Introduction
Blockchain technology is booming. Since the introduction of the concept and potential of a financial system built on a blockchain presented by Bitcoin, and the subsequent revolution of decentralized applications that Ethereum meant, hundreds of blockchain projects have emerged eager to achieve the success of these two greats, competing between them, or providing innovative concepts and ways of using blockchain technology.
This is where Cosmos Network comes in, a blockchain project that seeks to transform itself into nothing more and nothing less than the internet of blockchain. For this, Cosmos is presented as a blockchain ecosystem: an environment in which anyone can build a specific blockchain for different applications, with the ability to connect and send data between them. Cosmos presents this characteristic as its greatest competitive advantage in the blockchain market, and names it IBC, or Interchain Blockchain Communication.
The vision of Cosmos goes beyond growing as an individual blockchain, as it intends to become the communication standard between blockchains, in an ecosystem in which, knowing that a single blockchain cannot contain a financial system on a global scale, the interconnection between the Different crypto systems will become a key element to be able to aspire to this.
In this report, we will proceed to describe the most relevant and fundamental aspects of the Cosmos Network: from its objectives, its operation, its position in the market and its ecosystem, as well as what can be expected from the project in its future.
Note: to understand the fundamental concepts of blockchain technology that will be discussed in this report, it is recommended to read our article on Fundamentals of Blockchain Technology.
The birth of Cosmos
Cosmos Network is a blockchain architecture project developed since 2016 by the Interchain Foundation, a company founded by Jake Kwon and Ethan Buchman, whose purpose is the research and creation of decentralized free software technologies that provide greater sovereignty, security and sustainability.
Interchain Foundation is also the creator of Tendermint BFT, the world's most widely used PoS (Proof of Stake) consensus algorithm, on which the Cosmos Network is also based. Starting with a stellar ICO (Initial Coin Offering) on April 6, 2017, in which the Interchain Foundation raised $ 17 million for the development of the project, it appeared in the world by launching the Cosmos Hub, the main Cosmos blockchain. , on March 13, 2019. Since then, Cosmos and its cryptocurrency, ATOM, have risen to enormous prominence in the marketplace and, through their constant evolution and community support, both aspire even higher.
What is the purpose of Cosmos?
As described by its developers, the objective of Cosmos is none other than to become an internet of blockchains, in which they can communicate with each other in a decentralized and efficient way. More formally, Cosmos is a decentralized network of parallel, sovereign and independent blockchains that, built on the Tendermint BFT protocol, and easily developed through the Cosmos SDK (Software Development Kit) development environment, use the IBC (Inter-Blockchain Communication) protocol. ) to communicate with each other.
The idea of Cosmos arises as a solution to three fundamental problems that currently present the two great blockchain projects of today: Bitcoin and Ethereum, as well as numerous blockchain projects that interact with Smart Contracts:
Scalability issue
Individual blockchains like Ethereum, which try to encompass all kinds of Smart Contracts and applications by themselves, face a serious long-term problem: their resources, even if they are huge, have a limit, and they will not be able to host a future in which everyone uses blockchain technology.
For this reason, Cosmos's approach is mainly towards interoperability between blockchains, not only those belonging to its ecosystem, but also to any external blockchain, since it will be necessary to be able to satisfy all the demanding demands of a world connected to lots of different decentralized networks.
Usability problem
The fact of using a single blockchain to host the largest number of different applications comes at a costly price for developers of Smart Contracts and dApps: this generality of the blockchain usually comes hand in hand with a huge lack of flexibility and an increase in work to When designing applications, since the code must adapt to the requirements of the corresponding state machine, limiting not only the functionality of the applications, but even the programming language in which they are defined. For example, currently, in Ethereum, smart contracts are written with Solidity, a new and unfamiliar programming language for developers, which allows you to create smart contracts with certain limitations.
With different blockchains specifically designed to create different and varied applications, and the possibility that they can communicate with each other, this problem would be solved. Cosmos also offers its own blockchain application development environment, Cosmos SDK, to greatly facilitate the process of building them.
Sovereignty problem
All applications built on a single blockchain share the same sovereignty, that is, that of the blockchain. Any change that is made must go through its global governance. This can place great limitations on freedom and application development in these types of projects.
That is why Cosmos, within its multi-chain system, offers the possibility that blockchain applications built in its ecosystem, or simply through the Cosmos SDK, fully retain their sovereignty. Although they are part of the Cosmos network, each of the blockchains will have their own set of validators, which will have the last word regarding all the decisions made on the blockchain.
