On Cosmos
Mus uni non fidit antro.
The beauty of a living thing is not the atoms that go into it, but the way those atoms are put together. ― Carl Sagan, Cosmos
My thesis on crypto has been effectively unchanged since the early days. The international financial system, at virtually all levels, is structurally unsound and unsustainable. This is primarily the result of how we approach money and banking. The highly centralized bank-debt structure of money; the way money is so inequitably issued and distributed; the astonishing gap between financial flows and ecological flows has allowed a massively fragile system to emerge.
Soundness and sustainability are strongly associated with localism - with greater self-sufficiency in communities, with smaller radius supply chains, with more democratic decision making and ownership. There have always been more localist alternatives: mutual credit systems and credit unions, complementary currencies, time banks, lending circles, mutual aid, etc., but historically, they've struggled to scale.
Scaling a financial system is a matter of scaling trust across communities. Money is a vehicle for, and reflection of, this process. The medium is the message. Blockchains and cryptocurrencies provide the most credible foundation for overcoming this problem, of formulating and scaling new money systems. Money is the killer app, always was, and always will be.
The goal of this technology has been to cultivate and evolve a more sound and sustainable international financial regime that bridges the gap from local to global.
We are still in the very early days of this innovative stack. Working from simple, global cryptocurrencies to more application specific and local ones. No one quite knows what this should look like yet, but here are few thoughts:
Bitcoin is THE store of value for the 21st century. It will either break completely or vault above $1,000,000/BTC, if not much higher.
Ethereum is a materially transformative technology that has unleashed invaluable experimentation in economics. While much of it today acts like a casino, mechanisms being pioneered on Ethereum will revolutionize financial, economic, and political institutions. DeFi is squaring the Impossible Trinity.
Cosmos
Cosmos makes Ethereum's transformative tech more accessible through interoperable sovereignty. It provides the tools for building, operating, and interoperating more local financial infrastructure. The more I research the more I am impressed with the quality of the ecosystem.
The project was visionary from the very first day with its multi-chain and interoperability approach and a Proof of Stake algorithm. Also there is value to the fact that there is no self-proclaimed leader. Some will say successful blockchains rely on hyper present leaders who set the agenda and pace. However, a blockchain with no obvious leader is more in the spirit of decentralization and clearly deserves a decisive spot in the crypto landscape.
At Cosmos, there is no ''lab'' that decides and implements every core feature. Dozens of teams/companies are collaborating toward building a sustainable world class project. The vision is simple yet powerful: build and provide tooling to an ecosystem built around sovereign blockchains so they can flourish on their own.
Make no mistake, it is a profound concept as it promotes the idea of self sovereignty in a local way within a larger collective framework and governance. Cosmos is about empowerment of other communities, yet is against extractive practices.
There will be many blockchains and cryptocurrencies. Thousands that matter over the next 5 years. Millions that matter over the next 20 years. They will form an Internet of Blockchains with a dynamic topology. Chains and moneys will be created and destroyed, grown and shrunk, split and merged. This is creative destruction at its finest.
Each chain or cryptocurrency represents a different community and set of values. They provide a mechanism for stakeholders to coordinate via an explicit state machine to scale trust across their communities, and compete with incumbent, centralized powers. That partly explains some of the tokenomics issues, but also tells a lot about the long term vision of the different teams involved.
So how do blockchains built on Cosmos flourish by themselves?
By giving them access to an ever-expanding ecosystem of hundreds or thousands blockchains powered by communication tools so they can transact between each other. Each blockchain will bring its own economy and contribute to the overall health of the Cosmos ecosystem.
That is the role of IBC, which is still not appreciated for its fair value. Cosmos was the first Layer 0 to deploy this functionality and as more chains join Cosmos, more value will be created and more network effects will take place until reaching exponential growth. The more chains, the more opportunities as it means more users, more developers, and more liquidity. Osmosis is a perfect example of a decentralized exchange that was able to generate huge business (already $1 billion of TVL ) thanks to Cosmos liquidity.
The Cosmos teams have been relentlessly shipping code for many years now with a clear long term focus. Interoperability takes time to build, which then leads to the tokenomics of the ecosystem.
Many are well aware of the historic lack of value accrual on $ATOM, some even thinking that the layer 1 token is worthless. While the token clearly has some weaknesses, it should not hide the fact that all the teams were focused on developing the tools to power the ecosystem and that making a quickly appreciating token was not a priority. Now that Cosmos is maturing and ready to onboard more blockchains, it is time its tokenomics get revamped.
Here are some ideas and initiatives:
Working toward near 0 ATOM$ issuance rate (need for yield to be generated to make this work).
Value accrual through collected fees from the InterChain Security. This is happening soon.
Bootstrap $ATOM's utility as an index token for the Cosmos ecosystem by unlocking new project's airdrops to ATOM holders. This is already in place.
Liquid staking.
While most chains adopted a ''collect the fees first then build'' approach, Cosmos intelligently went backward. By building a world class product then working on monetization once the audience is satisfied with the product.
That's how a number of successful traditional tech companies operate and it is a model that makes a lot of sense when the number one priority is first and foremost to have a strong working ecosystem. Make a product that is indispensable and the rest will follow. Tokenomics, at the end of the day, can be easily fixed with the right focus. Building infrastructure, however, is hard while designing good tokenomics is easier.
Conclusion
Cosmos is instrumental and promising. The system uses all the advantages of Blockchains in the form of decentralization and reliability. At the same time, developers have added operational scalability and the ability to combine different Blockchains in one ecosystem.
Cosmos is a two-layer network in which each Blockchain operates independently providing a more thorough verification of transactions. New blockchains are constructed applying the Cosmos SDK and Tendermint Core and then coupled via an IBC layer.
ATOM’s own cryptocurrency is growing steadily in value. Its advantage is that it does not use the traditional mining mechanism. Confirmation of transactions does not involve expensive equipment and does not consume tremendous amounts of electricity. If development continues along the planned path, the project may become one of the most convenient IT technologies.
There remains tremendous potential for R&D in the blockchain and cryptocurrency space. Problems around privacy, scalability, economic design, developer UX, security, correctness, etc. But as we witness the current proliferation of new blockchain platforms, applications, and positive sentiment, we must not forget the goal: to evolve a more sound and sustainable international financial regime, to bridge the gap from local to global money and back.