The bull market is coming, will the Cosmos ecosystem's liquidity explode?

Author: Daniel Li

As a long-established blockchain ecosystem, Cosmos stands out with its decentralized and open characteristics compared to other ecosystems. However, due to a relative lack of high-profile marketing campaigns, Cosmos often gives a lukewarm impression on Twitter. In reality, as the birthplace of today's application chain revolution, Cosmos has never lacked the ability to incubate and attract high-quality ecological projects. Although the Cosmos ecosystem has been relatively sluggish for a while, it remains one of the most promising areas in the crypto industry for achieving hundredfold growth. Recent trends indicate that projects with strong fundamentals and sustainable narratives will benefit immensely in the upcoming bull market, and Cosmos is well-prepared to capitalize on this trend.

01. The Rising Cosmos Ecosystem: Reassessing Undervalued Potential

Cosmos is an open-source ecosystem based on blockchain technology, aimed at achieving interoperability between different blockchains. Although there are still some gaps in technology and ecological projects compared to some leading systems, Cosmos has strong advantages in decentralization and interoperability. In particular, the Cosmos development team launched the Cosmos SDK and IBC, helping developers solve the problem of reinventing the wheel, playing an important role in promoting technological advancement across the industry.

However, the market valuation of Cosmos does not match its strength. Compared to other blockchain ecosystems, the Cosmos ecosystem is relatively small and has not attracted enough developers and users. Additionally, the technology and application scenarios of Cosmos are relatively complex, requiring more time and resources for promotion and popularization. Therefore, in a crypto market that values data and liquidity, Cosmos's market cap has long been severely undervalued, currently standing at only $3.15 billion, ranking 23rd. Its token ATOM also lags significantly behind the market cap of tokens from other ecosystems due to a lack of utility.

To alleviate this situation, the Cosmos 2.0 white paper was launched at last year's Cosmoverse conference, aiming to change the predicament of low utilization of the Cosmos Hub network and ATOM tokens. Around these goals, Cosmos has announced several developments, such as upgrading Interchain Security to "Replication Security" and passing the Liquidity Staking Module (LSM) proposal. Additionally, in May of this year, the Cosmos ecological chain Neutron launched its mainnet, which was the first to use the upgraded security mechanism "Replication Security," and announced an airdrop to Cosmos Hub stakers, gradually heating up discussions about the value capture of Cosmos and ATOM and its ecosystem.

Based on these technological improvements, Cosmos's ecological projects have experienced a liquidity explosion this year. First, the public chain Canto's daily trading volume once exceeded Solana, marking a successful start for Cosmos. Subsequently, the total locked value (TVL) of liquidity staking protocols Stride, Layer 1 public chain Injective, and Kujira has continued to rise, increasing by 2 to 6 times compared to January. In April of this year, according to data from Token Terminal, the number of active developers on Cosmos SDK once surpassed that of Ethereum, currently ranking second. Additionally, the recently launched modular blockchain network Celestia, built on Cosmos SDK, has also attracted market attention, with the Celestia + Cosmos model being hailed as the ultimate form of application chains.

The outstanding performance of Cosmos's ecological projects has rekindled market interest in Cosmos. Many users have shown high expectations for the future implementation of Cosmos 2.0 plans, and there are even voices in the market saying "Cosmos Summer is coming." In the recent rebound, tokens related to the Cosmos ecosystem, such as Celestia (TIA), Injective (INJ), and Osmosis (OSMO), have all seen increases of over 20% in the past week. INJ has even risen over 110% in a month. These positive trends indicate that Cosmos is gradually gaining market recognition and attention, laying a solid foundation for its future development.

02. Future Development Plans for Cosmos Technology: Providing Technical Support for Liquidity Explosion

As we explore the latest developments in the Cosmos ecosystem, it is essential to understand the future development plans for Cosmos technology. Continuous technological innovation is crucial for maintaining ecosystem growth and providing unprecedented liquidity for blockchain applications. In September 2023, the Interchain Foundation, which promotes the development of the Cosmos ecosystem, publicly released the Interchain 2024 development plan, outlining the future development plans for Cosmos technology.

CometBFT: The Cornerstone of Cross-Chain Scalability

CometBFT is an innovative consensus algorithm that is central to Interchain scalability. By ensuring that validators reach consensus on block generation, CometBFT enables the Interchain ecosystem to maintain security, decentralization, and integrity. The Interchain Foundation plans to further expand the coverage and applicability of CometBFT, empowering the development of sovereign, interoperable applications. Currently, CometBFT has been upgraded to v0.38, with plans to release v0.39 by the end of 2023, featuring efficiency improvements, comprehensive data support APIs, and an enhanced indexing system.

