Cosmos is a new type of blockchain architecture which seeks to create interoperability between hundreds or even thousands of parallel, independent blockchains. Each is built using the Cosmos SDK (software development kit) and can be launched in a matter of weeks, instead of the standard 6+ months.
The layer 1, Proof of Stake smart contract blockchain launched its mainnet in September 2020.
This technology also allows for faster and cheaper processes, with everything from NFT marketplaces to decentralised exchanges (DEXes) running on their own dedicated blockchains.
The largest Cosmos adopters are Binance and Terra (LUNA). Binance used the Cosmos SDK to develop both its DEX and the blockchain that hosts its native BNB exchange token: Binance Chain. BNB has a market cap of $60bn+ by itself.
Because popular layer 1 blockchains can be launched quickly and easily, we have a kind of nested, Russian doll-type situation where, for example, Terra runs on top of Cosmos, and Terra has popular DeFi apps like Lido, Anchor and Mirror running on top of it.
This is the vision of an internet of blockchains. In 2014, co-founders Ethan Buchman and Jae Kwon founded this network of blockchain networks, each of which has access to open-source development tools to streamline maintenance of their own architecture.
The creation of modular, application-specific blockchains will be a critical narrative for 2022.
ATOM, staking, airdrops
The Cosmos native token is ATOM, used to pay for transaction fees, execute smart contracts, and in staking to secure the Cosmos Hub. Users can earn up to 13% yield on their ATOM by delegating them to one of 150 validators. And because of the interconnection between Cosmos-based chains, ATOM stakers also receive automatic airdrops (free tokens to incentivise usage) from new chains that launch on Cosmos.
Valuation & DeFi TVL
According to Token Terminal, annualised revenue for Cosmos is only $1.8m, still ahead of Polkadot’s $1.4m but far behind Solana’s $50.6m and orders of magnitude smaller than Ethereum’s $15.6bn.
What this does not take into account, however, is that Cosmos-based DEX Osmosis produces double the revenue of Solana at $104.6m. Again, Cosmos is not a closed ecosystem but a blockchain composed of many other blockchains, each attracting their own liquidity and userbase.
Cosmos is a compelling project in the interoperability space, aiming to — and starting to succeed at — creating an ecosystem of interconnected blockchains. It boasts the Cosmos Hub mainnet that has been running smoothly for over a year, and multiple large projects including Terra and BNB that are built using the Cosmos SDK.
Its network effects are amplified by having multiple interconnected blockchains all running on Cosmos technology, able to share and swap data and assets cross-chain, as well as offering new token airdrops to ATOM holders and stakers, and we see this as a specific area of growth for the industry as a whole.
Given the amount of Total Value Locked on Cosmos-based DeFi, and the fact that its market cap lags behind top-10 cryptoasset projects like Solana, we see plenty of room for Cosmos to grow, and hence upside in the market price of ATOM.
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ETC Group has been created to provide investors with the tools to access the investment opportunities of the digital assets' and blockchain ecosystem. The company develops innovative digital asset-backed securities including ETC Group Physical Bitcoin (BTCE) and ETC Group Physical Ethereum (ZETH) which are listed on European exchanges including XETRA, Euronext, SIX, AQUIS UK and Wiener Börse.
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