper, as well as the dynamics and hot ecosystem projects of Cosmos in the second half of the year.
The Launch of the Consumption Chain Fires the First Shot of the ATOM 2.0 Economic Zone
Launched on May 10, Neutron is a CosmWasm (Cosmos Virtual Machine) platform that combines Cosmos SDK and IBC, and as the first consumption chain to use Cosmos's "Replication Security," it fires the first shot of the ATOM 2.0 economic zone.
To understand this logic, we must start with the long-standing predicament of Cosmos and the Cosmos 2.0 narrative. For a long time, Cosmos has been mocked as a beggar chain, with its ecosystem's prosperity not directly related to its token ATOM. In contrast, Polkadot, which is often mentioned alongside Cosmos as a "cross-chain twin," despite its weak ecosystem performance, still has a market cap that is double that of Cosmos.
The reason for this situation lies in the low utilization of the Cosmos Hub network and the ATOM tokens staked on it.
Cosmos is a blockchain network composed of multiple "blockchains," which, unlike single blockchains like Ethereum, has countless chains optimized for specific applications. These blockchains can quickly build their own chains using the Cosmos consensus mechanism Tendermint and the open-source modular development tool Cosmos SDK, and achieve interoperability between multiple chains through the inter-chain communication standard IBC protocol.
However, with the formation of hundreds or thousands of regional chains, directly connecting each regional chain not only consumes a lot of resources but may also be inefficient. Therefore, Cosmos opens channels between chains through a hub chain, with Cosmos Hub being the first and currently the most important hub chain. ATOM is the native token of the Cosmos Hub network.
However, despite these application chains communicating based on the Cosmos Hub, they can have their own independent validator networks and do not necessarily have to use the Cosmos Hub's validator set, which means there is no need for ATOM as a payment token. This leads to the ATOM token in Cosmos having almost no practical utility, and its price has remained stagnant.
Additionally, ATOM 1.0 is highly inflationary, with a lower limit of 7% and an upper limit of 20% for inflation. ATOM holders can only earn returns in the Cosmos ecosystem by staking on the network, but the value of the token is diluted due to high inflation rates.
To address these issues, Cosmos 2.0 first aims to improve the utility and value capture of ATOM through inter-chain security ICS (Interchain Security).
As mentioned earlier, many chains on Cosmos do not utilize the Cosmos Hub's validator network, leading to low adoption of ATOM. So, can’t we solve this problem by allowing larger chains (called provider chains) like Cosmos Hub (ATOM) to rent their validator network to smaller chains (called consumer chains) like Neutron to share security?
Thus, on March 15, Cosmos launched the "Replication Security" feature, allowing other chains in the Cosmos ecosystem to forgo their own validators and switch to the Cosmos Hub's validator set, thereby gaining the full security of the Cosmos Hub.
As the first Cosmos ecosystem chain to use "Replication Security," Neutron becomes the safest CosmWasm platform in Cosmos by leveraging the security of the Hub. The Cosmos Hub will benefit from Neutron: 25% of transaction fees, 25% of MEV income, and 7% of NTRN supply as initial distribution, and more importantly, strengthening ATOM's status as a cross-chain reserve currency.
Cosmos Hub mentioned on its official Twitter how Neutron will help strengthen ATOM's position as an Interchain reserve currency.
On one hand, it is enhancing the application of ATOM in the Neutron DeFi ecosystem. Applications built on Neutron will enable ATOM to provide liquidity, lend, exercise governance rights, strip bonds, etc., using native and liquid-staked ATOM, thereby driving demand for ATOM and reducing circulating supply by allowing Cosmos to earn rewards by locking their tokens in DeFi protocols. Currently, nearly ten projects, including Astroport, have announced partnerships with Neutron. On the other hand, Neutron serves large treasuries, helping Cosmos Hub increase ATOM's use cases and liquidity by linking with other chains, protocols, and treasuries.
After Neutron fired the first shot of the ATOM 2.0 economic zone as a consumption chain, several other consumption chains, such as the decentralized exchange Duality, the liquid staking protocol Stride, the on-chain ETF SimplyStaking, and the local asset issuance platform Noble, are expected to launch successively in the Cosmos ecosystem, consolidating ATOM's value capture capability and its status as a cross-chain reserve currency.
II. Key Driving Events to Watch in Cosmos in the Second Half of the Year
In addition to multiple consumption chains bringing vitality to Cosmos, there are several dynamics worth noting in the second half of this year.
1. The Entry of Native Stablecoin USDC, Stimulating Liquidity
The demand for stablecoins within the Cosmos ecosystem has previously relied heavily on the algorithmic stablecoin UST on the Terra chain. Therefore, after UST collapsed in May last year, the Cosmos ecosystem suffered a significant blow. Since then, the native stablecoin of Cosmos has remained vacant, with internal stablecoins being mapped tokens from other networks via cross-chain bridges, such as USDC crossed via Axelar and USDT, USDC crossed via the Nomad bridge. This mapping of stablecoins across chains leads to fragmented liquidity due to inconsistent mapping formats and increases users' asset risks due to the security of cross-chain bridges.
