“The Cosmos is all that is or ever was or ever will be'' - Carl Sagan said it best. The CEO of Tendermint, Peng Zhong, also uses this ideology to describe the Cosmos Network, saying that “The Cosmos is absolutely everything in the universe and that's how we see Cosmos blockchains, being all interconnected together within the same universe”. The Cosmos Network, otherwise known as “The Internet of Blockchains”, is an ever-expanding ecosystem of interconnected apps and services built for a decentralized future. But before we dive any further into how the Cosmos Network has completely changed the blockchain landscape, let’s take a look back at the history and evolution of blockchain technology.

The idea of a blockchain was conceptualized in 2008 when the Bitcoin whitepaper was published by Satoshi Nakamoto. This peer-to-peer digital currency used an innovative consensus mechanism called Proof-of-Work (PoW) and was the first decentralized application to be built on a blockchain. Simply put, a blockchain can be described as a digital ledger that is duplicated and openly distributed across the entire network of computer systems. But let's break it down into more technical terms.

A blockchain is a deterministic state machine replicated on full-nodes that retains consensus safety as long as less than a third of its maintainers are Byzantine. A state machine is essentially just a program that holds a state and updates it when new inputs are received. Blockchains are deterministic in nature, meaning that you can replay the same transaction from the same genesis state and always end up with the same resultant state. Blockchains retain consensus safety by allowing every honest node that replicates that state machine to see the same state at the same time, safety will be guaranteed as long as less than a third of validators are Byzantine (a Byzantine node is a node that acts maliciously).

Typical blockchain architecture can be divided into three conceptual layers:

The state machine is the same as the application layer, it defines the state of the application. The other layers are responsible for replicating the state machine across all of the connected nodes in the network.

We can think of Bitcoin as Blockchain 1.0. The origins of blockchain technology started here. At that time, any developers that wanted to create decentralized applications had only two options; they could fork the Bitcoin code or build on top of it, which was no walk in the park. Within the Bitcoin codebase, all three layers—networking, consensus, and application — were mixed together along with a scripting language that wasn’t user-friendly. As time went on and this technology became increasingly more popular, it was clear that better tools were needed. This is where Ethereum came into play in 2014.

We can think of Ethereum as Blockchain 2.0. Ethereum was created with the idea that there would be a single blockchain where people could deploy any kind of decentralized application or program. It achieved this by turning the application layer into the Ethereum Virtual Machine (EVM). The EVM can process programs called smart contracts that developers can deploy to the Ethereum blockchain in a permissionless fashion allowing everyone to join and participate. While Ethereum certainly brought in thousands of developers to start building dApps and kickstarted the idea of a world computer, certain limitations arose:

These limitations are not specific to Ethereum but to all blockchains trying to create a single platform that would fit all use cases. This is where Cosmos comes into play.

Cosmos has a very clear vision; to make it easy for developers to build blockchains and break the barriers between blockchains by allowing them to transact with each other. This vision is achieved through a set of open source tools like Tendermint, the Cosmos SDK, and IBC designed to let people build custom, secure, scalable and interoperable blockchain applications quickly.

The Cosmos Network is a decentralized network of independent, scalable and interoperable blockchains, each powered by a Byzantine Fault-Tolerant (BFT) consensus algorithm such as Tendermint Core. Cosmos looks to solve three primary problems in blockchain: sovereignty, scalability, and sustainability. Cosmos is all about the multi chain world where multiple sovereign blockchains are communicating data and tokens seamlessly together. This creates a collaborative ecosystem because no project or blockchain in the ecosystem is here to take away from anyone else, instead Cosmos bridges them all together. 

Core features of Cosmos:

Until recently, all three layers, Application, Consensus, and Networking, were all required to build a blockchain. Ethereum simplified the development of dApps on blockchains with the EVM, but this didn't simplify the development of blockchains themselves. Tendermint BFT packages the Networking and Consensus layers together into a generic engine, allowing devs to focus on the application as opposed to the complex underlying protocol. This saves hundreds of hours of development time and allows for application specific chains to be created. 

Tendermint designated the name of the Byzantine Fault Tolerant (BFT) consensus algorithm used within the Tendermint BFT engine.The engine is connected to the application by a socket protocol called the Application Blockchain Interface (ABCI). This protocol can be wrapped in any programming language, allowing developers to choose any language they see fit.

Tendermints relationship to Cosmos is sort of like Consensus’s relationship with Ethereum.

Even though Tendermint BFT reduces the development time of a blockchain from years to weeks, building a secure ABCI-app from scratch remains a difficult task. The Cosmos SDK is a modular framework that simplifies the process of building secure blockchain applications. Cosmos SDK is based on two major principles:

The Cosmos SDK comes with a set of tools for building command line interfaces (CLI), REST servers, and a variety of other utility libraries. Since it is designed to be modular, not only can developers build on top of Tendermint BFT, but it can be used with any other conesus engines that implement ABCI.

