What is going on with Cosmos?
VeradiVerdict - Issue #257
Traditional blockchain systems have faced significant challenges that hinder their widespread adoption and scalability. One such challenge is the lack of interoperability between different blockchain networks, leading to complex and inefficient communication and data transfer. Additionally, scalability has been a major obstacle as the focus of design choices has been on security rather than scalability, resulting in slower communication and increased costs as the network becomes more congested.
Cosmos emerges as a solution to these challenges by introducing an interconnected blockchain paradigm. It leverages the Inter-Blockchain Communication (IBC) protocol, enabling seamless communication and secure asset transfers between distinct chains. With a standardized framework for interchain interoperability, Cosmos facilitates efficient cross-chain interactions, expanding the possibilities and utility of blockchain technology. Furthermore, Cosmos addresses scalability through its modular architecture and consensus algorithm. Developers can create application-specific blockchains called "zones" using the Cosmos Software Development Kit (SDK). These zones can employ different consensus mechanisms, allowing for horizontal scaling and optimized performance. By enabling parallel processing across multiple zones, Cosmos significantly increases the network's transaction capacity and scalability. The network also utilizes the Comet consensus algorithm, providing rapid block confirmation times, enhanced security, and resilience against malicious attacks. This consensus algorithm serves as a reliable foundation for the interconnected blockchain network, combining efficiency, finality, and robustness.
The Core: Cosmos SDK, IBC, and Comet
The Cosmos SDK provides developers with the ability to create tailor-made blockchains or zones that cater to specific needs and goals. Leveraging Cosmos' interoperability features, these customized zones push the boundaries of interchain interactions. The powerful Comet consensus algorithm enhances this remarkable functionality, ensuring the Cosmos network operates with security and efficiency. Additionally, IBC enables seamless communication across different chains.
Why Cosmos Has Promise:
Interoperability: Cosmos’ strength lies in its commitment to interoperability, enabling easy connection among independent blockchains within the Cosmos network. This interoperability fosters groundbreaking cross-chain applications and collaborations, driving innovation and enhancing the utility of decentralized systems.
Scalability and Performance: Cosmos tackles the scalability challenge by empowering the creation of independent blockchains, or "zones," that can customize their consensus mechanisms and scalability features according to the user's needs. This approach allows for horizontal scaling, accommodating increased transaction volumes by incorporating additional zones. As a result, the Cosmos ecosystem boasts performance and scalability.
Sovereignty: The Cosmos ecosystem provides an ideal platform for the creation of chains that prioritize individual sovereignty. By leveraging the foundational elements offered by Cosmos, such as Cosmos SDK, IBC (Inter-Blockchain Communication), and Comet BFT consensus algorithm, developers have the flexibility to tailor any aspect of the tech stack to enhance performance, throughput, security, and other crucial aspects of a chain. For instance, there are EVM chains like Evmos that have been built utilizing the existing tech stack. Furthermore, it is also possible to construct chains that run on different virtual machines (VMs), such as Move or SVM, by developing a dedicated application layer to support these specific VMs.
Developer-Friendly Environment: Cosmos provides a welcoming environment for developers looking to enter the blockchain space. The Cosmos SDK (Software Development Kit) is a feature-rich platform for building decentralized applications (DApps). Leveraging the modular framework of the SDK, developers can create their own unique blockchains off the SDK, streamlining the development process. This streamlined approach allows developers to create custom chains branching out from the Cosmos SDK, leading to increased adoption and growth in the blockchain ecosystem.
Cosmos App Chain
App chains are integral components of the innovative Cosmos ecosystem, representing specialized and application-specific blockchains that cater to distinct use cases. Unlike traditional monolithic blockchains, Cosmos adopts a modular approach through the Cosmos SDK, enabling developers to craft customized consensus, storage, and networking mechanisms tailored to the specific requirements of their decentralized applications (dApps). This empowers app chains with a level of sovereignty, granting developers greater control over their applications and enhancing their ability to shape the user experience. Additionally, the Cosmos app chain model offers enticing opportunities for revenue capture, allowing dApp creators to explore unique monetization strategies and promote sustainable growth within their respective chains.
Moreover, the flexibility of Cosmos app chains extends to the handling of Miner Extractable Value (MEV). By providing developers with the tools to design MEV strategies that suit their individual needs, Cosmos encourages fair and transparent MEV extraction, fostering a more equitable and efficient ecosystem. Furthermore, the interconnectivity facilitated by the Inter-Blockchain Communication (IBC) protocol is a key strength of the Cosmos app chain model. This protocol enables seamless communication and asset transfers between different app chains, enabling the development of advanced cross-chain DeFi applications and expanding the possibilities for developers and users alike. In conclusion, app chains within the Cosmos ecosystem offer a promising avenue for decentralized application development, delivering sovereignty, revenue opportunities, flexibility on MEV, and seamless interoperability to foster a vibrant and thriving blockchain ecosystem.
Interchain security is a groundbreaking approach in the blockchain space that aims to enhance the security of newer Cosmos chains and facilitate their smooth launch. It involves the concept of "renting" economic security from an already established and secure chain within the Cosmos ecosystem, such as Cosmos Hub.
