Cosmos (ATOM) Gravity DEX is Close! How Will That Work, Though??

Cosmos (ATOM) Gravity DEX is Close! How Will That Work, Though??

By Michael @ CryptoEQ | CryptoEQ | 22 Jun 2021


COSMOS CORE report cover

     

ATOM logo

Overview

Cosmos, a project often described as the Internet of blockchains, connects sovereign blockchains using the Inter-Blockchain Communication (IBC) protocol. The IBC Protocol standardizes communication across disparate blockchains, connecting them via the Cosmos Hub, and making them interoperable. Data and value (tokens) can be transferred from one “zone” (one blockchain) to another (a separate blockchain) in a secure and trustless manner by routing all transfers through the central Cosmos Hub.

The ATOM token underpins the Cosmos Hub which utilizes a Proof-of-Stake (PoS) consensus method. Users stake ATOM to help secure the network and receive compensation via inflation and transaction fees. Cosmos is attempting to create a decentralized, easy-to-join, interoperable meta-layer for blockchain that improves scalability, security, and liquidity across the blockchain space.

ATOM Strengths

  • The Cosmos SDK is a modular framework that simplifies creating secure blockchain applications on top of Tendermint making it extremely easy for developers to onboard onto the Cosmos blockchain.
  • With the Inter-Blockchain Communication (IBC)  now live, 150+ Tendermint-based blockchains are now interoperable and able to send tokens from/to one another.
  • Standout blockchains and dApps with real adoption like Binance Chain, THORchain, Luna, and Kava have integrated with the Cosmos network demonstrating the advantages of interoperability that Cosmos provides. 
  • Plans to create an opt-in shared security model amongst zones in the network will create even more flexibility, freedom, and incentives to join Cosmos for projects and developers looking to build their own blockchains.

ATOM Weaknesses

  • Because the IBC only launched in February 2021, adoption remains quite low. As of Q2 2021, there are only ~40 zones and less than 35,000 monthly active users across the entire IBC. Additionally, even though there are currently 40 zones, 95% of all activity happens in just two zones. 
  • Cosmos faces serious competition from a number of angles. Polkadot is a direct competitor with considerable brand awareness. Ethereum is far and away the ecosystem leader that may reduce the need for interoperability projects. Finally, bridge projects like Badger and Ren, as well as side chains like Polygon, while not direct competitors, do introduce solutions which could steal market share from Cosmos. 
  • Regulatory concerns exist around Cosmos due to its ICO whereas the SEC has already commented on competitor blockchain, Ethereum, (twice) saying that they do not believe it fits the definition of a security. 

Important Links

 

 

ATOM logo Technology

As previously mentioned in the Use Case section, the Cosmos network is secured with the Tendermint BFT consensus. Tendermint Core Byzantine Fault Tolerance (BFT) is a consensus algorithm designed by the Tendermint team that aims to create a general-purpose consensus layer on which developer-specific applications can be built atop. Tendermint Core’s primary function is to ensure all transactions are recorded in the appropriate sequence on every machine. This way, the network security has been abstracted away for new developers and they can focus on their application. 

Cosmos Tendermint stack

Image credit: Cosmos blog​​​​​​

 

The Cosmos whitepaper describes this protocol as a "partially synchronous BFT consensus protocol derived from the DLS consensus algorithm." DLS is short for “Dwork, Lynch, and Stockmeyer,” the authors of a paper entitled “Consensus in the Presence of Partial Synchrony.”

The whitepaper goes on to highlight  many advantages, including:

  • Strong safety guarantees.
  • Scalability, with a mechanism able to handle >1000 transactions per second (TPS) in bad conditions (validators crashing/maliciously sending false votes).
  • Streamlined light clients, making Cosmos suitable for mobile/IOT applications.
  • Mitigates attacks like long-range-nothing-at-stake double spends and censorship.
  • When implemented in the Tendermint Core, allows blockchains programmed in any language to be secured via this consensus mechanism.

 

Proof-of-Stake with Something at Stake

Tendermint was the first project to demonstrate a conceptual solution to the nothing-at-stake problem that plagued early PoS blockchains. Essentially, the consensus mechanism in Tendermint made it less likely for malicious actors to participate in activities like a 1% attack, in which an attacker could double-spend with as little as a 1% stake in the network. Solving the nothing-at-stake problem may have increased critics’ trust in PoS. In Cosmos, it can be said that validators have “something at stake” instead of “nothing-at-stake” as malicious activities are punished by having some of their staked ATOM slashed or burned.

Why were people so interested in PoS when PoW was already being used successfully in projects like Bitcoin, among others? Some critiques of PoW include the amount of time necessary to complete a transaction and the amount of energy required to complete a transaction. Proponents of PoS say it is able to complete transactions more quickly and with less energy than most PoW projects. Typically, PoS systems rely on validators while PoW systems rely on miners.