Solving scalability, sovereignty and usability
The architecture of Cosmos
The Cosmos network, mainly, is made up of different individual, sovereign and independent blockchains, called Zones. To connect them with each other, Cosmos takes an interesting path. If all the Zones were simply connected to each other, the number of connections would increase quadratically with each new blockchain that was incorporated into the ecosystem, which would generate a long-term scalability problem.
That is why, in Cosmos, there are other types of blockchains, called Hubs. Hubs could be defined as bridges specifically designed for Zones to communicate with each other. Each Hub connects to different Zones and other Hubs, as shown in the diagram:
In this way, the Zones only have to worry about establishing a connection with the Hub that best suits their needs, and the Hubs will be connected to a controlled number of Zones. Having several Hubs with different Zones connected to each one drastically reduces the number of connections, largely solving the scalability problem.
Tendermint BFT
Tendermint BFT is a software to consistently and securely replicate an application in the different nodes of a blockchain. Consistent implies that every node that works correctly will see the same status and receive the same transaction blocks. Safe means that the software works correctly as long as less than 1/3 of the nodes are faulty or Byzantine (malicious). This ability to tolerate faulty nodes when replicating the state of a blockchain is known as BFT (Byzantine Faut Tolerance).
Tendermint has two fundamental pieces: Tendermint Core and ABCI.
Tendermint core
It is the mechanism that is responsible for replicating and updating a state in all the nodes of the blockchain that is built on it. It encompasses both the consensus and the networking of the blockchain to which it is connected.
The BFT consensus on which Tendermint is based, simply explained, is a system of validators and votes. A validator is a node that has a certain voting power. All validators try to reach a consensus on the validation of one block of the blockchain at a time. Once accepted or denied, it is passed to another block, chosen by one of the validators, which has been selected in a deterministic way according to its voting power.
This voting power can be represented in different ways, depending on how it has been defined in each specific blockchain. Generally, as it is being used in most of the applications built by Tendermint, the voting power is established according to the native currency of the blockchain, in a mechanism known as PoS (Proof of Stake).
The fact that PoS is chosen over the traditional PoW of Ethereum and Bitcoin is logical, since it implies an increase in the speed and amount of transactions processed, and immense energy savings, implying greater scalability and performance in general, sacrificing a small part of decentralization and security that is greater in PoW systems. For more information on these and other aspects of the crypto world, consult our article on Fundamentals of Blockchain Technology.
The ABCI
Thanks to the fact that Tendermint Core encompasses both the networking and the consensus of the blockchain, the developer must only be in charge of defining its application layer, saving a lot of work time and all the problems and limitations of adapting it to those two other layers manually. This is where the ABCI (Application BlockChain Interface) comes into play.
In the application layer, the developer is in charge of defining how transactions are sent, how the blockchain database can be accessed, and how its validators will be determined and the system by which it will participate in the consensus and in the blockchain governance. The latter is what guarantees enormous flexibility, since the developer can decide, for example, whether to make his blockchain public or private. In addition, thus, each blockchain is responsible for its own validation system, guaranteeing that it maintains its sovereignty.
The ABCI is responsible for connecting this application layer, designed by the user, with Tendermint Core, to form a complete state machine, in which, through how the application has been defined, the state can be propagated and modified safely along the blockchain.
One of its greatest advantages is that it is designed to connect all types of applications, and in any programming language. This implies not only that the developer has more flexibility when creating their blockchain application, but the ABCI allows any application code of existing blockchains to be taken, and connected to Tendermint Core, to benefit them from their efficiency and purpose. snapshot. An example of this is Ethermint, an implementation of the EVM (Ethereum Virtual Machine) to carry out Smart Contracts on Ethereum, working under Tendermint by connecting with ABCI. More information on this will be seen later.
The last great advantage that ABCI has is that it can be used not only to connect an application to Tendermint, but it can be done by swapping Tendermint for any other Consensus mechanism.
The IBC protocol
The objective of Cosmos Network, to become the internet of blockchains, is fundamentally based on the so-called IBC protocol, Inter-Blockchain Communication. This protocol is used to exchange data packets between different Cosmos Zones, that is, independent blockchains, with different application layers, independently sovereign, and of instantaneous purpose, connected between them by a Hub.
If they meet these requirements, the protocol works as follows.