With the help of Tendermint BFT and the Cosmos SDK, developers now have a way to quickly build secured and customized blockchains. Now with the help of the Inter-Blockchain Communication (IBC) protocol, these blockchains can now be connected together. The IBC is a protocol that leverages the instant finality property of Tendermint consensus to enable different blockchains talk to each other, allowing them to transfer tokens and other data trustlessly. Since the conception of decentralized applications came to light in 2008, the number of new blockchains being built has grown exponentially. These different chains have different value propositions and therefore have different use cases and requirements. It's nearly impossible for each of the popular blockchains to communicate with each other. Think of it this way; imagine every blockchain right now as a different planet spread out across the vast universe. IBC acts as a spaceship faster than light that can travel to different planets sending messages frictionlessly. IBC opens up a world of possibilities allowing for interoperability and value transfer, without running into the scaling issues seen today in some of the largest blockchains.

The first IBC connection took place on April 2nd, 2021 when IRISnet enabled IBC transfers, completing the first cross-mainnet token transfer with Cosmos Hub. The second IBC connection went live on April 24th, 2021 when Akash Network enabled ATOM <> AKT swaps and multi-currency settlement via Cosmos Hub. The Cosmos community has created a great list of other Cosmos chains planning to enable IBC that you can view here.

In order for a blockchain to enable IBC, they must meet important technical requirements. They must first meet certain specifications surrounding their module system, consensus state introspection, etc. (you can read more about that here). Many blockchains are already working on meeting these requirements and the growth of Cosmos’ extended network of interconnected blockchains is already well underway. Bridges to Proof-of-Work (PoW) chains like Bitcoin and Ethereum are already being built. The Gravity Bridge to Ethereum could be a key component in the growth of DeFi to other chains, as it will enable free flow of ERC20 tokens between Ethereum and other EVM-enabled chains to the Cosmos Hub.

Example: Chain A sends 10 ATOM tokens to Chain B

Tracking: Continuously, Chain B receives the headers of Chain A, and vice versa. This allows each chain to track the validator set of the other. In essence, each chain runs a light-client of the other.

The tokens that have been created on Chain B are not real ATOM, as ATOM can only exist on Chain A. There is a representation of ATOM on Chain B from Chain A, along with proof that these ATOM tokens are frozen on Chain A.

IBC allows two blockchains to transfer tokens to each other, but from there how do we create a network of blockchains? You could connect each blockchain in the network with every other blockchain via direct IBC connections, but the problem with this is that the number of connections in the network grows quadratically with the number of blockchains. So 100 blockchains in the network that each need to maintain an IBC connection, you’re looking at 4950 connections. To solve this problem, Cosmos purposes a modular architecture with two classes of blockchains; Hubs and Zones.

Zones are regular blockchains while Hubs are blockchains specifically designed to connect Zones together. Once a Zone creates an IBC connection with a Hub, it automatically has access to every other Zone that is connected to it. This means that each Zone only needs to establish a limited number of connections with a set of Hubs. The first Hub launched in the Cosmos Network is the Cosmos Hub.

At the heart of the Cosmos ecosystem is the Cosmos Hub and its native ATOM token. The Cosmos Hub pioneered a new era in the blockchain industry by becoming the first public Proof-of-Stake (PoS) blockchain built on top of a Byzantine Fault Tolerant consensus engine. The Cosmos Hub is set to play a major role in the interchain by offering a wide variety of services and features:

Each new service on the Hub generates fees, and fees generate rewards. The more activity on the Hub, the more fees paid out by services and the more rewards ATOM stakers receive. 

The ATOM token is the Cosmos Hub’s primary token and secures the Hub’s valuable interchain services. Holders of ATOM can stake their tokens to contribute to the security of the network, receiving rewards in return. Additionally, ATOM stakers are granted the right to vote on Cosmos Hub’s governance decisions. Typical APY 9.7% of staked ATOM annually. Staking rewards are generated and distributed to staked ATOM holders in two ways: 

Public Fundraiser: 67.9%

All in Bits, Inc. (dba Tendermint): 10.0%

Interchain Foundation: 10.0%

Strategic: 7.0%

Seed: 5.1%

The price of ATOM started off the year at $5.9 before gaining an incredible amount of momentum in February. We saw ATOM surge from under $10 to over $25 within the first two weeks of Feb before consolidating in a range for the next two months. During that time, ATOM’s average daily trading volume increased to record highs of $1.4B. In May, ATOM spiked to a new all time high price of $28.9. Since reaching new highs, the price of cooled off and found support near $11.5, despite trading volume reach new yearly lows.

Among the top 20 smart contract platforms by market cap, ATOM ranks #14 in YTD returns at 92%. 

