Can cosmos turn around the cross-chain track pattern as the ecological explosion is approaching?
Unlike the crypto market’s recent lull in mood, Cosmos, a cross-chain head project, is in full swing. Cosmos projects announced about 13 airdrops in a single week at the end of February. According to the Cosmos 2022 Outlook report, Cosmos Ecosystem expects to achieve a multi-chain system of 200 blockchain networks in 2022, an increase of 586% from the end of 2021 (see chart below), while each chain will carry other protocols. Let’s take Cosmos Ecosystem Smart contract platform Juno Network as an example. Currently, its ecosystem has 14 DApps and 20 tools. There is no doubt that this is exponential ecological growth. For Cosmos, the recent intensive airdrops and outlook reports attract the public’s attention. “Cosmos2022 Ecological Explosion” has also become a consensus view of the industry. So what is Cosmos? What is its current ecosystem? Why is it considered a potential “ecological explosion”? And what are the challenges for its future development?
Figure 1 Cosmos2021 and 2022 cross-chain quantity status and plan
Part1: Cosmos and the rise of cross-chain
The analysis of Cosmos requires a brief review of the evolution of the infrastructure of the crypto market over the past few years to understand the need for Cosmos at an industry level. Both the project itself and the rise of cross-chain track are an inevitable consequence of the industry’s exploration. Cosmos is known to be one of the two most recognized cross-chain projects (the other is Polkadot). The project and the concept of cross-chain technology were first proposed around 2014, but the real value is revealed when the public chain expansion requirements emerged in early 2018. Under the background of the extreme congestion of Ethereum Layer1, the industry summarized the following improvement schemes at that time: first, Ethereum Layer1’s PoS upgrade and Shard sharding capacity expansion measures; second, the development of Layer2; Third, develop other new public chains with high TPS to replace Ethereum. Among these three ways, the third way, namely the construction of new public chains, has attracted more attention in the industry. With the launch of many new public chains, a large number of development and application requirements have also begun to spill over to these new projects. However, as the industry develops, it is found that the third solution faces a series of challenges:
First, excessive pursuit of scalability will decrease decentralization and security, triggering the “impossible triangle of blockchain” paradox.
Second, due to the lack of community consensus and other reasons, many new public chain projects are difficult to impact Ethereum’s position. In other words, despite performance bottlenecks, it is a fait accompli that Ethereum will dominate the DAPP ecosystem for the foreseeable future.
Third, with the diversification of application scenarios and the decline of unicorn public chain projects represented by EOS, the industry is aware that there is little chance for a single main chain to change the ecosystem of the crypto industry, whether from the perspective of application-oriented or team-oriented factors. The new public circuit will remain diversified for a long time (see chart).
Figure 2 Public chain TVL proportion pattern trend chart, it can be seen that Ethereum still maintains the dominant position, while the pattern of diversified development of new public chain is more obvious
The ups and downs of the public chain track have made the blockchain industry gain the following experiences. First, from the perspective of the application, a single project is often difficult to meet the needs of various downstream scenarios, and individual scenarios even require the cooperation of multiple chains. Second, due to the wide gap in community consensus, rather than trying to “replace Ethereum”, it is better to achieve ecological cooperation with Ethereum to absorb its overflow traffic. Third, the new public chains need to achieve interoperability, otherwise, it will lead to market fragmentation under the diversified pattern. The technology and mode that can meet the above requirements is cross-chain technology, which has been proposed for several years. Since then, cross-chain technology and its representative project, Cosmos, have gained increasing industry attention. Unlike other projects (even Polkadot, a cross-link project), Cosmos is not a single chain, but rather a crypto ecosystem designed to build and connect multiple public chains. Its technical features are focused on these aspects: The first is the Tendermint consensus protocol, which belongs to the Byzantine fault-tolerant algorithm and is optimized for the traditional PBFT algorithm. It only needs two rounds of voting to reach a consensus. The second is Cosmos SDK, a set of blockchain development tools for development teams, on which they can quickly customize and develop public chains suitable for their own needs. At present, projects including Binsecurity, Irisnet, and Kava are all built on the basis of Cosmos SDK. The third is THE Inter Blockchain Communication (IBC), which allows different blockchains to communicate with each other and is the core of the Cosmos cross-chain. About 30 public links have been connected since 2021.
Figure. 3 Cosmos ecological cross-chain principle. Different zones interact freely with IBC protocol through Cosmos Hub
The most recent technical iteration of Cosmos came from the news that Evmos, the EVM compatible center, would go live with Cosmos, and it was after this that the idea of “Cosmos 2022 ecological explosion” began to spread widely.
