Author: Red Sheehan, Web3 Developer & Researcher; Translator: LianGuaixiaozou
Main points of this article:
The Cosmos Hub is an independent application chain that focuses on interoperability and security. The Cosmos Hub was launched in 2019.
The Cosmos Hub was the first to introduce technologies such as the Cosmos SDK, CometBFT (Tendermint), ABCI, and IBC, which have since been used by many Interchain networks.
The Interchain consists of sovereign networks connected by the general interoperability protocol IBC. The Interchain is also known as the Cosmos ecosystem.
The Cosmos Hub is currently sharing its validator set and providing security for Neutron and Stride through Replicated Security. Replicated Security is the first form of shared security implemented on the Cosmos Hub.
The various parts of the ATOM 2.0 proposal, such as liquidity staking, are being implemented and explored to improve the capital efficiency of ATOM. ATOM is the native token of the Cosmos Hub.
The first batch of blockchains served specific application networks for a single purpose, such as Bitcoin for facilitating financial transfers and Namecoin for providing identity solutions. Subsequently, general-purpose chains like Ethereum offered composability, allowing multiple protocols on the same platform. Finally, specific application networks (application chains) returned as the dominant architecture, encompassing composability in the form of an interoperable multi-chain ecosystem.
Unlike other multi-chain ecosystems such as Ethereum or Polkadot, the Cosmos ecosystem (Interchain) does not rely on a single root chain to facilitate data and asset transfers. Interchain is a set of interoperable, application-specific sovereign networks called application chains, with the Cosmos Hub being an independent application chain that focuses on interoperability and security. The Cosmos Hub is the genesis Interchain and the largest market value application chain. The Interchain model brings professionalism, composability, and sovereignty to application chains.
These characteristics together create a highly decentralized ecosystem on a societal level. Interchain networks have different communities and governance models. In contrast, the result of other multi-chain ecosystem models is application chain/module chain communities, which are subsets of their respective base layer communities and are ideologically tied to their underlying networks (e.g., Stacks with Bitcoin, Optimism with Ethereum, Kusama with Polkadot).
The Cosmos Hub was launched in 2019, utilizing technologies developed by the Interchain Foundation and Ignite (also known as Tendermint). Various organizations continue to support the development of the Cosmos Hub and the Cosmos technology stack, including the Interchain Foundation, Binary Builders, Atom Accelerator DAO, Informal Systems, Strangelove, etc. Interchain has over 50 independent networks, each with its unique supporting entity.
The Cosmos Hub is a proof-of-stake (PoS) sovereign blockchain with an account-based accounting model and no native smart contract functionality. The Cosmos Hub is developed and built using various technologies and standards from the Cosmos technology stack, such as the Cosmos SDK, CometBFT, and IBC protocol, to achieve all core blockchain functionalities (e.g., consensus). The other specific application networks (application chains) in the Cosmos ecosystem are primarily developed using these same technologies.
The Cosmos SDK is an open-source software development kit (SDK) used to develop multi-asset PoS sovereign public blockchains, such as the Cosmos Hub. The Cosmos SDK is also used to create permissioned proof-of-authority (PoA) blockchains. Blockchains built using the Cosmos SDK are often referred to as application-specific blockchains.
The SDK is designed around a modular execution stack that allows applications to mix and match components as needed. The modular design provides developers with customizability and flexibility while still enabling rapid development through the use of pre-built open-source elements.
Developers using the Cosmos SDK can focus their energy entirely on the application layer without having to worry about other functionalities such as consensus, networking, or interoperability. These “other functionalities” come from CometBFT, IBC, and other features in the application chain stack.
The Cosmos SDK is used to develop custom application layers (or state machines), while CometBFT is used to securely replicate that state machine across all nodes in the network. CometBFT is an application-agnostic engine that handles the network and consensus layers with two main components:
The consensus algorithm, namely Tendermint.
The socket protocol, namely the Application Blockchain Interface (ABCI).
