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Following the past week's portfolio carnage I find myself trying to find undervalued and unduly punished projects with plenty of gas left in the tank for the next phase of this bull market.
Oh, you didn't hear? We are still in a bull market. This is a mid-cycle correction that has historically occurred EVERY bull market. Heck, it may not even be THE mid-cycle correction as larger corrections have occurred in the past. Zoom out and take a look at this dip chart from @WClementelll.
Does it hurt to see your portfolio's fiat value deflate...YES! but do one simple thing; change your portfolio view to BTC value and presto, change-o, you will see a significant difference- for me it's all about stacking Sats for the future. As long as you have that longer term goal in mind you will persevere. Now, if you want to convince me that we are entering a bear market feel free to @me in the comments; I will be glad to hear your advice and thoughts.
However, as much fun debating could be on the topic above I really only came to write about a project I am considering opening a position for my long term portfolio...
That's correct, the seemingly boring mid-cap Cosmos (ATOM). As I have stated in previous articles, writing on a project forces me to dig deeper into the fundamentals and not just FOMO into a coin because some YouTube influencer or Twitter-bro/sheila is pumping it. If you aren't really into technical details you may just want to read the first few paragraphs of the overview and then skip a bit.
Overview
Initially envisioned as a network of independent parallel blockchains that are each powered by classical BFT consensus algorithms, the Cosmos whitepaper was released in 2017 by Jae Kown and Ethan Buchman. In March 2019 the Cosmos Mainnet went live. It is an interoperability blockchain where the "goal is to create an Internet of Blockchains, a network of blockchains able to communicate with each other in a decentralized way." It allows an individual chain to maintain its sovereignty by acting as a virtual hub to access and conduct transactions with other platforms.
Independent blockchains, called zones on Cosmos, connect to the Cosmos Hub. The Hub uses proof of stake that allows users of a zone to lock up tokens on one blockchain and receive a representation of those tokens in a different zone for use.
What Cosmos is doing to achieve this goal is to build out seemingly plug-and-play core software for developers: Tendermint, Cosmos SDK, and IBC. They are modular tools to allow for scaling, functionality, and security of blockchain and application development. Basically, Cosmos has developed a toolkit for developers to use their platform to create an interoperable autonomous blockchain and apps without having to recreate the wheel, which saves a ton of heartache.
Tendermint BFT- base layer
So why wouldn't a blockchain just build out their own interoperability with other chains? Two words- time and money (later referenced as the BIG 2). By building out a generic blockchain engine template, Tendermint, developers can focus on application development of their blockchain instead of spending time and money on the networking and consensus layers, decreasing a project's time-to-market.
Tendermint is versatile and configurable to meet the needs of developers. It connects to an application through the Application Blockchain Interface (ABCI), a socket protocol, which can be wrapped in any programming language allowing developers to use whatever coding they choose. It can be used for public or private blockchains, can be set to have block times down to one second intervals with up to 10,000 transactions per second, uses Byzantine Fault Tolerance, boasts instant finality as transactions are finalized as soon as a block is created, and uses accountability in its network posture.
A network must be usable with high throughput, secure, reliable, and accountable. The Cosmos team understands this as the stakes are extremely high when you are attempting to inter-chain billions of dollars in value.
Cosmos SDK- application layer
The Cosmos SDK is a generalized framework that simplifies the process of building secure blockchain applications on top of Tendermint BFT.
SDK is module based allowing developers to create application specific blockchains without having to spend the BIG 2 associated with coding every facet of functionality in their application. Key pieces are already constructed that allow the app to function on the ecosystem.
It uses an object capability model for securing these modules. This an inherent secure coding model that sets instructions or parameters for what a module can/cannot do. "It enables the creation of security-enforcing abstractions, or patterns, that can be composed with other code to build systems that enable cooperation whilst minimizing vulnerability" (Murray).
A capability describes a transferable right to perform one (or more) operations on a given object. It can be obtained by the following combination:
- An unforgeable reference (in the sense of object references or protected pointers) that can be sent in messages.
- A message that specifies the operation to be performed.
The security model relies on not being able to forge references.
- Objects can interact only by sending messages on references.
- A reference can be obtained by:
- Initial conditions: In the initial state of the computational world being described, object A may already have a reference to object B.
- Parenthood: If A creates B, at that moment A obtains the only reference to the newly created B.
- Endowment: If A creates B, B is born with that subset of A's references with which A chose to endow it.
- Introduction: If A has references to both B and C, A can send to B a message containing a reference to C. B can retain that reference for subsequent use.
In the object-capability model, all computation is performed following the above
Probably more than you cared to know, but I figured I would let y'all nerd-out for a sec.
Cosmos SDK also works on any consensus engine that utilizes ABCI. And it allows developers to port any Golang based blockchain code on top of it, such as Ethermint.
