Blockchain Platform Cosmos bets its future on a new white paper

by Arthur · November 3, 2022

(Bloomberg) — Backers of the Cosmos blockchain are betting that a revamp of the popular crypto protocol will boost the value of its native token amid the current bear market for digital assets.

A vote went live on October 31 for a new “white paper” that will give a new look to the Cosmos Hub, a blockchain platform that underpins a number of high-profile blockchains. While Cosmos is not as well-known as rivals like Ethereum, Solana or Avalanche, a number of popular projects were built on the Cosmos system, including the infamous Terra blockchain, which collapsed in May. Decentralized derivatives exchange dYdX, which is currently based on Ethereum, announced in June that it will build its own blockchain based on the Cosmos system.

“We are one of the most exciting ecosystems in crypto,” but one of the “least exciting tokens from crypto,” said Zaki Manian, co-author of the new white paper, or document explaining the technology and purpose of the project. “The goal of Atom 2.0 is really to change this by making Atom exciting again.”

Atom was trading at around $13.72, according to price data from CoinMarketCap. It traded for more than $40 in January.

Like the recently upgraded Ethereum blockchain, Cosmos Hub uses Proof-of-Stake mechanism to verify transactions, meaning users, or so-called validators, can stake their Atom tokens to secure the network. But chains that build in Cosmos often choose to use their own tokens to pay transaction fees and secure the networks, rather than using Atom. As a result, Atom tokens have largely failed to capture the value of Cosmos’ success. The new white paper could change that by making Atom the preferred resource used across the Cosmos system. For example, new chains in the Cosmos system can borrow Atom validators to secure their blockchains and verify transactions.

The new white paper also includes a proposal to reduce the total amount of Atom tokens and reduce the so-called inflation rate, or the pace of issuance of new tokens.

Despite strong community support, based on the current poll, there has been some backlash from the Cosmos community, including its founder, Jae Kwon. Sunny Aggarwal, co-founder of Osmosis Labs, pointed out that Cosmos has become popular because it is “incredibly neutral.”

“There is no token or chain at the center,” Aggarwal wrote on Twitter. “When you build any other ecosystem, you’re only creating value for someone else’s token…In Cosmos, the network effects are not captured by a single token. The collective wins.”

But others argue that despite the risks, changes are necessarily necessary as the decentralized financial sector moves forward.

“Proponents say Atom 2.0 is risky, and they’re right,” digital asset firm Delphi Digital wrote in a research paper. “This is the riskiest thing the Hub has done in its existence. But you could argue that the biggest risk for the Hub is to do nothing, because it will become irrelevant and pass anyway.”