Tendermint is a Byzantine Fault-Tolerant (BFT) algorithm. Tendermint Core is the default algorithm, but there are other available versions as well. CometBFT achieves instant finality through Tendermint, whereas most other networks use probabilistic finality. Tendermint is a Binding Proof-of-Stake (BPoS) system where validators are selected to generate and sign blocks based on their stake. Validators and delegators must wait for 21 epochs (1 epoch is approximately 1 day) after submitting their un-stake request to receive their tokens.
ABCI is the interface that connects the application layer with Tendermint. This socket protocol can be wrapped in any language, allowing CometBFT to be compatible with any application layer.
The Inter-Blockchain Communication (IBC) protocol was first introduced in 2021. It is not a single instance of a bridge but rather a standard for bridges. The Cosmos Hub communicates with other application-specific blockchains through IBC.
The IBC bridge standard enables heterogeneous blockchains to establish cross-chain connections without adding third-party trust assumptions. Participating chains agree on each other’s security models and use a shared message transport standard to communicate and validate state changes. This allows IBC messages to inherit the lowest security of the underlying chains. IBC continues to iterate and has added features such as Interchain Accounts (ICA) and Interchain Queries (ICQ) through Interchain Standards (ICS) proposals.
IBC also relies on the instant finality of Tendermint and CometBFT, which makes it typically incompatible with probabilistic finality networks like Ethereum. Teams such as Electron Labs and zkBridge are working to achieve compatibility between IBC and Ethereum at a reasonable cost. Other teams and projects are also dedicated to integrating IBC into other ecosystems. Composable Finance is an example, with its ultimate goal being integration with the Polkadot ecosystem.
3. Shared Security
(1) Replicated Security
Shared security refers to allowing validators of one network to use the staking on that chain to participate in the consensus of another network. This setup will allow smaller networks to “rent” security from larger networks. The Cosmos Hub is the largest in terms of market value among all Interchain networks and is a major candidate for renting security.
Due to the lack of programmability, the security of the Cosmos Hub cannot be arbitrarily shared in models like EigenLayer re-staking, but it can be passed through governance and enabled on an individual basis. Replicated Security (previously called Interchain Security) refers to sharing the complete set of Cosmos Hub validators with another chain and obtaining permission through governance voting.
(2) Neutron and Stride
Proposal 792 enables Neutron to become the first chain to achieve security through Replicated Security using the Cosmos Hub validator set. Stride follows closely to become the second chain of this kind. As of August 2023, Neutron and Stride are the only chains using Replicated Security. Neutron is a CosmWasm extension of the Cosmos Hub, while Stride enables liquidity staking for various Interchain networks and assets.
(3) Alternative Models
There are other versions of shared security strategies in Interchain. Mesh Security provides bidirectional security for networks with existing validator sets, focusing on stakers rather than validators. Both Cosmos Hub and Osmosis are exploring Mesh Security. Babylon aims to use Bitcoin to achieve data availability for PoS chains and mitigate security risks such as remote attacks in the process.
To achieve Mesh Security, some form of CosmWasm may need to be deployed to implement the necessary logic. The Cosmos Hub itself does not support arbitrary smart contracts as its core focus is interoperability. CosmWasm VM is a virtual machine supported by various entities in Interchain. CosmWasm supports Rust and Go, as it is based on Web Assembly (WASM). Although proposals for both permissionless and permissioned versions of CosmWasm on the Cosmos Hub did not pass in August 2023, the community continues to explore ideas for implementing CosmWasm.
Opt-in Security allows each validator to individually choose to run a consuming chain without the entire validator set having to support another chain. In theory, this approach lowers the barrier for a chain to obtain security and enables the launch of a consuming chain in a permissionless manner. This model is similar to merged mining.
4. ATOM Token
The native token ATOM of the Cosmos Hub is ICS-20 compatible. Therefore, it allows users to transfer ATOM between chains connected via the IBC protocol. The main functions of this asset are as follows:
Transaction fees on the Cosmos Hub are settled in ATOM.
