Cosmos (ATOM): Superb opportunity or descent into hell?

What you need to know 🐳

Cosmos has a vast ecosystem of interconnected blockchains, specialised for specific applications, hence the name appchain.

ATOM is the native token of Cosmos Hub, the blockchain at the heart of this ecosystem.

Until now, the ATOM token has failed to capture the value created within its ecosystem, but this could change.

Overview 🧬

Cosmos, often referred to as the "internet of blockchains", is a collection of blockchains connected to each other through the Cosmos Hub where the ATOM token plays a central role. The Cosmos white paper was published in 2016, but the idea had already been in the mind of its founder Jae Kwon since 2014.

The Cosmos Hub is a Proof of Stake (PoS) blockchain secured by ATOM staking.

The key tool in the ecosystem is the Cosmos SDK, which facilitates the deployment of blockchains while being extremely flexible in terms of customisation. For example, it supports any type of programming language.

Each blockchain created with the Cosmos SDK natively integrates Inter-Blockchain Communication (IBC), a protocol enabling blockchains to communicate with each other securely. Note that IBC is not limited to blockchains created using the Cosmos SDK and can potentially be extended to chains such as Ethereum (the Polymer project is working on this).

The idea behind Cosmos is to allow developers to choose the best parameters for creating a blockchain tailored to the needs of their application. What's more, each blockchain is independent and is not affected by transaction congestion on another blockchain in the Cosmos network. Sovereignty is therefore an important point of this ecosystem.

Financing 💰

Cosmos has raised a total of $26.6 million.

1.6 million was raised at the start of the project (date not disclosed).

In April 2017, the project raised $16 million via an ICO.

In March 2019, a $9 million Series A was raised from venture capital funds Paradigm, Bain Capital and 1confirmation.

Team and community 👾

The Interchain Foundation, which supports the Cosmos ecosystem, is based in Zug, Switzerland.

Josh Cincinnati was recently appointed president of the Interchain Foundation. His previous roles include Executive Director of the Zcash Foundation. He is a staunch defender of privacy and supports projects such as...

Jae Kwon was behind Cosmos. However, he has stepped back from the development of Cosmos due to internal disagreements.

Ethan Buchman is the vice president of the Interchain Foundation. He is the CEO of Informal Systems, one of the main developers of the Cosmos ecosystem.

Sunny Aggarwal is the CEO of Osmosis, the decentralised exchange within the Cosmos ecosystem. Although he does not work directly for the Interchain Foundation, he plays a key role in the development of Cosmos.

Cosmos has 558,000 followers on X and 33,000 members on Discord.

Functioning ⛓️

In contrast to many interoperability solutions, IBC allows two blockchains to communicate with each other without having to rely on third parties. This therefore strengthens its security and reduces its user costs.

IBC relies on a set of "light clients" (nodes that check the state of a blockchain without downloading it in full) that ensure that messages transported by "relayers" (off-chain entities) are correct.

If the relayers attempt to transmit erroneous messages, these will be rejected by the light clients. This design choice underlines the trade-off of IBC, which prioritises security over business continuity.

The limitations of IBC include the number of light clients a blockchain must integrate to communicate with other connected blockchains, as well as the cost of verifying the messages exchanged, which can be very high, particularly on Ethereum. The Union and Polymer projects aim to resolve these issues.

Risks 🥵

The IBC, while very robust, is not without its flaws either. Recently, a major vulnerability was fixed before it could be exploited.

Cosmos ecosystem 🤝

The Cosmos ecosystem is very vast and filled with numerous use cases.

Osmosis is the benchmark centralised exchange within the Cosmos ecosystem and in some ways its liquidity hub.

dYdX, formerly on an Ethereum layer 2 (Starkware), has chosen to create its own layer 1. It is a decentralised derivatives trading platform, ranking in the top 3 in terms of derivatives volume in the entire crypto ecosystem.

Stargaze is NFT's exchange at the heart of the ecosystem and notably hosts the major collections of Bad Kids and Celestine Sloth Society.

Celestia (read our analysis) is a blockchain specialising in data availability, on which other blockchains can build to increase their throughput and reduce their transaction costs.

Stride offers liquid staking solutions for most tokens in the Cosmos ecosystem.

Neutron makes it possible to create applications in a very simple way while retaining the flexibility offered by an appchain.