Part2：Cosmos ecology overview: Focus on protocol layer and financial applications
Why does Evmos have such a big impact on the Cosmos ecosystem? To explain this, we first need to analyze the existing ecosystem of Cosmos. As we all know, for Cosmos, the “multi-chain interoperability” feature of the cross-chain track determines that “ecosystem” is one of the most direct and important indicators for judging the project compared to other tracks. Statistically speaking, Cosmos does not need to worry too much about this issue — although the number of its ecological projects is only about 1/2 of Polkadot’s, the total market value of its ecology is nearly double of Polkadot’s (see the chart below). In other words, the average size of Cosmos’ eco-projects is a bit larger.
Figure 4 Comparison of the number and volume of Polkadot and Cosmos eco-projects
In fact, the volume of Cosmos’ ecological projects seems to be “too big” — the market value of projects such as Terra and Cronos has surpassed that of ATOM itself, which is the token of Cosmos’ main chain. From ATOM’s point of view, the market may think that Cosmos’ current economic model has problems with value transfer, which makes it difficult for Atom to capture the corresponding value from Cosmos’ ecological prosperity. From the perspective of sub-projects, however, it can also be argued that Cosmos is better at achieving sub-projects within the ecosystem. After all, the volume of its head projects within the ecology is generally higher than that of Polkadot head projects. (See the table below)
Table 1 Cosmos and Polkadot top 100 projects by marketcap of March 1, 2022
The question is: who exactly has Cosmos made? From the data comparison, we can see that compared to Polkadot, the three types of projects with the largest number on Cosmos are Defi, Infrastructure, and Privacy. And the three types of projects account for about 60% of the total number of Cosmos ecology; compared to this, the ratio of Polkadot’s three types of projects is about 1/3, that is to say, in the cross-chain track, the Cosmos’ ecosystem is more closely related to these three types of application
Figure 5 Porportion of projects in Cosmos and Polkadot
This trend is even more obvious when viewed from a TVL perspective: To date, the TVL of Defi in the Cosmos ecosystem has reached $25.1 billion, while Polkadot’s Defi is only about $1.39 billion, and even if you take out Terra, which accounts for about 90% of TVL in Cosmos, the TVL of the remaining projects is about $2.48 billion, which is higher than the entire TVL of Polkadot.
Figure 6 TVL comparison of Defi tracks in Cosmos and Polkadot ecosystems as of March 1, 2022, in USD billion
In fact, if we analyze the Cosmos projects’ market cap from the track perspective, we can find that most of the top-ranked projects on Cosmos fall on these tracks, specifically:
1. Terra: a proof-of-interest blockchain for a specific application, using the Tendermint consensus based on Cosmos SDK and leveraging the utility technology of the Cosmos project CosmWasm. The main focus is on interoperability with other Defi protocols.
2. Cronos: Its ecosystem includes the Crypto.com chain and the Crypto.com centralized exchange, which will provide a decentralized infrastructure that allows users across all industries to securely access their financial data from anywhere on any device.
3. Osmosis: An automated market maker (AMM) for liquidity providers. Through Osmosis, users are able to exchange cross-chain assets within the Cosmos ecosystem which is the first DEX in the Cosmos ecosystem.
4. Juno: The sovereign public chain in the Cosmos ecosystem, designed to provide a deployment environment for interoperable smart contracts. The network serves as a decentralized, license-free, and censorship-resistant way for developers to efficiently and securely launch smart contracts using a proven framework.
5. Thorchain: Asset trading middleware in the Cosmos ecosystem, with a model similar to that of Uniswap, the largest exchange in the Defi space.
6. Kadena: The underlying public chain, designed to increase interoperable smart contract support between public and private chains. Interoperable smart contract support between public and private chains.
From this point of view, we can actually draw a preliminary conclusion that both in terms of the number and volume of projects, Cosmos’ ecosystem is more inclined to the fundamental protocol layer, as well as financial and other traditional applications, while there are not many projects in the field of games, entertainment and NFT. This is well supported by the data: among the 260 projects in Cosmos ecology, the number of game projects is 9, NFT is only 3, and the sum of the two is only 4.6%. Such layout frequency obviously can’t take a place in this kind of new DAPP. This is actually why many recent predictions suggest that the Cosmos ecosystem will grow rapidly in 2022: in the gamefi and NFT summer of 2021, Cosmos did not gain enough industry dividends as ETH, Solana, and Polygon did, while the placement of EVMOS in 2022 marks a time when development teams bringing the world of Ethereum-based applications and assets to the interoperability network of the Cosmos ecosystem, enabling decentralized interoperability between Ethereum-based DAPPs and Cosmos’ independent decentralized blockchain ecosystem. In turn, many new ecosystems in the application layer are introduced into the Cosmos ecosystem.
