Cosmos, a public chain that has the potential to compete with Bitcoin and Ethereum ecosystems.

Exploring the Cosmos The Promising Public Chain Challenging Bitcoin and Ethereum Ecosystems

Author: Terry, Plain Language Blockchain

On November 26th, the Cosmos Hub community underwent a thrilling voting reversal and finally passed the proposal “ATOM Production Reduction: Setting the Maximum Inflation Rate to 10%” at the last moment. This also means that the maximum inflation parameter of ATOM will be reduced from 20% to 10%, thereby reducing the current inflation rate of ATOM to 10% and reducing the staking annual interest rate from 19% to 13.4%.

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Recently, whether it’s the heated discussions sparked by this proposal in the community or the impressive performance of projects such as Injective, Celestia, and Kuji, Cosmos has once again received widespread attention. As one of the “cross-chain pioneers” and a previous top-tier project, Cosmos has shown some variables worth looking forward to, haven’t they?

01 Cosmos High Inflation “Halving”

As we all know, the high inflation of ATOM and the lack of value capture capabilities have always been the two key issues that Cosmos ecosystem has been criticized for.

Among them, the lack of value capture capabilities of ATOM is an old topic. Currently, there are many projects developed based on Cosmos SDK, but its positioning is more like a public product. Whether it’s the once-prosperous Terra ecosystem or the current Injective, dYdX, etc., they fundamentally do not directly empower ATOM.

And last year’s voting on the Cosmos 2.0 whitepaper, which aimed to solve this problem, was not approved. The utility empowerment of ATOM failed.

This year’s latest proposal aims to solve another equally troublesome “high inflation problem”: The current issuance mechanism of ATOM mainly comes from the Staking mechanism, with an annual issuance rate of up to 20% as staking rewards.

Such high returns have indeed attracted many hodlers to participate in staking in the past few years, thereby ensuring the safe operation of the entire Cosmos network. But at the same time, it’s a double-edged sword:

High returns mean high inflation rate. ATOM has been increasing its issuance from around 200 million in 2019 to the current 370 million, which also means selling pressure of over 1.5 billion USD at the current market price. What’s even more terrifying is that if this continues, inflation could reach 2 billion by 2035, more than five times today’s value.

This is also the core of this proposal—to reduce the maximum inflation rate of ATOM to 10%, in other words, halving it. At the same time, in order to make up for the loss of staking incentives, there will be exploration of better incentive measures and improvement of network security.

In the short-term, this will cause losses to staking users, especially large holders (hence the probability of passing was very slim during the voting period, until it was reversed at the last moment). But in the long run, it undoubtedly benefits the entire ATOM community. As a result of this news, ATOM directly rose by 10%.

02 The Blooming Cosmos Universe

In addition, the Cosmos universe seems to be gradually emerging from a period of retrograde. Projects like Injective, Celestia, Kuji, and Thorchain have all experienced significant gains, especially with the emergence of several billion-dollar ecological projects.

Among them, the most noteworthy is the decentralized cross-chain trading protocol THORChain (RUNE). It is built on the Cosmos SDK and is dedicated to achieving cross-chain transactions of various native assets, such as directly exchanging BTC for ETH without wrapping assets. Its biggest feature is its lack of clearing risks.

Since the second half of this year, RUNE has experienced a rebound, returning to the mainstream project narrative. Due to its unique token empowerment mechanism, where the cross-chain trading logic of THORChain revolves around RUNE, and the value of RUNE staked on THORChain is three times that of other assets, RUNE is able to directly capture the value of ecological growth.

Starting from October, RUNE has risen more than 4 times, reaching a total market cap of 1.6 billion USD, making it a prominent player in the Cosmos ecosystem.

Furthermore, Injective (INJ), a Layer1 blockchain built specifically for financial applications based on Cosmos, has also performed exceptionally well this year. Its biggest feature is its decentralized and modular order book. The token INJ has increased by more than 10 times this year, with a total market cap of 1.5 billion USD, making it almost second only to THORChain in existence.

In addition, TVL in the Cosmos ecosystem’s Kujira has grown more than fivefold since September, going from around 16 million USD to over 80 million USD in just over two months, showing an astonishing speed. The token KUJI has also surged nearly 400% in three months, truly having the characteristics of a dark horse.

Especially in just a year and a half, it has grown from the chaos of Terra’s collapse to a rising star in the Cosmos ecosystem, becoming a “rebirth model” in the crypto world.

From these angles, the most fascinating aspect of the Cosmos ecosystem is the emergence of these spontaneously evolving and continuously growing “small universes”. This is also its greatest advantage compared to other established public chains like Polkadot:

Each project is building its own set of trading and liquidity infrastructures, striving to become a node in the Cosmos universe. Once network effects are formed, they will progressively become reservoirs of Cosmos and turn into vampires for other blockchain networks.

Especially for projects like Thorchain, Celestia, which serve as the “quasi-infrastructure” for most projects, they have gradually integrated into core DeFi protocols and other ecosystems. With further development, they are helping the Cosmos ecosystem expand its territory.

On this basis, the ecological synergy advantage of Cosmos is gradually being demonstrated, especially the expansion of these mini-universes and the rapid expansion of overall scale use cases. Once ATOM is empowered through future empowerment plans, it will be able to quickly capture the maximum network value.

03 Cosmos Behind the Cycle of Public Chain Narratives

In 2023, looking back, it seems that the narrative of public chains is like flipping pancakes.

I still remember the hype of “new public chains” in 2018, where the momentum seemed to quickly overshadow Bitcoin and Ethereum with projects like Polkadot, Cosmos, and EOS.

But since 2020, the rise of isomorphic chains and Layer 2 networks such as BSC and Arbitrum has sparked a debate on “multichain or cross-chain” and caused the heat around new public chains to decrease.

Although subsequent projects like Solana and Avalanche, with their high-performance narratives, regained attention, the occurrence of industry earthquakes in 2022, especially the widespread adoption of Rollups, once again reduced the focus on “new public chains” and “new new public chains”.

However, it is worth noting that in recent times, the industry has once again sparked a major discussion on Ethereum and Layer 2, especially the significant problems that cannot be ignored between Layer 2 projects based on the expansion concept: liquidity fragmentation, incompatibility between projects (OP system and ZK system), and so on.

In particular, high-performance heterogeneous chains like Solana have dominated the interest in competing public chains over Layer 2, leading us to contemplate: where will the future of public chains go?

Although the early narrative of public chains was full of hype and enthusiasm, as time goes on, people’s understanding of public chains is continuously evolving. At this turning point, we may see more innovative and practical public chains emerging, which is definitely something to look forward to.

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