Noble enables the native cross-chain transfer of stablecoins and other assets derived from traditional finance thanks to the IBC. At the moment, Noble enables the transfer of Circle's USDC, Ondo's USDY and Frax's FRAX, among others.

Several other promising projects are in development.

Penumbra is a blockchain built around the protection of privacy by enabling transactions to be anonymised.

Babylon is a bitcoin restaking platform.

Union is a general messaging infrastructure that combines IBC with zero-knowledge proofs to connect the entire Cosmos ecosystem to other ecosystems.

Berachain is a blockchain based on Proof of Liquidity (PoL). However, although Berachain uses the Cosmos SDK, it does not claim to be a Cosmos ecosystem blockchain.

The ATOM token and its challenges 🌕

There are currently a total of 390.9 million ATOMs in circulation.

Atom can be staked to achieve an annual return of around 14% currently. The token has high inflation, something it is often criticised for. Nearly 63% of ATOMs are staked.

The ATOM token does not really benefit from activity within its ecosystem, as Cosmos Hub does not wish to enter into a logic of extracting value from cross-chain transfers. This choice makes the IBC all the more interesting to use, but creates a problem for the Cosmos Hub's positioning.

Aware of this problem, the Cosmos community is exploring how to bring value to its ecosystem via the ATOM token.

Interchain Security (ICS) is one answer to this problem. It allows "consumer chains" to borrow the Cosmos Hub's security to strengthen their security while reducing the associated expenditure.

ICS was quite restrictive in its early days, but it is evolving to become increasingly flexible, allowing, for example, only part of the Cosmos Hub's security to be borrowed.

Neutron and Stride are the two main blockchains that have adopted ICS.

In the meantime, ATOM stakers benefit from airdrops issued by projects that launch within the ecosystem. This remuneration system is not really sustainable in the long term, but it has made ATOM staking largely profitable in recent years despite the fall in its price.

Regulation ⚖️

The ATOM token could be considered a financial security in the United States, as the SEC mentioned in its proceedings against Binance in 2023. In Europe, it is considered a digital asset.

Roadmap 🗺️

Several avenues of evolution are envisaged for the future of Cosmos Hub.

The possibility of creating layers 2 on the Cosmos Hub would enable the value created around the Cosmos Hub to be captured more effectively.

The development of Atomic IBC aims to improve the interoperability offered by IBC, enabling more complex and fluid cross-chain transactions.

Generally speaking, Cosmos Hub wants to simplify the deployment of new channels within its ecosystem as much as possible, drawing on the synergies of existing applications.

Market analysis by Chadi El Adnani, Head of Content & Research at SUN ZU Lab 📈

ATOM has fallen by around 40% since the start of 2024, compared with a 23% drop for DOT, the native token of Polkadot, the other flagship blockchain for interoperability. At the same time, BTC and ETH have risen by around 50%.

With a market capitalisation of $2.5 billion, ATOM is the 39th most capitalised cryptocurrency ($14 billion for DOT).

Daily volumes have fallen significantly compared with the start of the year, more specifically since the beginning of March. They average around $15 million, whereas they were well over the $100 million mark in March. This trend is not specific to ATOM; it concerns many other cryptocurrencies, as we have seen in previous analyses.

Where can you buy the ATOM token? 🛒

ATOM is available on Binance and Coinbase as well as on the Osmosis decentralised exchange accessible with Keplr or Leap wallets.

The Big Whale's opinion 🐳

The Cosmos ecosystem benefits from wallets that offer a good user experience and manage relatively well to abstract the multichain world with which users interact.

The Cosmos SDK is a public good for deploying flexible, high-performance blockchains, adopted by more and more projects. However, these projects do not necessarily designate themselves as belonging to the Cosmos ecosystem.

The ATOM token suffers from a poor image due to the evolution of its price and must succeed in reversing this trend by capturing the value created within its ecosystem.

ATOM stakers continue to receive interesting airdrops from new projects in the ecosystem, but this system is not really sustainable.

The Cosmos Hub is now looking for ways to bring value to its ecosystem through the ATOM token, which could capture some of this value. The development of the ICS is one response to this problem.

However, the ICS is not the only one offering shared security services, which puts the Cosmos Hub in competition with the restaking platforms EigenLayer (particularly with the services offered by the Ethos AVS) and Babylon. It will therefore have to provide additional services to stand out, such as better interoperability with Atomic IBC.

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