The different Zones connected to a Hub constantly send you information about the holders of your blocks, and information about your set of validators. When they want to interact with another Zone, they collect this information about it from the Hub.
When sending a transfer to another Zone, first, the issuing Zone blocks the goods that it wishes to transfer, and sends to the other Zone, through the Hub, proof that this has been done.
The receiving Zone then creates its own representation of the assets that have been blocked in the sending Zone.
The Hub is in charge of controlling this process at all times, maintaining the invariance of the blocked and generated goods in the two Zones.
The success of the transaction depends on the security of the two Zones and the Hub to which they are connected. As the Hub is responsible for connecting different Zones between them, it must have a much more complete and developed set of validators than the Zones, to avoid different unfavorable situations that may affect them.
Bridges with external blockchains
To promote the ideals of Cosmos Network of becoming the internet of blockchain, it must be able to connect not only the different Zones of its ecosystem, but all external blockchains. Depending on the type of blockchain, getting it connected to Cosmos requires different approaches.
Instant purpose: If the blockchain had an instant purpose consensus, the process would be simple: adapt the IBC protocol to be used with the new protocol.
Probabilistic purpose: If the consensus were of the PoW type, the process is complicated. In order to use IBC, an intermediary Zone would have to be defined between the Hub and the external blockchain, called Peg-Zone. This Zone is in charge of finding out about the status of the external blockchain, and providing it with a purpose. In a PoW case, it could be, for example, that the completion of a block happens when it is below 100 new blocks. For this purpose, the consensus protocol could be used to communicate to that blockchain with Cosmos.
Cosmos SDK
Even with the programming language freedoms offered by designing an application on Tendermint Core, thanks to the ABCI interface, the Cosmos developers have created the Cosmos SDK programming environment, which generalizes and greatly facilitates the process of development and deployment of specific blockchains for applications on the Cosmos network.
More specifically, it is an ecosystem of modules to develop blockchain application state machines in Tendermint. Any programmer can design a module in Cosmos SDK, so it is constantly evolving, and, over time, it will make it easier and easier to develop a Zone or Hub in Cosmos. In fact, it is not necessary that the blockchain built with the Cosmos SDK belongs directly to the Cosmos Network. It is enough that the built blockchain works with the Tendermint BFT consensus mechanism, and its state machine is connected to the mechanism through the ABCI.
In the different modules offered in the Cosmos SDK, there are mechanisms to define the governance of the application, the consensus system, and slashing.
Currently, Cosmos SDK has an application called Starpot, which simplifies the process of creating blockchains as much as possible. It is presumed that using Starpot, a functional blockchain can be built in a matter of minutes.
Another interesting module of the Cosmos SDK is CosmWasm, a platform for creating Smart Contracts using the Rust programming language for blockchains from the Ethereum ecosystem.
Currently, one of the biggest limitations of the Cosmos SDK is that it only allows you to develop on it with the Go programming language. Although they are currently working on greater compatibility with other different programming languages.
Current situation of Cosmos
Roadmap 1.0
Since the ATOM ICO, which raised $ 17,000,000 in 2017 and the Tendermint Series A in 2019, which managed to contribute $ 6,000,000, there have been numerous advances in the project:
The Cosmos Hub
On March 13, 2020, the Cosmos Hub was deployed, the first blockchain in the Cosmos ecosystem, and the one that currently has the greatest importance and development, as it is the central Hub of the Cosmos network. Obviously, it is built on Tendermint, and has a PoS consensus mechanism, in which, by staking its native token, ATOM, the network is secured, and participates in its governance, allowing the evolution of the blockchain be decided by the holders of this token.
As of today, the number of validator nodes is limited to 317, and there are currently 150 validators securing the network. It has been estimated through testing that up to 4000 transactions per second can be processed under optimal conditions, and today the block time is 7 seconds, reaching the purpose of the transactions in approximately 7 seconds.
The ATOM
As for the birth of the native Cosmos Hub token, it was originally distributed as follows:
80% of the tokens were delivered to the community through the ICO of 2017.
The remaining 20% was kept by the Interchain Foundation, dedicating 10% to the company, which is responsible for the evolution of the Cosmos ecosystem, and the other 10% to the developers of the technology on which the project is based.
