The Cosmos ecosystem and ATOM 2.0
If you’re reading this pat yourself on the back for still being here.
You’re a degen that doesn’t run when the market gets harder to play.
Here are interesting things to watch in October for crypto:
Before we jump into today’s newsletter, let’s have a word from our sponsor.
Today’s newsletter is brought to you by DeFi Saver
One of the leading lending & borrowing protocols, Compound, recently released its long-awaited version 3 of the famous protocol. DeFi Saver empowers the new v3 experience with the most complete feature set to date:
● Dedicated Compound v3 dashboard with signature 1-tx (de)leveraging features and action combining (supply+boost, payback+withdraw).
● Automated Leverage Management and liquidation protection to help you stay safe from liquidation when leveraging assets like ETH using Comp v3.
● Loan Shifter support for easy 1-transaction Comp v2 migration or transfer from other integrated protocols.
● Recipe creation support to help you easily combine Comp v3 actions with other protocols (borrow base asset USDC and supply to one of the yield farming protocols for Comp interest + COMP incentives + yield interest).
● All *new* Notifications feature with prompt notifications about position ratio changes and executed automated transactions straight to your email or Telegram.
Manage Compound positions and automate your DeFi experience with DeFi Saver.
--------------------------------------------------------------------------------
The new Cosmos whitepaper was released last week, with some important changes.
Let’s have a look at the Cosmos ecosystem and ATOM 2.0.
The Cosmos Hub has successfully initiated the Internet of Blockchains, achieving its early goals by implementing the software stack used to build and connect app chains, meaning:
Cosmos SDK + IBC + Tendermint.
What is Cosmos?
Cosmos is a decentralized network of independent yet interoperable blockchains that are able to exchange information and tokens between each other permissionless.
The first blockchain on the Cosmos network is the Cosmos Hub and $ATOM is the native token.
Cosmos (layer 0) itself is not a blockchain but rather a framework for building out independent and sovereign blockchains.
Layer 0 protocols are the ground floor for all blockchain protocols.
While Layer 1 projects allow for decentralized applications (dApps) to be built on the blockchain such as Uniswap and Aave being built on top of Ethereum, Layer 0 projects allow for entire blockchains to be built on top of them.
One way to think about it is that $ATOM is the main hub and then there are a lot of blockchains connected to the hub called 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.
In other words, Cosmos is a decentralized ecosystem comprising many independent blockchains.
The original Cosmos vision has now been realized which was to create a secure software stack for building and connecting application-specific blockchains.
This was achieved through Tendermint + IBC + Cosmos SDK.
I won’t go through the details of the Cosmos stack here, but if you want to learn more about it, check out this great thread by @sandraaleow:
The new whitepaper has the goal of making $ATOM the most desirable, widely deployed reserve asset in the interchain of Cosmos.
However, there was one problem with $ATOM.
Because, why would you own the token in the first place?
The inflation in the token is very high, and not something you wanted to hold long-term.
As you can see in the figure below the old model operated with constant inflation pressure, while the new one will reduce inflation over time.
The subsidy will decrease by 10% every month for 36 months.
After this, inflation should be somewhere around 1% per year.
This is in stark contrast to today’s inflation in the $ATOM token of up to 20% per year.
Okay, so what’s new in Cosmos 2.0 and how can they achieve making it the preferred asset of Cosmos?
Let's go through the new model with these 4 parts:
-Liquid Staking
-Interchain Security
-Interchain Scheduler
-Interchain Allocator
1) Liquid staking:
For those of you who used the Terra ecosystem, you may remember Stader Labs?
When you stake normally, your assets get locked up so you can't use them for anything else.
With liquid staking, on the other hand, you get a representative asset that you can use for eg. going into a yield farm.
During DeFi autumn 21’ this was a concept I was a huge fan of.
Liquid staking is important because it solves the dilemma of staking vs liquidity by allowing stakers to remain liquid while securing the network.
Also, a higher staking ratio means lower $ATOM inflation.
2) Interchain security:
Cosmos is proof-of-stake. To secure the blockchain you need validators.
However, validators are not easy to get, so instead, one of the changes in the whitepaper is that new Cosmos projects can rent security from the Cosmos Hub validators. To pay for the rent, the projects pay with token inflation and fees.
This results in security for the new project + extra coins from new Cosmos ecosystems that are launching to stakers of $ATOM.
As an extra benefit, this should boost the token price of $ATOM long-term.
Interchain security will launch January 2023.
3 & 4) Interchain Scheduler & Interchain Allocator:
The Scheduler generates revenue by charging a matching fee for its secure, on-chain blockspace market ( $ATOM = settlement asset)
The revenue earned from the Scheduler is used by the Allocator to add new projects which expands the Scheduler's addressable market ( $ATOM = reserve asset).
With these primitives, the Cosmos Hub will become an economic engine that drives the expansion and integration of the Cosmos Network.
This new monetary policy for $ATOM has two phases: transition and steady state.
The transition phase starts the moment that Cosmos shifts to the new monetary policy and ends 36 months later, at which point the steady state phase begins and lasts indefinitely.
At the beginning of the transition phase, 10,000,000 ATOM are issued per month.
This issuance decreases at a declining rate until it reaches steady state issuance 36 months later.
Steady-state issuance will be 300,000 ATOM per month.
Treasury:
Another important feature is the treasury
Some parts of the issuance are directed to the new Cosmos Treasury and will be used to support initiatives that increase adoption, growth, and capitalization of the interchain, including public works and opportunities for expansion.
Combined all these new implementations for the Cosmos ecosystem will lead to growth for $ATOM.
And if $ATOM grows, the treasury will grow.
And if the treasury grows the value of the ecosystem will grow.
In other words, a positive fly-wheel.
Just to end this since it's always a question from readers:
"What do you think of the price of $ATOM?"
As long as the macro economy in the world looks like shit, I don't expect $ATOM to make a huge run. It's correlated to the movements of $$BTC and $ETH, which again is correlated to Nasdaq.
Another thing that is important to remember is that the inflation in the $ATOM token will temporarily be high in the short term. In terms of price, this is not bullish.
Do I buy $ATOM now?
No. I'm not a DCA-person, and I instead prefer to trade trends (now we're just in a range that has lasted for quite some time.
With that said I think what the Cosmos ecosystem has built and the plans they have for the future, $ATOM will definitely be a token that will be one of the biggest in the coming years in terms of market cap.