January 9th, 2023
As crypto and blockchains become increasingly popular, developers are exploring several scaling methods. Solana has chosen to build a layer-1 blockchain able to scale by itself. Ethereum is attempting to scale vertically with layer-2 rollups. Cosmos, the subject of this article, is scaling horizontally with AppChains.
In this article, part of our Blockchain Protocol series, we’ll introduce Cosmos, discuss why the protocol has been successful thus far, review some of its top projects, and address the challenges it faces ahead.
Cosmos describes itself as “the internet of blockchains.” However, perhaps the best description for Cosmos comes from Paradigm: “If Ethereum is a mainframe computer, Cosmos is a protocol for networking independent servers.”
At a high level, Cosmos is a network of sovereign blockchains that communicate via the IBC (Inter-Blockchain Communication). However, it is important to note that Cosmos is not a blockchain. It is instead a blueprint and set of tools for designing AppChains known as Zones. These Zones are attractive to developers as they allow greater control over design choices and present more opportunities for capturing value.
To facilitate this network of blockchains, Cosmos provides developers with almost everything they need to design their own AppChain. Tendermint and the Cosmos SDK make spinning up a Zone as simple as building a smart contract on Ethereum, while the IBC ensures that each zone is interoperable. The only thing that Cosmos doesn’t provide is security, with each chain being responsible for its own validator set. However, this is due to change with ATOM 2.0.
The Cosmos model has proven successful, with 263 different apps and services currently existing in the Cosmos ecosystem.
Cosmos’s success comes down to the appeal of AppChains, which are blockchains dedicated to a specific application.
There are a few different reasons why developers are drawn to AppChains:
For these reasons, developers are drawn to AppChains, and, thus, Cosmos.
Cosmos has no shortage of exciting and innovative projects in its ecosystem:
The beautiful thing about Cosmos is its IBC-enabled composability and interoperability. As you can see with the map of Zones, Cosmos Zones are remarkably connected, improving the experience of both developers and users.
The biggest issue with Cosmos has been a lack of usage and poor token price-action.
Previously, much of Cosmos’s value and usage came from Terra. With the unfortunate demise of Terra in May, this value no longer exists. Accordingly, TVL for the Cosmos ecosystem has taken a big hit. It is currently about equal to ETH L2s Arbitrum and Optimism and much less than L1 giants Ethereum, Tron, and Binance Smart Chain.
Relatedly, poor tokenomics and low usage of Cosmos have made price-action for Cosmos’s central token ATOM stubbornly weak. This turns into a vicious negative cycle, as poor token price-action prevents the speculation that drives value to blockchains, which keeps the token’s price down.
The introduction of ATOM 2.0 improves the tokenomics, but ultimately, Cosmos needs increased adoption for ATOM holders to retire early.
Although Cosmos has not yet seen the widespread adoption it would like, its future appears bright.
The future increasingly looks like it will be multichain. AppChains are already popular among developers and show no sign of slowing down. Because of Tendermint, Cosmos SDK, and the IBC, no network is better positioned to capitalize on the multichain future than Cosmos.
With an ever-growing ecosystem, improved security and tokenomics on the way with ATOM 2.0, and an increasing amount of researcher and developer attention, Cosmos is well-worth keeping an eye on in the coming years.