Today, ATOM has a Market Cap of approximately $ 8M and a circulating amount of 222 million tokens, the current total supply being 280M of ATOM. The main way to obtain benefits is through delegation: A user can delegate part of his ATOM to a validator node, to use it as staking, and thus both the node and the delegator obtain rewards. Currently, 65.66% of the total supply of ATOM is in staking, since it is, for now, the main utility of the Cosmos Hub token.
Participating in the staking provides different prizes:
The cost of transactions: In the Cosmos Hub, transactions are paid in the form of different tokens, which are delivered to the validators who have completed the transaction.
Creation of ATOM by inflation: Over time, ATOM is added to your total supply, delivering everything to the stakers. A delegator receives, annually, 9.7% of the ATOM that it uses for staking, and a validator node receives 10.28%. This is the incentive to use this token in order to secure the network, as it implies that ATOM holders who do not delegate it will see its price diluted over time.
However, staking also presents significant risks because of the slashing defined in the Cosmos Hub:
Slashing due to downtime: When a validator has been offline for too long (when it has validated less than 500 of the last 1000 proposed blocks), 0.01% of the ATOM that has been delegated is burned (destroyed, with no possibility of recovery).
Slashing by double-signing: When a validator signs two blocks at the same height, 5% of the ATOM used in staking is burned, as it implies either bad computational practices, or malicious behavior.
Regarding the governance of the Cosmos Hub, any ATOM holder can make a proposal to make some change in the ecosystem, as long as at least 512 ATOMs are blocked from doing so. Any proposal with that minimum amount associated has a voting period of 14 days, in which any ATOM delegate or validator can vote, basing the weight of their vote on the amount of ATOM they have in staking.
Finally, if you want to stop delegating ATOM, or to stop being a validator node, all the ATOM you have in staking is blocked for 21 days.
Stargate: launch of the IBC protocol
In March 2021, the first major update of Cosmos, Stargate, was released, in which not only performance improvements were applied such as, for example, the improvement of the processing capacity of the nodes, making them 200 times faster, but also The IBC protocol was finally launched into the ecosystem, allowing the first areas of Cosmos to finally exchange assets between them.
This has meant, as will be seen later, the take-off of the relevance of Cosmos in the crypto market, and its first approach to becoming a decentralized finance environment between different blockchains of its ecosystem.
Gravity DEX and Emeris
In July it was released for the Cosmos Hub Gravity DEX: its first DeFi cross-chain protocol. Gravity DEX allows all kinds of decentralized finance to be carried out between two blockchains, such as the exchange of tokens or the creation of liquidity pools.
Its main asset to compete with other DeFi protocols is the drastic decrease in transaction costs, reaching a price of $ 0.08, with a 0.3% swap fee. Also, the protocol seeks to compete with other AMMs (Automated Market Makers) such as Uniswap through:
Gravity DEX is based on the ESPM model (Equivalent Swap Price Model), which improves the consistency of the token price and limits its arbitrariness, by setting the price of a token swap to that of exactly the last swap performed, in contrast to Uniswap, which calculates the exchange price using the formula axb = k, where a is the price of one swap token, b is that of the other, and k is a value that always remains constant. ESPM enables better performance, especially for stablecoin trading, compared to Uniswap's AMMs.
In addition, it allows batching, that is, executing several transactions at the same time, which causes less price manipulation and front-running.
Finally, it allows the creation of traditional order book trading platforms, to increase the flexibility of the protocol, and allow users to more easily access information on market demand.
Together with Gravity DEX, an application has been launched to manage all DeFi actions, from any blockchain in the ecosystem, called Emeris. Currently, it is also in its beta.
Gravity DEX was a great success in the Cosmos test network, and 715,030 transactions were successfully carried out, reaching a TVL of $ 190 million in the protocol. Today, on the Cosmos mainnet, there is a trading volume of $ 900 million in the ecosystem.
Evolution of the price and market cap of ATOM
As can be seen in the graph, both the ATOM price and its Market Cap have had their greatest evolution during 2021.
The first takeoff occurs around February and March, coinciding with the announcement and launch dates of the IBC protocol, assuming the implementation of the most important function that Cosmos relies on to achieve success.
Following cryptocurrencies in general plummeting after bans in China, with the launch of Gravity DEX and the rise of decentralized finance in its ecosystem, the Cosmos Hub has seen exceptional additional utility, becoming a DeFi platform for the Cosmos Network ecosystem, and consequently the ATOM has risen even higher, reaching its all-time high on September 20, at $ 44.7.
