Cosmos: A Structural Recap
Cosmos is not a blockchain network, but a network of blockchains. Unlike Ethereum where transactions are processed on rollups that eventually settle down to its mainnet chain, or Polkadot where parachains stake $DOT to outsource security from its main “Relay Chain”, the Cosmos Network IBC (Inter-Blockchain Communication) design architecture resembles more of an archipelago of hubs that lets anyone create their own independent appchains (aka “zones”) and set up their own validator security.
In sum, Cosmos’ multi-hub architecture doesn’t try to unify a global shared state across all chains, but instead lets them connect to each hub if they so desire and do their own thing.
The main draw for building in Cosmos is a level of flexible modularity that isn’t possible on other smart-contract chains. It’s also much easier to build a blockchain from scratch on the Cosmos IBC thanks to its SDK and Tendermint consensus engine. Testament to its successful model are a range of up to 49 active Cosmos IBC chains, most notably Osmosis Labs, Cronos World, Evmos, Kava Labs, and many more, including dYdX’s decision to migrate from Ethereum to Cosmos.
But here’s the problem. Cosmos also runs its own hub in the IBC — the Cosmos Hub — a Proof-of-Stake blockchain with its own ATOM token that functions much like ETH on Ethereum (stake ATOM to secure the Cosmos Hub, pay transaction fees or vote on governance).
This means that appchains running their own validators directly compete with Cosmos Hub. Why does anyone need ATOM at all, when the Osmosis or dYdX or Cronos chains are running their own tokens and validators? Any builder can freely fork Cosmos Hub’s code to spin up its own Hub in the Cosmos IBC — and that is the whole point of the Cosmos design. This has sometimes been referred to as Cosmos Hub’s “identity crisis”, a complaint over ATOM’s lack of utility and value accrual.
It is surprising that Cosmos does not overtly try to place its own Hub on a pedestal and privilege it over other appchains. That is analogous to a government building a bunch of public goods (Tendermint, IBC, Cosmos SDK) in its country but letting other nation-states freely settle in its jurisdiction and run their own individual taxation regimes. Perhaps there is a first-mover advantage for the Cosmos Hub, but nothing formally baked into the Cosmos IBC protocol that necessitates the use of ATOM for other appchains.
With Cosmos 2.0, all that is set to change. At the Cosmoverse conference in Colombia last week, the Cosmos team released a white paper setting out a three-year roadmap of changes that radically overhauls the Cosmos ecosystem.
Cosmos 2.0: The Four New Improvements
- The first is Interchain Security which lets other Cosmos appchains “rent” security from Cosmos Hub (current staked value of $2.6M) for a fee, of which 25% is paid to ATOM stakers. This enables smaller Cosmos IBC appchains with a low market cap to better guard against whale validator attacks without sacrificing decentralization of its own validator network.
- The second is liquid staking, which enables the rehypothecation of staked ATOM tokens across Cosmos IBC, something ATOM stakers on the Cosmos Hub currently lack. ATOM’s current monetary policy is similar to pre-Merge ETH; it dynamically adjusts based on demand and supply of staking. ATOM inflation increases when staking is low, and decreases when staking is high. This will change into a deflationary direction over 36 months.
3. The third is the Interchain Scheduler, a cross-chain marketplace MEV (maximal extractable value) solution. Just like Ethereum, Cosmos suffers from MEV problems. Osmosis alone has leaked more than $6.7 million to arbitrage bots in value since its genesis in June 2021. The Interchain Scheduler will allow appchains to formally sell a portion of their blockspace in the form of (tradable) tokenized NFTs. The point here is to better allow users to execute block transactions in a trust-minimized manner. Unlike Flashbots that solves Ethereum’s MEV problems on a transparent off-chain market, the Interchain Scheduler brings these on-chain. (If you’re new to the MEV topic, see David’s The Ethereum Watershed)
4. The fourth is the Interchain Allocator, which is an unnecessarily technical way to say that Cosmos Hub’s treasury funds will be used to invest and fund new Cosmos chains through on-chain agreements. Stakers can lock up their ATOM in DAOs, granting them voting power over the DAO and be rewarded by Cosmos Hub funding if these DAOs succeed. The basic idea here is that Cosmos Hub will be a Big Player aligning incentives between ATOM holders and DAOs to create public goods, akin to Gitcoin in the Ethereum ecosystem.
Konstellation: A Great Opportunity
Konstellation Network is a blockchain protocol, built on Cosmos SDK, creating a global infrastructure for the future of the decentralized capital markets. Konstellation is set to greatly benefit from the improvements of Cosmos 2.0 — namely the improvement of SDK appchain security and liquid staking provisions. The interchain security updates will allow Konstellation to leverage the security of Cosmos Hub in exchange for a small fee. This will allow Konstellation to be shielded from all outside threats or malicious actors. The liquid staking feature of Cosmos 2.0 will help to decrease inflation of Cosmos native token, ATOM and will work to drive more value to blockchains built within the Cosmos ecosystem.
KONSTELLATION Network is a blockchain protocol, built on Cosmos Network SDK, creating a global infrastructure for the future of the decentralized capital markets.
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