Economic Security Rental: To launch a new Cosmos chain, the developers can leverage the security of Cosmos Hub or other secure chains by locking up a certain amount of their new chain's native tokens as collateral. This collateralization process helps establish a financial link between the new chain and the secure chain.
Cross-Chain Security: With the economic security obtained through interchain security, the new Cosmos chain becomes more resilient against attacks. It can rely on the large and diverse set of validators from the secure chain to protect its transactions and assets, mitigating the risk of 51% attacks and other security threats.
Decoupled Blockchains: Each Cosmos chain operates independently with its own governance, tokenomics, and use case. However, through interchain communication protocols like IBC (Inter-Blockchain Communication), they can securely exchange data and value, fostering interoperability and synergy within the Cosmos ecosystem.
By adopting interchain security and collaborating within the Cosmos ecosystem, newer chains can significantly reduce the barriers to entry and gain immediate access to a robust and battle-tested security infrastructure. This fosters innovation and accelerates the pace of blockchain development, bringing about a new era of secure and interconnected decentralized applications.
The Cosmos SDK embraces modularity, creating an ecosystem abundant in interchangeable modules. This approach liberates developers from the task of constructing intricate functionalities from scratch. Instead, developers can seamlessly incorporate pre-built modules into their applications, streamlining the creation of application-specific blockchains. The Cosmos SDK offers unparalleled flexibility in module customization, allowing developers to tailor these modules precisely to their application requirements, opening up a realm of possibilities for fine-tuning blockchain applications. As the Cosmos network flourishes, the ecosystem of SDK modules will thrive, presenting developers with an ever-expanding spectrum of options and capabilities. Within this dynamic environment, intricate and highly specialized blockchain applications can be nurtured, fostering innovation and propelling the evolution of the Cosmos ecosystem.
The Cosmos SDK also prioritizes security through its capabilities-based security concept. These capabilities act as vigilant guardians, defining clear boundaries between modules and mitigating risks arising from malicious or unforeseen interactions. By safeguarding creations, the Cosmos SDK maintains an unwavering commitment to uncompromising security measures.
Inter-Blockchain Communication protocol (IBC)
Inter-Blockchain Communication (IBC) is a protocol within the Cosmos ecosystem that promotes secure and decentralized communication across blockchains. It serves as a bridge, facilitating the easy transfer of data across the Cosmos Network. Through the use of cryptographic proofs and consensus algorithms, IBC promotes the integrity and trustworthiness of interchain transactions, maintaining data confidentiality and preventing tampering or unauthorized access. This protocol not only enhances the interoperability of blockchains but also promotes collaboration and innovation by allowing the utilization of project-based systems on the network. With IBC, Cosmos has the potential to pioneer a new era of blockchain connectivity, unlocking new possibilities for decentralized applications, cross-chain asset transfers, and the creation of interconnected blockchain networks.
Tracking: Chain B continuously receives the headers of chain A, and vice versa. This allows each chain to track the validator set of the other. In essence, each chain runs a light-client of the other.
Bonding: When the IBC transfer is initiated, the tokens are locked up (bonded).
Proof Relay: Then, a proof that the 10 tokens are bonded is relayed from chain A to chain B.
Validation: The proof is verified on chain B against chain A's header, and if it is valid, then 10 vouchers are created on chain B.
The dynamic Cosmos ecosystem has evolved into a flourishing environment, attracting a diverse range of projects and forging impactful partnerships. By harnessing the robust foundation of Cosmos, these projects gain entry into a vast realm of interoperability, potentially unleashing powerful network effects. This seamless collaboration and integration greatly enhance the overall ecosystem, fueling innovation and propelling the adoption of Cosmos as a preeminent blockchain solution.
Here are the projects built upon Cosmos:
Osmosis is an innovative cryptocurrency project built on the Cosmos ecosystem, providing a decentralized exchange (DEX) platform that advances liquidity provision. Powered by the Inter-Blockchain Communication (IBC) protocol, Osmosis enables seamless token swaps across different blockchains within the Cosmos network. This unique feature empowers users to access a diverse range of assets and liquidity pools, fostering efficient and secure trading experiences. By leveraging the interoperability and scalability features of Cosmos, Osmosis creates an inclusive and interconnected ecosystem that enhances liquidity and enables cross-chain collaborations. With its user-centric approach and focus on optimizing liquidity management, Osmosis opens up new opportunities for decentralized finance (DeFi) participants, enabling them to explore a broader universe of assets and maximize their trading potential.
Akash Network offers a decentralized cloud computing marketplace. By leveraging the power of Cosmos, Akash Network provides a secure platform where users can send data to one another and develop new ideas. The network operates through a consensus mechanism called Proof-of-Stake (PoS), promoting the security of transactions. The native cryptocurrency of Akash Network is AKT, which serves as a utility token within the ecosystem. Through its integration with Cosmos, Akash Network benefits from the interoperability and scalability features of the larger network, enabling seamless communication with other blockchain platforms. As a result, Akash Network empowers developers and organizations to access affordable and decentralized cloud computing resources.