Generally, it should be noted that the price of ATOM has so far remained relatively low, and its demand has not been exceptional. Mainly, this is due to the little utility that ATOM itself has. Until before the launch of IBC and Gravity DEX, it only served to secure the Cosmos Hub. It has been with the arrival of the DEX of the Hub, that the ATOM has obtained an additional value as an exchange token in liquidity pools. As seen in the charts, this has raised the ATOM price and Market Cap to new highs. Another aspect to highlight is that, due to the very construction of the Cosmos Network, the ATOM is not especially linked to the success of the other projects built in its ecosystem, since each one has its own sovereignty and native token. However, as will be seen in section 6, a few new features for ATOM could cause a considerable increase in demand and price, possibly enough to transform it into a top-ranking token.
Cosmos ecosystem
Currently, Cosmos boasts 256 apps and services built in its ecosystem, and today it has 20 active zones on its main network, successfully interacting with each other through the IBC protocol. In fact, 3 of the top 20 blockchains on the market are built using the Cosmos SDK, according to Coingecko, in which, together with the Cosmos Hub, include Terra, Secret Network and the Binance Chain, and among all Cosmos services, there are moving in them a value of 113.08 B $. Some of the most notable projects in the Cosmos ecosystem will be described below.
Osmosis
Osmosis is the first Hub built with the Cosmos SDK that allows its users to design and customize their own inter-chain AMMs, taking advantage of the IBC protocol. Its vision is to be a "laboratory" where its researchers experiment with the creation of different customized liquidity pools. Using Osmosis, not only can the various parameters of a new liquidity pool and its AMM be defined, but they can also be modified on the fly to adapt the liquidity pool to the ever-changing market. The governance of both Osmosis and its liquidity pools is carried out by the users of the platform themselves, and they participate in it through the possession of the native Osmosis token, OSMO.
Innovation continues as we analyze the distribution and use of OSMO.
Currently, the token is used both for the governance and security of liquidity pools and Osmosis through PoS, but, when the Interchain Security functionality appears in the Cosmos Hub (see section 6.1), OSMO will be relieved solely of governance, since Osmosis seeks a future in which ATOM secures the blockchain, making it much more secure.
To unite, meanwhile, the interests of the Cosmos Hub and Osmosis validators, in the genesis of this blockchain, 50 million OSMOs were distributed among all ATOM holders, giving each one an amount of OSMO proportional to the root square of their ATOM, with an extra incentive to stakers proportional to the amount of ATOM they have in staking followed by the following formula:
Over the years, OSMO is distributed daily to different sites, annually decreasing the amount distributed by 1/3, until finally the total amount of 2 billion OSMOs is asymptotically reached. The distribution is as follows: 25% as rewards for OSMO stakers, 25% is saved to reward platform developers, 45% as incentives for those who add liquidity to pools, and 5% to a community pool , to be used by the Osmosis governance to improve its ecosystem. In addition, there are 50 million OSMOs kept in a strategic reserve, to give it different uses.
Currently, Osmosis has a TVL of about $ 450 million, and a trading volume that ranges between $ 20 million daily. The most popular exchange is in the ATOM / OSMO pool, with a volume of $ 33 million over 7 days, and a liquidity of $ 192 million. OSMO currently has a circulating supply of approximately 186 million.
An important aspect to consider is the interaction between Gravity DEX and Osmosis, since both are a decentralized inter-chain exchange, based on the IBC protocol, for the Cosmos Network ecosystem. Osmosis had its appearance before Gravity DEX, and, taking advantage of the IBC, acted as the main DeFi Hub of the Cosmos Network.
However, the introduction of Gravity DEX is a possible clash of interest between the developers of Osmosis and those of the Cosmos Hub itself. For now, both exchanges, by providing different functionalities (Osmosis offers the customization of AMMs and Gravity DEX, a hybrid system between liquidity pools and order books) coexist with each other, as two DeFi Hubs connected to each other in the Cosmos ecosystem. As Osmosis has been in action longer, it has a significantly higher TVL, no doubt driven by the dynamism and high inflation of the OSMO. However, it is a matter of time to see if both exchanges will continue to act with similar relevance, or one will be dismissed in favor of the other.
Terra
It is one of the most successful areas of Cosmos, and it is defined as an open source e-commerce platform that offers the issuance of stablecoins, algorithmic stable coins, to promote stability when making intercontinental payments.
