November 2021

The Connected Cosmos Ecosystem

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The Cosmos ecosystem is growing at an electrifying rate. The Cosmos SDK is becoming the default standard for the creation of blockchains, resulting in the sprouting of new platforms connected to one another via Cosmos’ Inter-Blockchain Communication (IBC) protocol.

The Cosmos ecosystem is growing at an electrifying rate. The Cosmos SDK is becoming the default standard for the creation of blockchains, resulting in the sprouting of new platforms connected to one another via Cosmos’ Inter-Blockchain Communication (IBC) protocol. In the last few months, we have seen a flurry of chain launches in the Cosmos ecosystem. These range from application specific chains, like the decentralized exchange Osmosis, to more general smart contract platforms like Juno. This month we will dive back into how Cosmos works and why it is seeing a surge of interest.

Cosmos is an ecosystem made up of a network of blockchains that are built to be compatible with each other. The team behind Cosmos believes that decentralized applications will not end up on a single smart contract platform, but instead many applications will run on their own chains with their own rulesets and sovereignty. These chains will be able to communicate with each other over the Cosmos network. The power of this modular design is that it is infinitely scalable and every chain can customize its own design.

In February 2021 we interviewed Ethan Buchmann, the co-founder of Cosmos. He explained that just as the Internet is a network of networks, so he expects blockchains to interconnect. The goal is to make Cosmos the easiest and most attractive place for engineers to spin up new chains that are by default connectable with all other Cosmos chains.

There are two key pieces of software that power Cosmos; the Cosmos SDK and Inter-Blockchain Communication (IBC).

The Cosmos SDK

SDK stands for “software development kit” and is a collection of software tools and programs that are used by developers. The Cosmos SDK is the world’s most used framework for building blockchains. It includes libraries, documentation, code samples and guides that enable engineers to quickly deploy blockchains and applications. It is a modular system that allows developers to add specific functionality into their chains by adding modules from the SDK.

By way of analogy, when you get to the counter of a Subway sandwich shop you have the option of a variety of fillings to put inside your standardized 6-inch bun. With the Cosmos SDK, the standardized bun is the blockchain which can be kitted out with an array of different features. For example, there is a voting module called “gov” that supports an on-chain governance system. This module allows native token holders of a chain submit proposals and vote on proposals. Another module called “bank” turns on token transfer functionality, while the “distribution” module describes a functional way to passively distribute rewards between validators and delegators. One of the most important modules of the Cosmos SDK is “IBCModule”, which enables chains to interconnect with each other.

Inter-Blockchain Communication

The Inter-Blockchain Communication standard (IBC) was launched earlier this year and is a key feature of Cosmos. This standard allows any blockchain that is built using the Cosmos SDK to communicate with any other Cosmos chain. This communication can take several forms. At the simplest level, tokens can be transferred from one chain to another chain. For example, UST can be transferred from the Terra blockchain onto the Osmosis DEX, or your favourite NFT can now move between chains. A more complex IBC transfer would be the sending of oracle data feeds between IBC-compatible chains. For example, a DeFi focused application running its own chain may request real-world / real-time price feeds from BandChain.

If you imagine every blockchain as its own small country with its own economy and trade, then IBC is the shipping lane, allowing goods (digital assets) to flow between these countries. As more and more countries appear the need for these shipping lanes grows. Over time, these lanes ferry an increasing quantity of goods and information between the sovereign countries. IBC provides a vital service for the blockchains that are in the Cosmos ecosystem and are built using the Cosmos SDK.

An expanding ecosystem

Since IBC launched, we have started seeing a range of new blockchains emerge that make use of IBC.

  • Terra: one of the leading stablecoin platforms in the world, with Luna (it’s native currency) already with a market cap of around USD20bn (CMCC Global was seed investor into Terra through its funds 1, 2 and 3 three years ago). Terra was built using the Cosmos SDK and in the last month a vote was passed to turn on its IBC functionality. The result is that UST, the USD pegged stablecoin on Terra, can now be transferred onto any IBC enabled blockchain in the Cosmos ecosystem. This is great for Cosmos, as it now has a leading stablecoin as part of its ecosystem. It is also good for Terra, as its stablecoins can be integrated into a larger array of applications.
  • Osmosis: the brainchild of Sunny Aggarwal, one of the most prominent Cosmos core devs, Osmosis is a decentralized exchange. Technically, it is an advanced Automated Market Maker (AMM) protocol that allows other developers to design, build, and deploy their own customized AMM. Osmosis was launched in June 2021, and it already has over USD600m of liquidity spread across over 500 different trading pools. Osmosis has had the greatest transaction volume over IBC of any chain.
  • Juno: a smart contract protocol that is interoperable with all networks in the Cosmos ecosystem. Juno is one of the first platforms to make use of a smart contract framework called CosmWasm, which is itself a module on the Cosmos SDK. The promise of Juno is to be able to write more secure, low-cost smart contracts that can be written in a variety of languages.
  • Akash: the world’s first decentralized and open-source cloud. Developers using Akash’s can access cloud computing at up to three times less than the cost of centralized cloud providers like Amazon Web Services, Google Cloud and Microsoft Azure.

At CMCC Global, we are excited by the clear adoption that is taking place on Cosmos. With IBC now turned on, we are starting to see a flurry of activity taking place between different chains in the Cosmos ecosystem. There are now over 20 active zones connected to IBC and 383 channels have been created connecting different zones to each other. Over 1.4m IBC transfers have been made in the last 30 days. We foresee the Cosmos ecosystem exploding over the next 12 months as more engineers arrive and make use of the easy-to-use Cosmos SDK and powerful functionality of IBC. We were one of the ten largest investors in Cosmos in its original fundraise in 2017 and remain long term holders of ATOMs and long term supporters of this exciting ecosystem.