Sei Network is a high-performance blockchain platform operating as Layer 1 on the Cosmos SDK blockchain, providing users access to financial services and facilitating the deployment of a thriving DeFi ecosystem. The network is the brainchild of founders who recognized the need for a decentralized financial system that prioritizes transaction speed and security while offering users access to innovative financial tools. Powered by its proprietary Proof-of-Stake (PoS) consensus algorithm, Sei provides secure transaction confirmation through token staking and ownership verification. The platform's three-tier architecture, comprising a client layer, service layer, and blockchain platform layer, enables high throughput, processing up to an impressive 20,000 transactions per second. With built-in support for smart contracts in Rust and Solidity programming languages, Sei empowers developers to build custom blockchain projects and DeFi applications with ease. The network's native token, SEI, serves as an internal asset for commissions, staking, and project management, fostering a sustainable and thriving ecosystem. Furthermore, Sei's integration with Cosmos grants it interoperability and scalability, allowing seamless communication with other blockchain platforms and paving the way for broader adoption and greater accessibility to decentralized financial services. Ultimately, Sei Network stands as an affordable and powerful blockchain platform, driving financial inclusion and supporting the development of cutting-edge applications across various blockchain domains.
Neutron stands as a decentralized finance platform within the Cosmos ecosystem, introducing a shift in cross-chain communication. Positioned as the inaugural consumer chain on Cosmos, Neutron operates with an open-door policy, embracing full Inter-Blockchain Communication (IBC) capabilities to foster seamless interactions across diverse blockchain networks. This revolutionary approach revolutionizes the landscape by enabling smart contracts in multiple programming languages through CosmWasm, providing flexibility and scalability. Its exceptional interoperability empowers developers to access feature sets from other blockchains, opening a new realm of possibilities and unleashing the true potential of blockchain technology. By adopting Replicated Security from Cosmos Hub, Neutron promotes a secure and reliable infrastructure, laying the foundation for mutually beneficial relationships within the Economic Zone. Neutron's features and strategic positioning herald a transformative era in the Cosmos ecosystem, with far-reaching implications for the future of decentralized finance and interchain collaborations.
Celestia is a project within the Cosmos ecosystem that offers consensus and security on-demand. It aims to advance blockchain deployment by eliminating the need to bootstrap a new consensus network, potentially significantly reducing overhead. Unlike traditional blockchains, Celestia's throughput scales with the number of users due to a unique property of data availability sampling. What sets Celestia apart is that its blockchains do not rely on honest majority assumptions for state validity, ensuring the highest security standards. Additionally, Celestia's flexible design allows developers to define their own execution environments, empowering them with freedom and creativity. With support for various types of rollups, including a focus on the Ethereum Virtual Machine (EVM) and Cosmos SDK, Celestia presents a solution for building interconnected blockchain networks with security and scalability.
Stride is a liquid staking platform built on the Cosmos Blockchain that revolutionizes token staking and DeFi. By allowing users to stake any IBC-compatible tokens and receive stTokens in return, Stride unlocks liquidity and enables users to compound their yield through DeFi activities. This innovative approach empowers users to retain flexibility while earning rewards, fostering a more dynamic and productive ecosystem. The platform's emphasis on security, evidenced by multiple audits, ensures the safety of users' assets. Stride's significance lies in its potential to reshape the staking landscape, bringing enhanced liquidity and yield opportunities to the Cosmos ecosystem, and fueling the growth of the broader DeFi space through seamless integration and user-centric governance.
Leap Wallet introduces an innovative mobile browser extension and app dedicated to optimizing Web3 interactions, driven by a commitment to simplicity and security. Emphasizing user autonomy, Leap ensures that all digital assets remain under users' control, adhering to the decentralized ethos. Swift and cost-efficient asset swaps facilitate DeFi investments and effortless NFT exploration. Leap's extensive network of collaborations with dApps, aggregators, DEXs, and marketplaces creates a harmonious and immersive Web3 experience. Rigorously audited, the platform promotes a safe environment for users, fostering trust and confidence. Offering multi-platform support across various devices, including mobile, tablet, laptops, and desktops, Leap Wallet is a versatile tool, enabling individuals to navigate the boundless potential of Web3 while safeguarding their financial future with ease.
Cosmos is a flexible framework, empowering secure asset transfers between different chains and unlocking the full potential of blockchain technology. Notably, the thriving success of key projects like Terra, Polygon, and Cronos on earlier versions of Cosmos highlights its versatility in supporting diverse ecosystems. The excitement mounts with Noble's partnership with Circle, seamlessly bringing USD Coin (USDC) natively to the Cosmos ecosystem, opening new horizons in decentralized finance. Tether's launch of its USDT stablecoin on Kava, a Layer 1 blockchain built on Cosmos, further bolsters Cosmos' multi-chain presence, and suggests a vibrant and interconnected future for the entire crypto community.
- Paul Veradittakit
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Hi, I’m Paul Veradittakit, a Managing Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.