Terra's main focus is Asian retail and e-commerce, and its stablecoins are now accepted in most businesses in regions such as Mongolia and Korea. For this, Terra was founded together with 15 initial partners who use its stablecoins, reaching 25 billion dollars in GVM (Gross Value Merchandise).
Currently, Terra has 19 different stablecoins associated with fiat currencies, such as TerraUSD (UST), TerraCNY, TerraJPY, TerraGBP, TerraKRW and TerraEUR. It promotes the use of these currencies, boasting exchange rates lower than most of its competition, ranging between 0.5% and 2%. To maintain the price and stability of its stablecoins, Terra uses its native token LUNA. It has different uses:
Terra, being built with the Cosmos SDK, is a PoS blockchain, so its security works with the delegation and staking system. Through this, LUNA holders can participate in both the governance of the blockchain and its security. To stop participating in this, staking LUNAs are locked for 21 days, similar to the Cosmos Hub.
The LUNA is used when making transactions with stablecoins, by paying gas costs and transaction fees. To maintain the stable price of its stablecoins, LUNA is a highly fluctuating cryptocurrency, as its supply increases or decreases through complex algorithms depending on the amount of demand for its stablecoins, and gas and transaction costs also vary in a way. chord.
By participating in staking, validators and delegators earn rewards in the form of gas costs and fees for validated transactions.
Terra, in addition to the supply of stablecoins, has different extra functionalities:
Availability of your stablecoins on Layer 1 blockchains such as Ethereum, Binance Smart Chain and Solana.
Terra has two DeFi protocols implemented: Anchor Protocol and Mirror Protocol. Anchor, with a TVL of 3.77 B $, is a savings blockchain, in which you are encouraged to lend your cryptocurrency through rewards (APY of up to 20%), and in which you can borrow, with low interest . It achieves these goals by rewarding lenders by making them secure PoS blockchains with their deposits.
Mirror Protocol is a DeFi platform that allows the creation and use of synthetic goods, crypto tokens that try to match the price of real world goods. Basically a platform to create your own stablecoin. It currently has a TVL of 1.56 B $.
Terra Bridge is a web service that allows to send and receive goods between Anchor, Mirror, Terra, Ethereum and Binance Smart Chain.
Finally, Terra uses CosmWasm so that, thanks to the IBC protocol, Terra's stablecoins flow through the Cosmos network through the use of Smart Contracts.
Currently, LUNA has a market cap of 17 B $, making it one of the top 20 cryptocurrencies in the market. It is also found. successfully connected to the other blockchains of the Cosmos ecosystem through IBC, offering its stablecions as a valuable asset for the DeFi inter-chain market.
IRISnet
IRISnet is a service protocol created with Cosmos technology, and currently functioning as a Hub in the network, whose objective is to promote a network of blockchains for small and medium businesses.
To achieve this goal, IRISnet combines on and off chain functions in its protocol, leaving transaction processing to blockchains, and data processing and business logic to off-chain services. In this way, any business can easily join blockchain technology and IBC.
IRISnet, like the previous cases, is a PoS blockchain, secured by its native IRIS token, which can be both delegated and used in staking (100 validators) to participate in the governance and security of the network. In its genesis, 2 B of IRIS were distributed, giving 5% as airdrops to ATOM holders, in a similar way to Osmosis. IRIS currently has a market capitalization of $ 123 million.
IRISnet, and its development team, Bianjie, are currently at the forefront of some innovative new projects for the Cosmos network:
IRISnet allows the creation and exchange of NFTs, and work is being done to implement them in the Cosmos network.
Bianjie is leading the development of the TIBC protocol (Terse IBC), which consists of a modification of the IBC protocol to make it faster and more efficient, at the cost of eliminating certain security elements from the original protocol, in which mutual trust is required between the connected blockchains and their Hub. This protocol would be capable of processing NFTs, Smart Contracts and other cross-chain services that the current IBC is not capable of performing.
IRISnet implements Coinswap as its AMM to perform DeFi finance
Secret network
It is a platform to design and interact with Secret Contracts, Smart Contracts in which data privacy can be programmed. For this, Secret Network is built on Secret Nodes, nodes that use TEEs, Trusted Execution Environments, which provides a secure computing environment on encrypted data.
All Secret Network users have viewing keys, viewing keys to access their encrypted data. They decide which keys to share and to whom, giving them enormous control over the availability of their sensitive data.