IBC - Connecting the Blocks
The Inter-Blockchain Communication (IBC) protocol is "an end-to-end, connection-oriented, stateful protocol for reliable, ordered, and authenticated communication between heterogeneous blockchains arranged in an unknown and dynamic topology." This protocol is what allows any fast-finality engine to transfer value between blockchains.
That's a vague definition that does not stress the importance of IBC to the overall architecture of Cosmos, but I left the link for you all to nerd-out since I probably lost a few readers in the previous subsections. You can also look at the this page of the Cosmos website for more details on IBC and how it fits within their ecosystem.
Of Note:
Cosmos also allows bridging of non-native blockchains that use fast-finality and probabilistic-finality, such as PoW. It uses different methods to achieve each but the point is that it can interconnect and transfer value to most blockchains.
Leadership/Founding Team
The original founding team of Tendermint, the original development company of Cosmos, experienced a shake-up a few years back. However, they still work on the Cosmos ecosystem. Ethan Buchman left Tendermint to form Informal Systems in 2019 where they build out infrastructure for Cosmos. In early 2020 Jae Kwon stepped down as CEO of Tendermint, and took on the role of CTO, following accusations of causing a hostile work environment.
The current CEO of Tendermint is Peng Zhong who took over after Jae Kwon. He was previously the Lead Cosmos Designer at Tendermint for the four years prior.
B-Harvest founder Hyung Lee has taken on the role of Head of DeFi at Tendermint following the acquisition of B-Harvest, the creator of the Gravity Dex, by Tendermint.
The leadership and role changes seemed to work well as Cosmos has seen adequate growth the past few years.
Tokenomics
Atom is the native token of the Cosmos Hub. It serves as governance, staking, and voting within the Hub. As of today, Cosmos has a current MC of $5.18B. There are ~238.5M tokens in circulation and it uses an inflationary model. There are approximately 7-20% of new coins being produced annually depending on the number of staked coins.
It has seemed to underperform compared to other ALTs but has still seen 739% YoY growth in the price of the coin. This lack of price action was likely caused by product delays as the team was focused on building out the underlying project.
Burning mechanisms are schedule to be emplaced in 2022 to curb inflation as the utility becomes more widely adopted with the addition of some key implementations namely the Staking Derivatives.
Utility
As stated above the current utility of the token is for governance, staking, and voting. However there is much more planned in the near term as Cosmos will deploy their Gravity Dex and Gravity Bridge in 2021-2022.
The Gravity Dex will be the first inter-chain decentralized exchange created for the Cosmos Hub. It is an AMM that will link ATOM, BNB, CRO, LUNA, and any other coins that utilize Tendermint as well as be able to swap for any of the 1000s of tokens outside of the eco-system.
“The Cosmos ecosystem needs an interchain DEX,” explains Tendermint CEO Peng Zhong. “Tendermint is bringing B-Harvest in-house to launch and scale Gravity DEX so that any token within Cosmos — and from other blockchains — can be traded freely on an exchange that is permissionless and trustless. Interoperability is the future of blockchain, and it’s made widely possible by IBC.”
The Gravity Bridge is a bidirectional bridge intended to pull as many transactions and as much value as possible into the orbit of the Cosmos Hub by bridging it directly to Ethereum. It uses batched transactions and is optimized to utilize small amounts of gas.
Current Users/Projects
Some well known projects are in the "orbit" of Cosmos. Binance, BINANCE Smart Chain, KuCoin/KuChain, Band Protocol, Kava, The Graph, Terra (LUNA), ThorChain, Crypto.com, Ethermint, and over 200 others have either used Tendermint/Cosmos SDK to build their platforms or are a part of the Cosmos ecosystem.
*I would look to see Band Protocol heavily leveraged as the oracle of choice within this ecosystem*
Risks
There are risks associated with the project. A key risk is that Polkadot, who also aspires for inter-chain compatibility, dominates the market share. However with the future of crypto moving to interoperability more choices and additional layers of compatibility and security will be needed. This is not a zero sum game though and both can prosper. They have different methods to obtain interoperability and could complement one another.
Second, the video below highlights a valid point in that Cosmos could eventually become obsolete if another already existing Tendermint built Hub...cough...cough...Binance were to overtake a governance role within the Cosmos Hub. The tools provided by Tendermint were open source and no staking of ATOM was required to enter the Cosmos Hub. Additionally, there was never a requirement that blockchains built on Tendermint ever had to join the Cosmos Hub.
Conclusion
There is quite a bit to like about the Cosmos ecosystem; they have some big developments on the horizon. I have been looking at it the past few months and now might be an optimal entry point for me to snatch some up at a discounted price. I already have a nice bag of Polkadot, so I think I may just have to hedge my bets and go with both horses in this arena.
I will leave you with an informative and easily digestible Cosmos video from Coin Bureau. Thank you for reading! Have a great week and if you enjoyed the content feel free to give me a thumbs up.