Token holders can stake ATOM to operate validators, ensuring network security and earning rewards.
Token holders can delegate ATOM to existing validators to help secure the network and receive a portion of validator rewards.
All staked and delegated ATOM can be used for voting in the network governance process.
As an ICS-20 token, ATOM can be used for peer-to-peer transactions on any connected Cosmos chain.
As of August 2022, the token supply of ATOM is approximately 350 million, with a market value of about 4 billion US dollars, representing the economic security of the Cosmos Hub. Out of the initial distribution of 189 million ATOM in 2019, 68% was sold through ICO. The core contributors to the open-source technology used by the Cosmos Hub also received a portion of the initial distribution.
(1) Token Issuance
Validators acquire tokens through three methods. The income of all validators is shared with delegators based on the set commission rate.
All transaction fees are proportionally distributed to validators based on the percentage of total staked ATOM.
Block rewards are distributed to validators based on the percentage of total staked ATOM, ranging from 7% to 20%. Block rewards create inflationary pressure.
When block producers include more than 2/3 of pre-commits, the bonus is obtained linearly. If the proposer includes 2/3 of pre-commits (the minimum value for a block to be valid), an additional 1% bonus is obtained. If the proposer includes 100% of pre-commits, the bonus percentage can reach 5%. These bonuses cause inflationary pressure.
There are two forms of deflationary pressure on ATOM tokens:
Burning – The Cosmos Hub has an on-chain governance mechanism where ATOM holders can vote on governance and propose changes such as altering consensus parameters and allocating community pool funds. To successfully submit a proposal, a minimum of 250 ATOM deposit must be obtained from any token holder. If the proposal is rejected, this deposit is burned.
Slashing – If a transaction is double-signed or a validator is offline for a long time, the validator’s node rewards in ATOM can be slashed or forfeited. The forfeited rewards are subsequently burned. In addition, the project team has stated in their whitepaper that during the governance process, voters can create proposals deemed as spam using a user’s initial ATOM deposit. If more than half of the voters agree to accept the deposit, these tokens will go directly into the reserve pool (minus the burned tokens).
Users who stake ATOM tokens and meet the system requirements can operate validators to secure the network and receive rewards. Rewards are only received by the top 180 validators, who are ranked based on the total amount of self-staked and delegated ATOM tokens. Rewards are paid in the form of additional ATOM tokens, which come from block reward issuance (approximately 7% of the total token supply annually) and transaction fees.
There are 180 active Cosmos Hub validators. There are also 147 validators in an inactive state, outside of the top 180 validators. Additionally, there are currently 203 validators jailed for misconduct, such as missing too many blocks or double-signing.
From the beginning until now, there have been 121 on-chain governance proposals about the Cosmos Hub, of which 79 have been passed. The Cosmos Hub combines on-chain and off-chain governance processes. Network improvement proposals and parameter updates are designed and discussed off-chain, usually on the Cosmos governance forum and also on various social media platforms.
Once entered into the on-chain governance system, ATOM stakers vote to decide whether to approve (and ultimately execute) proposed changes. Only staked or delegated ATOM tokens can be used to vote on proposals. Validators and delegators vote on proposals, with 1 ATOM corresponding to 1 vote.
Delegators can have their validators vote on their behalf, or they can manually override the validator’s choice. All validators are eligible to vote; however, for these votes to count, validators must rank within the top 180 validators at the end of the voting period.
(4) ATOM 2.0
The rejected ATOM 2.0 proposal reimagined the ATOM token economics. The goal of this major change was to significantly reduce the issuance of ATOMs within a few years before completely eliminating inflation. Additionally, it aimed to improve capital efficiency and position ATOM as an Interchain reserve asset through liquidity staking. Ultimately, these actions would bring value appreciation to the ATOM token.
Although the initial proposal was rejected (possibly due to its broad scope and fast pace), individual components continued to be explored as separate proposals. It is worth noting that two proposals (increasing the size of the treasury and introducing liquidity staking features to enhance ATOM capital efficiency) both received approval in subsequent proposals after their debut in ATOM 2.0.
