What’s more likely for Cosmos? 10x up or 90% down? Well, to answer this question I’m going to evaluate Cosmos across five different categories and grade it for each one, and at the end we’ll bring it all together for a final verdict.
Token Performance
First, we got to look at the performance of its ATOM token. This past bull market ATOM reached an all-time high market cap of 11 billion dollars, that corresponds to a 7.5x increase in price. That’s not bad but it’s nowhere near as good as what ADA and DOT did. I bring up those two projects because they’re roughly in the same tier as Cosmos. But one thing that puzzles me is why ATOM lag behind its peers so much, even though huge projects are using their SDK and their IBC protocol. Well, the simplest explanation is that the ATOM token does not do a good job at capturing value. This means that the Cosmos ecosystem could be generating a ton of economic activity, but very little of that flows to their token and increases demand.
Truth is you can do a lot of stuff in the Cosmos world without ever needing their token. For example, all those big and successful projects built on the Cosmos SDK don’t need the ATOM token. They can have their own native token that they can use for paying fees, and you don’t even need ATOM to utilize their cross-chain IBC protocol either. So that’s two of their most widely adopted products, that don’t benefit ATOM holders at all.
However, this article is about the future, and the team has announced some promising upgrades which could change my mind. For example, they’re planning to add shared security to Cosmos, which means you can stake ATOM to not only secure the main Cosmos hub, but also new projects that don’t want to bootstrap their own validators. People are also excited about liquid staking coming to Cosmos because it could “Increase liquidity and token utility across all interconnected chains, thus boosting activity and yield opportunities across the board.” Both of these features could help ATOM capture a lot more value, but for now I’m going to give them a 5 out of 10 when it comes to token performance.
State of Ecosystem
Since Cosmos is a layer 0 blockchain, it’s super important for it to have a healthy ecosystem. Fortunately, Cosmos looks good in this area with over 250 apps built on top, and if you combine all IBC enabled blockchains, their collective market cap is over 10 billion dollars. I am super impressed by all the different types of blockchains that have been built using their SDK, you got EVM compatible chains like Cronos or Evmos.
Then there’s application specific chains like OSMOSIS or INJECTIVE. These are tailor made for one use case, such as lending or trading. Finally, there’s general purpose chains like Terra, Juno or secret network. Not all of these chains are connected to each other through the IBC protocol, but more and more are starting to enable this feature lately. In fact, there was around 20 billion dollars’ worth of cross chain activity that flowed through the IBC in the past 30 days. It’s not just these existing projects though, the Cosmos ecosystem is expanding rapidly, and they have a lot of new projects on the horizon like CELESTIA and umee, are two I’m keeping an eye on. So for ecosystem health I give them an 8 out of 10.
Developer Activity
Something that I consider even more important than a project’s ecosystem is how popping their developer scene is. According to Electric Capital’s 2021 developers report, Cosmos grew their total active developers by 70% in 2021 to over 1,000 total devs across their ecosystem. This puts them at number three overall in terms of developer activity, just behind Ethereum and Polkadot.
They’re also top five in terms of fastest growing developer base if you normalize for start date. But just why do developers love Cosmos so much? Well, the Cosmos SDK lowers their barrier to entry immensely. It lets you deploy a blockchain in a matter of weeks instead of months or years. Also, they have some of the best tooling and documentation in the whole crypto world.
Just go check out their ignite CLI which was formerly called Starport. This tool makes it so smooth and easy to build on the Cosmos SDK. By the way this really is not fair because they’re already great developers experience, it’s going to get even better due to an upcoming project called Archway. This project is going to give out rewards to developers that build popular smart contracts. So you can imagine how many more builders is going to attract to Cosmos. I got to give them a 9 out of 10 when it comes to developer activity.
Overall Strategy
Cosmos is high level strategy. Is it good or bad? Well, they’re focused on interoperability, and with more blockchains than ever before, plus over 100 billion dollars locked across those chains. It’s pretty evident why we need interoperability. Just look at all the bridges that connect to Ethereum. At their all-time highs, there was over 20 billion dollars locked across those bridges, so the addressable market for Cosmos is already large, and it’s still growing rapidly.
The problem is they are not the only interoperability project in town, there’s a lot of competitors that come in different forms. In terms of pure blockchains, polka dot is its closest competitor. You can make the case the DOT is a better interoperability bet, because you need it for Parachain Auction and to pay gas fees on the relay chain.
There’s also Avalanche and Polygon that are both going for the internet of blockchains approach as well. Besides those there’s also projects like Wormhole that are enabling cross-chain activity in their own ways. It’s a real risk for Cosmos, that these other projects could eat into their market share.
But maybe Cosmos approach is better than its competitors. Let’s look at the Wormhole exploit, which allowed an attacker to print wrapped Ether on one side of the bridge without depositing anything on the other side. Something like that would have never happened with Cosmos because all assets are required to be registered with the IBC’s independent hub.
Another argument is that we’re thinking about this all wrong, and that these projects are actually not competitors of Cosmos. It might be the case that more interoperability, accelerates network effects for all these ecosystems, and the metaphorical pie grows as a result. This actually makes kind of sense because if you have Cosmos Assets flowing to Polkadot and vice versa, that can bring a lot more liquidity and new utility that wasn’t there before. That’s why I’m giving them an 8 out of 10 in terms of overall strategy.
Future Roadmap
However, the most important thing we have to look at, is their upcoming roadmap for 2022. They have their entire roadmap public and there’s four main upgrades, one for each quarter. They already launched their Q1 upgrade called theta, which brought these really cool things called interchange accounts. These let you execute transactions in a different blockchain than the one that you’re currently on, as long as they’re connected through the IBC.
Later this year they plan on rolling out liquid staking and shared security – Remember those are the two big upgrades that I mentioned earlier. I think that those can bring a lot of new value to ATOM. In general, I have to give them props because the team put out such a detailed roadmap, and they’ve executed on it quite promptly, at least compared to some of their peers. So that’s why I’m going to give them an 8 out of 10 when it comes to future roadmap.
Final Verdict
If we just do the math my final grade comes out to a 7.5 out of 10. But in terms of my forecast of 10x up or 90% down, I’m going to be more nuanced here. I do think Cosmos has 10x potential, leading into the next bull market. But unfortunately, that’s going to take longer than this year to realize. During this bear market I think 90% down is much more likely. Keep in mind that a lot of the things I’m excited about, for Cosmos, are still quite early stage. So give it some time to mature and it should be ready to roll by the next bull market.