Figure 7 Distribution of NFT transfer public chain transaction volume (24 hours) on March 1, 2022, with only the BSC chain of the CoinExchange sharing a little volume in the Cosmos ecosystem
The “Cosmos ecological explosion” is more of a statement than a prediction because Cosmos’ ecological base already has a lot of room for improvement. Of course, this thesis is valid only if game and nft can maintain enough prosperity in the downward trend of the market in 2022.
Part3: Outlook: The Security Concerns in Cosmos’ Ecological Explosion
The expected outbreak of Cosmos ecosystem will inevitably lead to another association with the changing landscape of the cross-chain circuit, i.e. whether Cosmos is expected to surpass Polkadot in terms of ecological prosperity, and whether Cosmos has a chance to change the landscape of the cross-chain industry. To answer this question, we need to do a simple SWOT analysis of both of them. As cross-chain head projects, Cosmos and Polkadot have similar principles, for example, both provide toolkits to quickly build blockchain projects, with Cosmos as Cosmos SDK and Polkadot as Substrate; both allow different partitions to communicate and interoperate with each other through a shared hub, with Cosmos is the Cosmos hub, Polkadot is the relay chain, etc. Polkadot will allocate the slots of relay and parallel chains through an auction mechanism, and the highest bidder will get them by locking the Dot. The Hub itself is sovereign and is built to link to other blockchain zones. Because of the independence of the chains, Cosmos has no central rules that apply to the entire blockchain network, and the Hub chain and each Zone chain have their own governance process. This is the reason for the saying “Cosmos is similar to Android and Polkadot is similar to Apple” in the industry.
Figure 8 Polkadot connects to other chains via relay chain limited slot auctions, while sharing the security of the parent chain
From this point of view, with the number of ecological projects increasing significantly during the year, Cosmos’ ecological openness advantage does seem to be able to cause some impact on Polkadot, but there is an easily overlooked but crucial element: security. As mentioned earlier, the ICMP protocol used by Polkadot differs from Cosmos’ IBC communication protocol in that its goal is to pass arbitrary messages between parallel chains. That is, by making Parachain A invoke smart contracts inside Parachain B and thus transmit various types of communication between chains. In this process, Polkadot shares the security of Polkadot by linking parallel chains into the Polkadot network so that all parallel chains have a uniform level of security. Cosmos, on the other hand, can access the hub by using only the IBC standard but does not share security with each zone. In short, compared with Polkadot, Cosmos sacrifices the security of the ecological project to a certain extent by lowering the threshold. But the problem is that Cosmos is an ecosystem that favors inter-chain asset transfer, and such an application scenario determines that it needs to give high security to and security is precisely one of the points of contention in the current cross-chain ecosystem. Statistics show that the first and second largest theft cases of Defi have occurred in cross-chain projects (Wormhole and PolyNetwork), which once triggered a debate on the security of cross-chain technology. But one thing is for sure: the security of each chain in the Cosmos ecosystem is uneven at the moment, especially since the security of the initial projects is mostly predictable and not high. If the Cosmos ecosystem grows rapidly under the condition that security is difficult to guarantee, then the proliferation of TVLs is bound to attract the attention of attackers, and the occurrence of security incidents may not be a small probability event.
Figure 9 Distribution of the number of tracks of 260 projects in the whole Cosmos ecology, of which financial projects account for the first major category
For Cosmos, the potential security risk certainly won’t be a fatal blow to the project itself or the cross-chain circuit, but it could cost the opportunity to change the industry landscape. From past industry experience, a crackdown on Defi projects could lead to a devaluation of wETH and eventually lead to insolvency for some of the projects based on it, and as mentioned above, Defi is one of the segments that attackers are most interested in and that the Cosmos ecosystem relies on the most. With the increased risk aversion caused by the market downturn and the gradual Defiization of various applications, more similar projects will be built on Cosmos in the future, and if the economic losses caused by the security mechanism make the developers’ potential confidence in the development environment If the economic loss caused by the security mechanism makes developers’ potential confidence in the development environment drop, the “Cosmos ecological explosion” that was expected is likely to be lower than the outside world’s expectations.