Thus, a native stablecoin is almost a necessity for Cosmos. In March this year, the native asset issuance platform of the Cosmos ecosystem, Noble, officially announced a partnership with Circle, aiming to bring native USDC to Cosmos. Noble claims that this integration will generate hundreds of millions of dollars in liquidity within Cosmos in the coming months.
Regarding the release date of the native USDC in Noble, in early May, Noble co-founder Jelena revealed in a YouTube video interview that it is expected to be officially released by the end of May or in June. Additionally, Jelena boldly predicted that ATOM could reach a price of 20-30 U by the end of 2023.
2. Liquid Staking Module (LSM) Promotes Cosmos DeFi Prosperity
Liquid staking, like the previously mentioned inter-chain security, is one of the core strategies of Cosmos 2.0 to address the value capture of Cosmos Hub and ATOM.
Historically, Cosmos has faced a pain point where ATOM's utilization in DeFi is very low. The core reason is that ATOM has a high staking rate (about 20%), and stakers tend to choose staking incentives with guaranteed returns rather than earning returns through providing liquidity. Besides ATOM, many tokens in the Cosmos ecosystem, such as OSMO and JUNO, face similar issues, severely limiting asset liquidity and utility in Cosmos, causing it to lag significantly behind Ethereum.
In early May, Cosmos Hub passed a new proposal regarding liquid staking to address the above issues. This proposal will replace the existing staking, allocation, and slashing modules of Cosmos Hub with LSM. ATOM holders will no longer be restricted by the previous 21-day lock-up period but will be able to liquid stake their ATOM, enjoying staking rewards while using ATOM for other use cases.
However, it is worth noting that launching liquid staking will also increase users' asset leverage risks. To mitigate the risks of liquid staking, Cosmos's LSM introduces governance control parameters, allowing the total amount of liquid-staked ATOM to be initially capped at 25% of all staked ATOM, with the possibility of changes through governance. Meanwhile, as an additional security feature, validators wishing to receive delegation from liquid staking providers will need to bind a certain amount of ATOM themselves.
Currently, the three major liquid staking protocols in the Cosmos ecosystem, Stride, pSTAKE, and Quicksilver, have staked ATOM values of $26.35 million, $4.57 million, and $1.67 million, respectively, with liquid-staked ATOM accounting for only 1.3% of the total staked ATOM. In contrast, a single Lido on Ethereum accounts for 30% of the total staked ETH, indicating that there is still significant growth potential for ATOM's liquid staking.
3. Top Applications Entering, Injecting New Traffic into Cosmos
According to the crypto data platform RootData, nearly 20 projects are set to launch their mainnets on Cosmos soon. Among them, the actions of leading projects like dYdX entering Cosmos have attracted significant attention.
In June last year, dYdX announced plans to migrate to the Cosmos ecosystem, developing a custom application chain based on Cosmos SDK, and achieving migration in the upcoming dYdX V4 version. As a leading decentralized exchange with daily trading volumes exceeding $3 billion, its migration will undoubtedly bring a large number of new users and liquidity to Cosmos.
Regarding the migration progress, in March this year, dYdX announced in a blog post that it would launch a private testnet on March 28, aiming to release a fully public testnet by the end of July and go live on the mainnet in September, officially transitioning from Ethereum to Cosmos.
Some top wallet applications will also gradually support Cosmos. Since Cosmos users need to use wallets specific to the Cosmos ecosystem, some contributors are developing a feature called Metamask snaps to allow users to sign Cosmos transactions using their Metamask wallets, lowering the entry barrier for new users to Cosmos.
Additionally, the largest hardware wallet, Ledger, recently announced an expansion of its integration with Cosmos. The new compatibility will allow Ledger Live users to send, receive, and stake the native ATOM token of Cosmos, as well as three other Cosmos-based projects: Onomy, Quicksilver, and Persistence, with plans to add over 20 new Cosmos projects by the end of this year.
III. Hot Projects in the Cosmos Ecosystem
Since the beginning of this year, Layer 1 projects in the Cosmos ecosystem, such as Canto, Injective, and Kujira, as well as the liquid staking protocol Stride, have seen good growth in both TVL and token prices.
Moreover, financing for Cosmos ecosystem projects has also performed well. According to incomplete statistics, nearly ten projects in the Cosmos ecosystem have secured financing in 2023, with Layer 1 projects Sei Network and Berachain receiving tens of millions of dollars in large financing.
This year, discussions around Cosmos ecosystem projects have been particularly focused on Layer 1, LSD, modular blockchains, and privacy, especially with frequent appearances of star projects and large financing in the Layer 1 field.