Other ATOM 2.0 features that the community is still discussing include permissionless shared security models and social coordination (i.e., governance) hubs for Interchain technologies such as IBC and CosmWasm. Since then, proposals that the community failed to pass have involved:
ATOM burn based on transaction fee caps;
Incentivizing holders to stake their tokens; and
Improving the fee mechanism of the Cosmos Hub to minimize spam transactions.
Interchain consists of sovereign networks connected by the universal interoperability protocol, IBC.
(1) Application Chains
Many Interchain networks are application chains: blockchains designed for specific use cases. This design provides greater flexibility for application developers, as the architecture can be specifically optimized for a single function. In contrast, general-purpose platforms like Ethereum can serve a broader range of arbitrary use cases but cannot optimize their architecture for any single function.
General-purpose platforms can build network effects through protocols for various functionalities and unique community collaborations. As more protocols and users join a network, it attracts more builders, forming a positive feedback loop that theoretically increases value. While no single application chain has a wide enough user base to rival the network effects of a single general-purpose network, a group of application chains can. Interchain is fundamentally a highly composable blockchain system that provides specialized application layers to optimize functionality and network effects for interconnected application chains. To maintain this architectural advantage, application chains must preserve their composable nature while mitigating the downside of smaller audience scope.
In addition to providing decentralized purposes and throughput, the Interchain model and application chains also provide social decentralization because the networks are independent of each other. Unlike other multi-chain ecosystems (such as Ethereum with rollups, Polkadot with LianGuairachains), Interchain does not rely on a single root chain to facilitate data and asset transfers. Each network has full social sovereignty, like a self-governing mini DAO.
(2) Multi-chain model
The IBC bridge is located between two networks. To directly connect each application chain, two IBC connections are required to achieve full interoperability. Interchain adopts a hub-and-spoke model (which is not a perfect analogy as there may be multiple “hubs”) to minimize the number of hops between chains. In practice, this hub-and-spoke model with multiple hubs has become a classic decentralized model.
Most Interchain networks (also known as “Zones”) are either specific to applications, providing a primary functionality, or provide a more general platform for application development, such as Ethereum. Some networks are specifically used for interoperability, sometimes referred to as “Hubs”, with Cosmos Hub being a major example. Typically, networks are incentivized to focus on interoperability in order to route and verify information passed between different chains and earn fees. Through Tendermint and IBC, any given Interchain network can be plugged into another network and, through extension, access other networks connected via IBC.
The decentralized spirit of Interchain is reflected in the fact that the “Hub”-style interoperability role is not unique to the Cosmos Hub – networks do not lock themselves to the Cosmos Hub and can maintain their sovereignty. This decision also contributes to scalability, as “Hubs” can integrate with specific network groups for reasons such as geography or ideological consistency.
(3) Interchain Networks
All Interchain networks are connected via IBC, but not all networks built with the Cosmos SDK enable IBC. On the other hand, there are networks that support IBC but are not built with the Cosmos SDK, such as Kusama. Interchain exhibits noticeable diversity in the following areas:
Decentralized Finance (DeFi)
Osmosis, an AMM DEX.
Osmosis, an order book and derivatives platform.
Terra Luna, an algorithmic stablecoin issuer.
Celestia, a modular data availability layer.
Nyx, a communication infrastructure network that supports network-level privacy through the Nym mixnet.
Akash, a decentralized computing network.
Privacy and Secure Computing
Namada, an asset-agnostic Interchain privacy protocol.
Penumbra, a network that supports shielded cross-chain swaps and transfers.
Secret Network, a network that achieves private computation through fully homomorphic encryption.
THORChain, a cross-chain DEX that supports native decentralized exchanges.
Axelar, a bridge and overlay network that communicates between networks.
Wormhole, a cross-chain bridge that connects Interchain with Ethereum, Solana, and other networks.
Babylon, a solution that utilizes Bitcoin’s security.