Secret Contracts can be written using CosmWasm, implemented in the Secret Network, and allow interaction with 4 different secret objects:
Secret tokens: these are all types of ERC-20 tokens created in the Secret Network. They can be used in any application on the network, and are private by definition: transactions with them are encrypted, being available to those who have the corresponding viewing key. Secret Network allows you to create secret versions of current tokens from other blockchains connected to the network, blocking the originals in exchange for the secrets. With the secret tokens you can create and interact with Secret NFTs and participate in Secret finance, DeFi applications with data privacy built on the Secret Network.
Secret finance: consists of all DeFi applications on the Secret Network. It is basically the interaction with decentralized finance, only adding data privacy.
Secret Bridges: they are Secret Network connections with other blockchains, to be able to access their native tokens, and create secret versions of them. For now, Secret Network owns two Secret Bridges, one with Ethereum and one with Binance Smart Chain. Currently, Monero, Terra and Plasm bridges are being tested on the Secret Network testnet. The latter is of special interest, as it would allow the connection between the Secret Network and the Polkadot ecosystem.
Secret NFTs: they are NFTs with data privacy implementation, which ensures that you can control who has access to them, and about what information is shown to the public. For example, you can create a public preview of the NFT, the entire content of which is encrypted, so that you can see what the non-fungible token consists of, but only its owner has control of its true content. Privacy adds an extra edge to the functionality of the NFTs.
Secret Network is a PoS blockchain, and it is secured by its native SCRT token (obviously, it has a secret version, sSCRT). This token is used to pay gas rates for transactions, and to secure the Secret Network, in addition to participating in its governance. SCRT currently has a market capitalization of $ 353 million.
Supernova has recently been announced, a massive update to the Secret Network, whose most notable improvement is the addition of the Secret Network to the main Cosmos network as a Hub, allowing access to the IBC protocol to connect with the Cosmos ecosystem. This would imply a future connection between Cosmos and the various blockchains to which the Secret Network is already connected, including Ethereum and Polkadot.
The objective of Secret Network is precisely to become a Hub of the Cosmos ecosystem, which serves as a portal to carry out all kinds of actions in the blockchain world with data privacy.
Current IBC ecosystem
As of 11/05/2021, there are 20 areas connected by IBC in the Cosmos ecosystem, carrying out transactions (about 50 K per day) between them and contributing their different functionalities to the Cosmos Network. This image, obtained at mapofzones.com, shows the different Hubs and Zones of Cosmos. In terms of connections, it can be seen that the two most relevant Hubs in the ecosystem are the Cosmos Hub and Osmosis.
Future of Cosmos
Throughout 2021 and 2022, the developers of Cosmos promise to add all kinds of new functionalities to the ecosystem, some of them aimed at drastically improving the functioning of the network.
Interchain Security
One of the decisive features that will be implemented this year in the Cosmos Network is Interchain Security, a new feature of the Cosmos Hub that will allow all ATOM delegates and stakers to validate other blockchains belonging to the ecosystem that accept this protocol.
In this way, the security problem that blockchains can present with an inefficient set of validators will be largely solved, since they will have access to the enormous security of the Cosmos Hub. The key is that, thanks to the architecture of the Cosmos ecosystem, the governance of blockchains will be able to remain exclusive to the holders of the native blockchain token. This will be, for example, the case of Osmosis, which will fully adopt this system as soon as it is available.
For ATOM holders this will also be great news, as it implies that the token will have much more value and utility than its current version, and will allow stakers and delegators to access many more rewards.
Chain name service
It is a function of giving the Cosmos blockchains a name that is easy to read, so that they can be easily identified when interacting with them through IBC. It will work in a similar way to domain names on web pages.
Liquid staking
This will be another function of the Cosmos Hub that will mean a great jump in value for ATOM, as it will provide liquidity to those users who have their ATOM in staking. Today, tokens that are locked to secure PoS blockchains can only be used to hold them locked and earn rewards.
But Liquid Staking implies that the blocked ATOM can be tokenized, generating an ATOM with which to carry out transactions, and participate in decentralized finance. Of course, that ATOM has the risk of being burned if the original ATOM destined for staking suffers slashing.
Interchain accounts
With this feature, which will make use of the IBC protocol, you can safely control accounts in different Cosmos Network blockchains through the one belonging to the Cosmos Hub. Adopting this facilitates the very process followed in the IBC protocol and helps to consolidate other functions of the Cosmos Hub, such as Interchain Security.
