Written by: Luke Saunders
Translated by: Deep Tide TechFlow
Nearly a year ago, we published a report outlining our focus on Cosmos. Since then, Cosmos has been working hard to attract users and liquidity, and many people have doubted whether it can succeed. In this article, we will outline why we believe Cosmos can succeed and how it can turn the situation around.
First, let’s summarize the driving force behind attracting liquidity.
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Ecosystems have stickiness. The barriers for Ethereum users to migrate to Cosmos are very high: they need to figure out the cross-chain bridge issue, download and set up a new wallet, understand the risks, and so on. It’s a pain. Why should they bother?
Well, the usual answer is profitability. We have seen time and time again that users are willing to endure the hassle and risks of getting started for substantial returns. But returns are temporary, so they need a good user experience and diverse DeFi tools to stay.
So why has Cosmos recently failed to attract liquidity?
Confidence in the Cosmos chain has been undermined after Terra, and users and liquidity have left and are reluctant to come back. In the year or two before that, Terra attracted most of the development work, but these applications are now either dead or facing the problem of long-term rebuilding elsewhere.
Therefore, Cosmos has gone through a period where it has neither absorbed a large amount of liquidity nor had much to do.
But there are signs that things are starting to change. A series of new protocols are being released and proposed, which could bring much-needed utility and liquidity to the DeFi ecosystem of Cosmos:
Neutron has attracted stETH from Ethereum and used it for a new DeFi ecosystem focused on liquidity staking derivatives.
Celestia is a data availability layer and Cosmos chain, which may be the most important project in the modular block. Its native token TIA will need to be bridged from Cosmos to other ecosystems, and Celestia’s Rollups may bridge assets through IBC.
Mars Protocol v2 aims to combine leverage trading and DeFi strategies in a beautiful user experience.
Once established, no other application will be able to offer the same capital efficiency or user experience. Combined with abstracting the complexity of cross-chain bridges and wallets for users, Mars should be able to provide an attractive home for liquidity.
Namada is an upcoming Cosmos Zone and the first fractal instance of Anoma (an exciting Cosmos project built around intent).
It can achieve private operations, and due to the low cost + IBC + local ETH bridging, it has the potential to attract more privacy-focused DeFi users.
There is also Sei, which I expect will attract a lot of liquidity and developers. And Noble, aimed at lowering the entry barrier for liquidity and hoping to launch native USDC soon. The launch of dYdX is positive for the visibility of Cosmos, and so on.
By the way, dYdX will definitely make it seamless for users and assets to cross-chain and interact with products from any other ecosystem/wallet, reducing barriers to entry. I hope other Cosmos projects can learn from and emulate this.
Finally, I’m glad to see that Levan has finally successfully launched on Osmosis, as they had originally planned to launch the week Terra crashed. Levana has implemented perpetual contract trading in Cosmos, as well as risk-free, high-yield (currently) cash arbitrage strategies.
Although Cosmos has always been a bit like a ghost town, various signs indicate that it is finally developing into a rich ecosystem of diverse applications.
That being said, it is also important to recognize that Cosmos faces some challenges: competition from the OP Stack; the ZK Stack of zkSync and upcoming frameworks for building independent ZK applications; the revival of Solana; the Ethereum Rollup ecosystem being stronger than ever before, and so on.
But as discussed above, if Cosmos applications focus on lowering barriers to entry and combine use cases that other ecosystems cannot achieve, then it can attract meaningful liquidity and a thriving DeFi ecosystem.
Disclaimer: I, Delphi Labs, or Delphi Ventures have had exposure to almost every project mentioned in this article.