Cosmos SDK: Modularity and New Features

Cosmos SDK is a multifunctional toolkit for developing blockchain or Rollup applications. It has been adopted by many new blockchain projects, including Cosmos-based applications, Fairblock, Berachain, and the upcoming dYdX V4. In future development plans, Cosmos SDK will focus on modularity and introducing new features. This will enable developers to create more complex, modular applications, fostering a broader and more robust ecosystem.

CosmJS: Improving Efficiency and User Experience

CosmJS is a library that helps developers integrate JavaScript clients with Cosmos SDK blockchains. The Interchain Foundation plans to enhance CosmJS with new encoders to improve its efficiency, reduce code bloat, and provide a more streamlined and professional development experience. This will enable developers to create more elegant, user-friendly applications, ultimately enhancing the appeal of the Cosmos ecosystem.

CosmWasm: Unlocking Decentralized, Permissionless Deployment

CosmWasm is a smart contract framework built on Cosmos SDK. It allows developers to deploy decentralized applications without permission requirements while enabling blockchain developers to separate their product development cycles from blockchain development, thereby reducing the costs of validator upgrades. The Interchain Foundation will further optimize CosmWasm in the future, making it easier for developers to create and deploy various applications, ultimately increasing blockchain utilization. Key focus areas include IBC adoption and account-based smart contracts.

IBC Protocol: Enhancing Interoperability and Scalability

IBC (Inter-Blockchain Communication) is a protocol that enables secure, decentralized, and permissionless data transfer between blockchains. The Interchain Foundation plans to update IBC in 2024, focusing on two themes: scalability and usability. By improving the scalability and interoperability of IBC, Cosmos will further enhance the capacity of its ecosystem, enabling seamless interaction between blockchains, applications, and smart contracts.

03. Recent Changes in the Cosmos Ecosystem: Accelerating Development and Innovation

With the continuous development of the digital asset market, the Cosmos ecosystem has once again demonstrated significant potential in recent months. As an open-source multi-branch blockchain network, the Cosmos ecosystem boasts advantages such as smart contracts, scalability, security, and cross-chain interoperability. At the same time, its application chain theory is also evolving. Here are some noteworthy recent changes in the Cosmos ecosystem.

Liquidity Staking Module: The Liquidity Staking Module (LSM) is a new module designed to provide a modular solution for liquidity staking within the Cosmos ecosystem. The implementation of LSM on Cosmos Hub began on June 14, 2023, along with the release of a software upgrade plan. The impact of LSM's implementation on the Cosmos ecosystem is that users can now directly liquidity stake their already staked ATOM without waiting for the unbonding period.

Token Economics Upgrade: The economic model of the Cosmos token ATOM has undergone a significant change, shifting from a past focus on high returns to a narrative centered on real yields. On May 10, the Neutron mainnet was launched, which is a CosmWasm (Cosmos Virtual Machine) platform that combines Cosmos SDK and IBC, being the first to utilize Cosmos's "Replication Security" consumer chain. Neutron aims to address the criticisms faced by ATOM 1.0 due to its lack of apparent utility, bringing new narratives and momentum.

Enhanced Interoperability: Interoperability has always been Cosmos's greatest advantage compared to other ecosystems. The launch of Evmos 2.0 in August this year undoubtedly further solidified Cosmos's advantage in this regard. Evmos is built on the IBC protocol of Cosmos, which has the potential to elevate a powerful multi-chain ecosystem to new heights. Evmos 2.0 will achieve interoperability between the Ethereum and Cosmos ecosystems, allowing developers to build applications that can interact with both ecosystems.

Rise of Perpetual Contracts: Perpetual contracts play an important role in the digital asset market and have recently experienced rapid growth. As a leading perpetual contract exchange in the Ethereum ecosystem, dYdX v4 announced its migration to the Cosmos ecosystem, which will undoubtedly have a positive impact on the Cosmos perpetual contract module, as it will bring more liquidity and innovation to the Cosmos ecosystem.

Increase in Native Liquidity: Native liquidity is crucial for the DeFi space, as it enables seamless on-chain interactions and reduces bridging risks. Recently, Tether's stablecoin USDT has been integrated into the Kava blockchain, solidifying Tether's leading position in this field and bringing new native liquidity to Cosmos. Additionally, in March of this year, the Cosmos native asset issuance platform Noble officially announced a partnership with Circle 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.

