Cosmos, the blockchain ecosystem that helped to pioneer the “appchain,” shared security, and the proof-of-stake consensus mechanism, is facing an existential crisis. “Cosmos has, I would say, like eight to nine months, maybe a year at most, to kind of find a way to create something unique and distinctive,” said Zaki Manian, a leading figurehead in the Cosmos community. The project has been hit hard by the crypto market meltdown, with the spectacular collapse of Terra – at one point one of the largest Cosmos-based blockchains – leaving a liquidity hole in Cosmos’s decentralized finance (DeFi) ecosystem that it has yet to recover from. Politics and infighting have been blamed for slowing down development, and newer blockchain-in-a-box projects have proliferated, particularly in the Ethereum ecosystem, which put Cosmos at risk of becoming obsolete.
Cosmos set out to create not one blockchain, but a family of them – each engineered for its own use case but set up to easily communicate and swap assets back and forth. The Inter-Blockchain Communication Protocol (IBC) and Interchain Security (ICS) allowed assets to easily flow between chains, drastically reducing the surface area for potential bridge hacks. As startups raced to build new blockchains during the frothy, low-interest rate funding environment of 2019-2021, they frequently turned to Cosmos’s open-source developer toolkit, or SDK. However, the project has begun losing its grip on developers in recent months, with the collapse of Terra USD (TUSD) leading to a 93% drop in liquidity on Cosmos’s main decentralized exchange (DEX).
Ethereum’s community has looked to expand the ecosystem via third-party scaling networks, called rollups, that allow users to transact more quickly and cheaply than on the main chain, but without losing the base network’s essential security guarantees. A clear new frontrunner in the blockchain toolkit race is Optimism, whose OP Stack toolkit was used to power – among other new networks – Base, the new blockchain from Coinbase, and Mantle, a new chain linked to the Bybit exchange. Even Binance’s BNB chain, which was built using the Cosmos SDK, has begun testing a version of its network that runs using the OP Stack.
Cosmos still has plenty going for it in terms of its technical bona fides. dYdX, one of the largest decentralized cryptocurrency exchanges, decided last year to move to a new Cosmos chain after finding Ethereum too expensive and sluggish for its use case. Other projects in the Cosmos community hope that dYdX’s upcoming Cosmos app, which is currently in testing, will replenish some of the users and liquidity that Cosmos lost with Terra’s collapse.