Jul 22, 2021 - DeFi Oracle Band Protocol Boosts Interoperability within the Cosmos Ecosystem

Jul 13, 2021 - Bringing DeFi to Cosmos: The Gravity DEX Protocol is Live

Jun 15, 2021 - The Cosmos Hub Roadmap 2.0

May 19, 2021 - Gravity DEX Testnet Competition Retrospective and Prizes

May 3, 2021 - Deep Dive: How Will IBC Create Value for Cosmos Hub

The Cosmos ecosystem has grown at an impressive rate this past year, as widely known projects have adopted the technology. Cosmos secures $70B USD in digital assets across 248 different apps and services. Below is a list of the top 15 projects within the Cosmos ecosystem.

The first cross-chain DeFi protocol on the Cosmos Hub is now live. The Gravity DEX marks the biggest stride forward for Cosmos so far. Gravity DEX unlocks an incredible amount of utility for the Cosmos Hub, as it is the most secure cross-chain decentralized exchange secured by over $3B of digital assets.. The Cosmos ecosystem includes Cosmos Hub, Binance Chain, Terra, Crypto.com, THORChain, and many more. Gravity DEX enables permissionless swaps and pools between any two blockchains in the rapidly growing ecosystem. Despite that list of widely recognized projects, many tokens in the Cosmos ecosystem have been hard to purchase in the past as many of them are not currently available on centralized exchanges. Gravity DEX will provide immediate access to early-stage innovation and allow token issuers to list their tokens here going forward.

Gravity DEX will completely democratize DeFi by lowering transaction fees to an average of 8 cents ($0.08). The protocol uses an innovation called the Equivalent Swap Price Model (ESPM) that improves price discovery by landing on precisely the latest swap price. Gravity DEX improves on the Uniswap model by using batch execution to remove the possibility of frontrunning or price manipulation.

There was fantastic feedback on the Gravity DEX testnet competition that ran in May 2021. More than 21,000 traders competed for $200,000 prize pool, racked up more than 715,000 transactions and $900,000,000 in total trading volume.

Since Gravity DEX is an open source protocol, developers and third parties can build platforms on top of it. All Gravity dex fees will be paid in ATOM, giving the token even more utility.

Introducing Emeris, the cross-chain portal to all crypto apps. On Jul 7, 2021, Tendermint announced Emeris, a one-stop portal for all crypto apps no matter what blockchain they run on. Emeris has Gravity DEX integration, built with cross-chain trading in mind. The beta version will be launching this month and will let users experience cross-chain DeFi like never before. Since Emeris is built by Tendermint, the same developers that built Cosmos, the core principles of a multi-chain, interconnected universe were applied. With each blockchain having their own leading projects, the numerous applications become severely fragmented, leaving users without access to the best apps in one place. This is where Emeris comes into play.

Emeris will have a non-custodial dashboard that provides you with a consolidated view of your crypto holdings across different Cosmos chains. You will be able to transfer coins between chains, swap coins for low fees, and participate in liquidity pools. This single, easy-to-use interface will allow you to access decentralized applications built on various blockchains and will be extending its line of products with a mobile app and a browser extension wallet.

Emeris’ visions revolve around one main concept: blockchain agnosticism. Emeris seeks to integrate the best decentralized applications no matter what sector they belong to. It will eventually provide access to various types of protocols; lending, yield farming, NFT market places, payment apps, data storage, and many more. The starting lineup of supported chains includes Cosmos Hub, Crypto.com, Akash Network, IrisNet, Persistence, Osmosis, Regen Network and Sentinel. New chains will be continuously integrated.

The Gravity Bridge is an Ethereum-Cosmos bridge designed for the Cosmos Hub. Gravity Bridge was created to pull as many transactions and as much value as possible into the orbit of the Hub by bridging it directly to Ethereum. Gravity Bridge will be able to bring ERC20 tokens from Ethereum into Cosmos and vice versa. ATOM and every other token in the Cosmos ecosystem will be able to be traded on Uniswap and other DEXes bringing a huge amount of liquidity and value to these tokens.

Osmosis is an advanced AMM protocol built using the Cosmos SDK that will allow developers to design, build, and deploy their own customized AMM. Osmosis is designed such that the most efficient solution is reachable through the process of experimentation and rapid iteration by leveraging the wisdom of the crowd. It offers deep customizability to developers and a governance mechanism  that allows each AMM pool’s stakeholder (liquidity provider) to govern and direct their pools. Osmosis core features:

This report is for informational purposes only and is not investment or trading advice. The views and opinions expressed in this report are exclusively those of the author, and do not necessarily reflect the views or positions of The TIE Inc. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report. You are fully responsible for any decisions you make; the TIE Inc. is not liable for any loss or damage caused by reliance on information provided. For investment advice, please consult a registered investment advisor.