04. Overview of Popular Projects in the Cosmos Ecosystem

Initia

Initia is a popular project based on Cosmos, dedicated to building a highly interconnected modular Rollup network. By abstracting the complexities in traditional modular and multi-chain systems, Initia supports developers in building scalable and autonomous systems. Its architecture includes L1 (Layer 1), L2 (Layer 2), and communication layers, enabling developers to easily launch application-specific blockchains based on Initia L2 without needing to understand complex chain-level infrastructure or run a validator set.

Initia utilizes the Cosmos software development kit (SDK) but employs a computing framework called MoveVM, based on the Move smart contract language. At the same time, Initia uses optimistic rollups as an application-specific L2 solution. By integrating L1, L2, and communication layers, Initia achieves seamless messaging and bridging between different virtual machines (such as EVM, WasmVM, and MoveVM), making it the first MoveVM computing framework compatible with the Cosmos IBC protocol and enabling seamless interaction with other blockchain networks in the Cosmos ecosystem.

Recently, according to The Block, Initia has secured pre-seed investment from Binance Labs, with specific funding amounts and further details yet to be disclosed. This funding will support the development of Initia's infrastructure, the expansion of product tools, and the incubation of key application layer projects to drive the growth of the Initia ecosystem. Currently, Initia is still in the development phase of its testnet, and once launched, it will greatly enhance the liquidity of the Cosmos ecosystem.

Celestia

Celestia is a modular blockchain network based on the Cosmos ecosystem, aimed at providing pluggable consensus and data availability layers. The project's goal is to enable anyone to quickly deploy decentralized blockchains without incurring additional consensus layer costs, providing developers with more flexibility in building and deploying blockchain applications.

One important feature of Celestia is data availability sampling. It allows nodes to verify only a small portion of data from a block without needing to verify the entire block. This significantly reduces the hardware requirements for validating nodes and enhances the scalability of the network. In collaboration with Cosmos, Celestia acts as a data availability layer, working with Tendermint and Cosmos Zones. This allows chains in the Cosmos ecosystem to utilize the data availability features provided by Celestia and achieve minimized trust through fraud proofs. This collaboration promotes interoperability and scalability within the Cosmos ecosystem while providing a unified security level for the Cosmos ecosystem.

On October 31, Celestia's mainnet officially launched, and its token TIA has been listed on major exchanges, currently priced at $2.33.

dYdX V4

dYdX is a leading L2 Dapp on Ethereum, and its latest version, dYdX V4, is expected to be released in December this year. This upgrade marks an important milestone for dYdX as it prepares to migrate to the decentralized network Cosmos. This move aims to address Ethereum's scalability limitations and provide a more decentralized architecture for dYdX's rapidly growing user base and trading volume.

As a popular L2 Dapp, dYdX has attracted a large number of users and transactions, putting pressure on the Ethereum blockchain. However, Ethereum's scalability limitations hinder dYdX's expansion, necessitating more advanced solutions. Cosmos and its cutting-edge SDK provide the perfect solution for dYdX's development, supporting the creation of decentralized and independent blockchain networks that can meet dYdX's growing demands.

By migrating to Cosmos, dYdX V4 will not only enhance trading speed but also eliminate concerns about centralization. The decentralized network of Cosmos allows dYdX to continue adhering to its commitment to transparency and fairness, providing users with a safer and more reliable trading experience. As a leading decentralized exchange, dYdX's daily trading volume has exceeded $3 billion, and its migration will bring a large number of new users and liquidity to the Cosmos ecosystem.

Neutron

Neutron is a smart contract infrastructure based on the CosmWasm platform, allowing developers to easily deploy dApps on this platform without going through complex governance voting or whitelist verification. By collaborating with Cosmos Hub and other projects, Neutron combines security and cross-chain functionality, enabling DeFi applications to securely scale across a vast network of over 51 interconnected blockchains. In simple terms, Neutron provides developers with a convenient and secure way for their applications to run smoothly across multiple blockchains.

Although Neutron was not well-known before, many people may not be familiar with this project, but in reality, Cosmos has been actively preparing. According to the Interchain Stack 2024 roadmap, Neutron will become the first consumer chain on Cosmos. It aims to host a DeFi product ecosystem built around NTRN and ATOM, supporting utility and demand generation for the tokens. This will play an important role in driving the development of the Cosmos ecosystem economy and the implementation of ATOM 2.0.

In May of this year, Neutron successfully completed a funding round led by Binance Labs, raising a total of $10 million. Other participants include CoinFund, Delphi Ventures, LongHash Ventures, Semantic Ventures, and Nomad Capital. The Neutron token NTRN was launched on Binance in October, with a current trading price of $0.290.