Layer 1
Canto is an EVM-compatible Layer 1 public chain built on the Cosmos SDK, specifically designed for DeFi. Compared to other emerging EVM chains, Canto adheres to a high degree of decentralization, with no investors or foundations, relying more on the community while providing free public infrastructure (FPI) and contract revenue sharing (CSR) for developers.
According to DefiLlama data, Canto's TVL currently stands at $85 million. Around January this year, Canto's TVL surged to $125 million, and its 24-hour trading volume on the chain once surpassed Solana, making it the fourth largest Layer 1 by trading volume, with its token price also soaring nearly 50%.
Injective is an L1 blockchain optimized for DeFi with interoperability. Its main features include providing plug-and-play financial infrastructure, such as high-performance on-chain decentralized exchange infrastructure, decentralized bridges, oracles, and a composable smart contract layer with CosmWasm.
In January this year, Injective announced the establishment of a $150 million ecosystem fund to promote ecosystem development. According to the crypto data platform RootData, there are currently 20 projects in the Injective ecosystem, including Astroport, Celer Network, and Helix. In April, Injective announced a partnership with Tencent Cloud to support developers on Injective.
[Sei Network](https://www.rootdata.com/zh/Projects/detail/Sei Network?k=Mjc5MA==)
Sei Network is also a Layer 1 blockchain specific to DeFi on Cosmos, featuring a built-in Central Limit Order Book (CLOB) module. Decentralized applications built on Sei can operate on top of the CLOB, while other Cosmos-based blockchains can utilize Sei's CLOB as a shared liquidity center to create markets for any asset.
Recently, the Sei Foundation's official website featured an Airdrop button, suggesting that airdrop details may soon be announced. When the white paper was released at the end of October last year, it had already indicated an airdrop, stating that 1% of the total supply of SEI would be used to reward testnet participants. In February this year, Sei Labs co-founder Jayendra Jog also indicated that the Sei Network mainnet and airdrop are expected to launch in the coming months.
Sei has been very active in the first half of this year, with progress on the testnet and the establishment of the Sei Foundation. In April, Sei Network and its ecosystem fund secured $30 million and $50 million in financing, respectively. The Sei ecosystem fund has exceeded $120 million, with over 120 ecosystem cooperation projects, focusing on decentralized exchanges, infrastructure, wallets, and cross-chain bridges.
Berachain is also an EVM-compatible Layer 1 blockchain built on Cosmos SDK, utilizing a Proof of Liquidity consensus mechanism for protection. Berachain's token economy introduces a three-token system for the Bera network, consisting of a network gas token BERA, an algorithmic stablecoin HONEY, and a non-transferable governance token BGT.
Berachain co-founder Smokey the Bera wrote about the founding impetus of Berachain, noting that its characteristics lie in systematically establishing liquidity/incentive protocols and validator participation chain infrastructure, redefining the cost of bribery, and addressing staking centralization issues.
Notably, Berachain completed a $42 million Series A financing round in April, achieving a valuation of $420 million, with investments from Polychain and OKX Ventures. Berachain also stated that it would launch a public testnet soon.
Kujira was once an offshoot of Terra, migrating to Cosmos to build its own sovereign blockchain after Terra's death spiral, quickly creating the on-chain order book DEX FIN, the liquidation market ORCA, and the staking and earn application BLUE, as well as launching the stablecoin USK.
Kujira's TVL has risen from $3.5 million at the beginning of the year to over $11 million, more than tripling. Its ecosystem currently includes six projects.
Babylon is also a Layer 1 project dedicated to enhancing the security of other PoS blockchains by leveraging the security of Bitcoin PoW. Babylon acts as an intermediary between chains needing additional security and Bitcoin, obtaining block headers from the chains using its services and writing these block headers onto the Bitcoin blockchain.
The Babylon team consists of consensus protocol researchers from Stanford's Tse Lab and experienced Layer 1 blockchain developers from around the world.
In March this year, Babylon launched its testnet and plans to release a second testnet this summer before launching its mainnet by the end of the year.
LSD
Stride is a multi-chain liquid staking protocol in the Cosmos ecosystem and currently the largest liquid staking protocol in the Cosmos ecosystem. Stride supports liquid staking for Cosmos ecosystem tokens ATOM, OSMO, JUNO, STARS, EVMOS, LUNA, and INJ, and plans to support all Cosmos ecosystems compatible with IBCv3.
Currently, Stride's TVL has reached $34.68 million, primarily consisting of $26.35 million in ATOM.
Modular Blockchains
Celestia is the first modular blockchain, serving as a modular data availability layer built on Cosmos SDK, validating only data availability and transaction ordering, allowing anyone to quickly deploy decentralized blockchains without the cost of an additional consensus layer. It is currently launching the second phase of its testnet, Blockspace Race.
In October last year, Celestia completed a $55 million financing round, backed by well-known investors such as Bain Capital Crypto, Polychain, Placeholder, Delphi Digital, Spartan Group, FTX Ventures, and Jump Crypto.