Ethereum Gravity Bridge
It is a future implementation of the Gravity DEX protocol, mixed with the Peg-Zone concept, in which the Cosmos Hub will be connected with Ethereum, allowing all kinds of DeFi actions and interaction with its Smart Contracts.
Ethermint
In Cosmos SDK, a module has been implemented that adapts the EVM (Ethereum Virtual Machine) to be used with the benefits of the Tendermint BFT consensus algorithm. Currently in its beta, in the future it will allow Cosmos SDK users to build blockchains similar to Ethereum, with the power and performance improvement that the Tendermint PoS consensus implies, and the IBC protocol, which will connect them with the rest of Cosmos blockchains.
Even further: horizontal scalability
With the Cosmos blockchain network, each individual blockchain, being optimized and developed in Tendermint, has much more capacity and resources to host applications and process transactions than PoW blockchains. By simply doing this, the so-called "vertical scalability" problems are largely solved. However, at some point, even these blockchains will reach their resource limit. To solve this, known as a "horizontal scalability" problem, it is planned in the future to move Cosmos to a multi-chain architecture, in which there are several parallel blockchains hosting the same application, and operating under the same set of validators, causing data storage and transaction processing capacity to expand indefinitely, and blockchains can, in theory, become infinitely scalable.
Cosmos as a home for CBDSCs
Recently, the Atom Foundation, a company focused on designing liquidity solutions using blockchain technology, has developed a significant improvement in the concept of CBDC (Central Bank Digital Currencies), the blockchain version of central bank currencies, by creating the CBDSC (Central Bank Digital Secure Coin) concept.
CBDSCs build on the original CBDC concept, but add many innovative features.
For starters, CBDSCs are designed so that their providers can have complete control over their governance and regulation.
They have protection by default against an immense amount of unexpected events that can lead to large fluctuations in the currency or volatility. They achieve this through a system that freezes the value of the CBDSC to the current value of its non-digital version, causing the volatility to not vary by more than 0.001%.
It has great customization control over privacy and what information to show to its users. In addition, it allows you to define measures against malicious users and return policies in case of problems with a specific Wallet.
Finally, it is compatible with any blockchain that allows interaction with Smart Contracts, and allows the implementation of decentralized inter-chain finance.
Taking into account these aspects, which provide enormous security and flexibility to the current concept of CBDC, CBDSCs are really a powerful incentive for central banks to start developing their own digital currencies on the blockchain, and the perfect ecosystem for this where to put them. at stake could be Cosmos Network.
This is plain and simple because the objective of Cosmos is linked to a certain extent with that of the CBDSC: it offers the ability to create a custom blockchain compatible with the creation and interaction with Smart Contracts, specific for applications, which also preserves its governance and sovereignty . If you add the ability to carry out inter-chain transactions thanks to the IBC protocol, it seems that the Cosmos Network ecosystem is the best option for central banks to start implementing their CBDSCs to become relevant and stable in the blockchain ecosystem.
Final reflection
Cosmos Network is presented in the crypto market as an expansive and ambitious project, with the aim of transforming itself into a future internet of blockchains. For this, it has successfully introduced the IBC protocol, pioneering fully decentralized inter-chain communication technology (without having to use CEX, Centralized Exchanges). As a reflection on the project, there are certain aspects to take into account.
Due to the original general approach of the Cosmos Network, presented through an architecture of Hubs and Zones in which anyone can develop their blockchain project, the Cosmos Hub and the ATOM are in a compromised situation. This is because originally the Cosmos Hub was designed as simply the first fully functional Cosmos Hub, and, because the blockchains created through the Cosmos SDK maintain their own sovereignty, it would remain as one more Hub than the existing ones.
However, with the addition of Gravity DEX, which comes into a possible direct conflict with Osmosis DEX, and the future implementation of interchain security, a clear trend can be observed to give greater importance to the Cosmos Hub and ATOM within of the ecosystem.
It is a matter of time to see if the Cosmos Hub will end up becoming or not the epicenter of the Cosmos Network, to which every blockchain in the ecosystem must connect, or it will simply remain as an alternative DEX to Osmosis, to which blockchain projects with a low level of security will be able to connect to benefit from its extensive set of validators.
As a last question, it remains to reflect on how Cosmos will develop against its most direct and successful competitor: Polkadot, a blockchain project also based on intercommunication between blockchains, and shared security. A comprehensive analysis on the clash of both projects can be found in our report on Cosmos vs Polakdot.
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