Evmos, a network that is compatible with EVM and connects to Ethereum.
Composable Finance, a CosmWasm network that connects Interchain and Polkadot through IBC.
(4) Developer Ecosystem
The development of the Cosmos Hub has attracted over 400 contributors from organizations such as the Interchain Foundation, Informal Systems, Iqlusion, and Ignite (formerly All in Bits Inc.). According to Electric Capital, there are over 500 full-time developers and over 1,600 part-time developers working on Interchain, ranking it third among all networks, only behind Ethereum and Polkadot.
In the broader Interchain, the CosmWasm VM has a significant advantage in attracting developers compared to VMs that use domain-specific languages (DSLs). Due to its compatibility with the Cosmos SDK and the generality of the programming language, CosmWasm is used by many application chains and enhances the interoperability of smart contracts. As mentioned earlier, CosmWasm on the Cosmos Hub has been explored by the community. In addition, CometBFT’s ABCI is flexible enough to support any application layer, resulting in a diverse ecosystem with various VM execution environments.
6. Competitive Landscape
Interchain is not the only multi-chain ecosystem. Ethereum’s rollup-centric approach and Polkadot’s LianGuarachains are examples of the multi-chain future vision. However, Interchain stands out by prioritizing sovereignty over shared security compared to other ecosystems.
Ethereum’s rollup-centric roadmap has deployed dozens of L2 rollups, and there are even plans for a composable rollup ecosystem and fractal scalability. Similar to the Cosmos model, Ethereum’s rollup model provides decentralization of purpose and throughput. However, it does not provide decentralization of governance, data availability, and security, making the rollup model a more centralized ecosystem model.
While a centralized ecosystem model facilitates collaboration (e.g., the OP Stack contributed by teams from Optimism, Arbitrum, Base, and Boba Network), it does not encourage too much ideological diversity. Many teams have abandoned the EVM and started building custom VMs (e.g., Starknet, Fuel, and Aztec). Nevertheless, they are still influenced by decisions at the base layer and must remain ideologically aligned with Ethereum to have a reasonable construction in the ecosystem.
Interchain has many different ideological groups. THORChain focuses on native asset swaps; Namada and Penumbra focus on on-chain privacy protection; Secret Network focuses on achieving fully homomorphic encryption; Babylon focuses on acquiring Bitcoin’s security; Ethermint focuses on reducing EVM operational costs. However, all these chains are part of Interchain, making it convenient to develop and build using the Cosmos stack.
With the introduction of independent data availability layers such as Celestia, EigenDA, and Polygon Avail, the rollup model is starting to change, making it possible for sovereign rollups to publish data elsewhere. Currently, the majority of L2s are using EVM and only relying on Ethereum for data availability, binding them to Ethereum on both social and technical levels.
Independent networks have recently begun migrating to multi-chain ecosystems, and the Celo community is interested in migrating from L1 to Ethereum L2. In June 2022, the application chain DEX dYdX in the Ethereum ecosystem started migrating to the Interchain network.
Ethereum, Polkadot, Avalanche, and other multi-chain ecosystems may integrate with IBC at some point, joining the Interchain. Bridging between Tendermint’s instant finality and other forms of probabilistic or hybrid consensus is particularly challenging, but the team is now working hard to address this problem.
Since 2019, the Cosmos Hub has been the core symbol of the Interchain. It has been a pioneer in sharing technology that connects sovereign networks in the Interchain. However, it is transcending its role as a technological leader and becoming a potential security center for certain Interchain networks.
In 2023, the Cosmos Hub regains its leading position in the Interchain by introducing Replicated Security. Through Neutron and Stride (the first batch of blockchains adopting Replicated Security), the validator set of the Cosmos Hub now extends security to multiple networks. Meanwhile, other Interchain networks maintain their sovereignty in technical and social coordination. With a strong validator set and the huge market value of the ATOM token, the Cosmos Hub is ready to provide Replicated Security and other shared security mechanisms for other networks.