In PoW systems, miners solve complex puzzles to create the next block. Solving these puzzles requires a lot of energy and computing power, and therefore may present challenges to scaling. Also, many would-be miners may find themselves priced out of the opportunity to contribute to mining for their favorite project if they are unable to afford the computing power (i.e. GPUs) to meaningfully participate.

Cosmos originally launched in March 2019 with 100 validators but as of Q2 2021, has ~160 validators with a total of ~300 planned. Block times are seven seconds and the network is theoretically able to handle over 1000 tx/s. The upper limit has never been tested and thus any claims beyond current usage remain untested. 

In PoS systems, validators serve as consensus nodes. In Cosmos, stakers (sometimes called delegators) assign their stakes to validators. A validator’s voting power is determined by the proportional amount of stakes allotted to it. In Cosmos, validators are chosen to propose the next block by their voting power - i.e., a validator that holds 15% of the voting power will get to propose the next block 15% of the time.

Such a system allows stakers or delegators to contribute to the project without needing substantial computing power of their own. For example, someone with an average laptop or even a smartphone can choose to stake their ATOM and start earning rewards, which is covered more in the Economics section.

For the average user, staking is not risk-free as delegated ATOM can be slashed if a validator acts maliciously or against consensus. Slashing refers to when staked tokens are burned and the user/validator cannot get them back. Validators can be slashed if they are offline for long periods of time (minor offense and small stake slashed) or have ~5% slashed if they sign two different blocks (malicious activity). 

Application Blockchain Interface (ABCI)

Another feature of Tendermint that is present in Cosmos is the Application Blockchain Interface (ABCI), an engine that contains both the networking and consensus layers of a blockchain. Developers can then build the application layer, such as a dApp, on top of the ABCI. The Tendermint ABCI is compatible with any programming language, able to be used for both public and private blockchains, and has a block time of approximately 1 second.

The Cosmos SDK is a modular framework that simplifies creating secure blockchain applications on top of Tendermint. For comparison, Angular and React are examples of popular frameworks for JavaScript. Currently, the Cosmos SDK uses Go.

 

Connecting Blockchains

The Cosmos ecosystem, unlike Ethereum, is not a single blockchain that facilitates state and transaction transfers but rather, a decentralized network of chains built using the shared Cosmos SDK toolkit. Cosmos SDK allows new developers to choose from a selection of pre-built modules based on their specific needs when designing a new blockchain.

In addition to relying on a PoS mechanism that is not encumbered by the nothing-at-stake problem, Cosmos also displays other novel features, such as the idea and technology behind its nickname, “the Internet of blockchains.” Inter-Blockchain Communication (IBC) protocol allows users to send information between two sovereign chains by allowing those chains to relay their headers to one another, also known as running a light client on one another.

Stargate, the name of the upgrade which launched IBC, was implemented in February 2021. With it, 150+ Tendermint-based blockchains now are interoperable as well as allowing Cosmos SDK blockchains to communicate with other blockchain protocols. With IBC live, previously siloed blockchains can now send tokens from/to one another. Blockchains that have onboarded and are now interoperable include Binance Chain, Terra, and the Luna network. 

Chains, or zones in the Cosmos ecosystem, connect via a two-way peg, similar to Ethereum and sidechains like Polygon. When a valid cross-chain transaction is submitted on the IBC, the token on the original chain is (essentially) frozen/burned while the receiving chain mints the equivalent amount on new tokens. 

Cosmos hub and zone

Image credit: Cosmos blog

For example, if a user wants to transfer 50 ATOM from one chain to another, those 50 ATOM are bonded or locked on the native chain, then proof of the bonding is relayed to the other chain, the proof is verified against the native chain’s header, and then vouchers for those 50 ATOM are created on the other chain. So, one could say the ATOM on the other chain are not “real”, but they do provide proof that the ATOM they represent on the native chain are frozen. 

Cosmos token transfer

Image credit: Cosmos website

The “Internet of blockchains” takes this one step further by creating a hub and zone model. The Cosmos Hub is a Proof-of-Stake (PoS) chain that serves as the primary hub for routing transactions and data between blockchains. Using the hub and zone model, any zone (i.e. blockchain) can send information to a connected hub and then that hub can send the information to any of the other connected zones. Zones plug into hubs, which route and validate the transactions passed between different zones in exchange for fees. The first hub that launched in the Cosmos Network was the Cosmos hub, however, other hubs are expected to be launched in the future. The multiple hubs and zone architecture enables more communication throughput between zones, reducing the need for all data to route through the Cosmos Hub. 

 

Cosmos hub and zone structure Image credit: Cosmos website 

 

Cosmos also has plans to integrate non-Tendermint based chains into its network. For example, the Gravity Bridge, which is currently under development and is expected to launch sometime in 2021, would bridge Cosmos and Ethereum. The Gravity DEX leverages IBC and the Gravity Bridge to pen up a new era for permissionless innovation on Cosmos. 

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ


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