The Cosmos network's official website characterizes it as the "blockchain internet" and describes it as a growing system of linked applications and services designed for a decentralized future. Like many other 2nd generation blockchain technologies, Cosmos was developed to address the scalability, speed, and cost limitations that impact 1st generation blockchains like Bitcoin and Ethereum.
Recently Cosmos has been gearing up for the launch of an upgrade, making investors curious about their price trend. Its governing body has authorized the v9-Lambda upgrade, which includes features such as interchain security and has the potential to initiate a cycle of positive yield.
With an overwhelming 99.99% majority, the Cosmos community has voted to implement "replicated security (RS)" on its chain. This highly anticipated upgrade will be launched alongside the v9-Lamba upgrade on March 15, 2023, and will enable the sharing of validation resources among blockchains within the Cosmos ecosystem, resulting in better security.
In the upcoming update, only protocols that are authorized by the Cosmos governing body will be included as consumer chains. Among the potential candidates for selection, there are eight consumer chains such as Neutron, PolymerDAO, Duality, Stride, Simply Staking, FairBlock, and Comdex.
What does the v9-Lambda upgrade mean for Cosmos?
The v9 Lambda upgrade proposal for the Cosmos Hub was recently voted on in the Governance Forum. This upgrade aims to introduce the Replicated Security feature, guaranteeing the correct implementation of the Interchain Security (ICS) regulations, which can also improve the Cosmos ecosystem’s scalability. Replicated Security is one such ICS feature that enables the replication of security to consumer chains, ensuring compliance with the regulations.
The RS also enables consumer chains to leverage the security of the Cosmos Hub without requiring their own validation mechanism. Validators can validate several chains simultaneously, earning a portion of fees and inflation as staking rewards.
Cosmos’s interchain security could start a virtuous real yield cycle
Through RS, up to 25% of consumer chain fees will be distributed to Cosmos Hub stakes. Additionally, the protocols can allocate a portion of token inflation and revenue streams to Cosmos.
The implementation of ICS enables consumer chains to concentrate on expanding the network's economy, as the validators of Cosmos Hub will offer dependable security against 51% attacks and double-spending. This will increase yield for ATOM stakes and enable consumer chains to prioritize growth optimization.
After accounting for inflation, the staking reward for ATOM is approximately 6.82%, which translates to around 24.37% annual returns. The enhanced consumer chain yields will boost the annual output for ATOM holders, thus motivating them to engage in more buying and staking activities.
Cosmos staking rewards inflation adjustment. Source: Staking Rewards
Neutron, which is a smart contract platform, is likely to be the first consumer chain to employ the new ICS feature. Avril Dutheil, who is the general manager of Neutron (NTRN), mentioned in an interview with Cointelegraph that with the Replicated Security feature, Neutron would not need to continuously inflate its supply to ensure validator honesty or compensate governance participants for staking yield since they do not contribute to network security.
Dutheil also mentioned that "NTRN" could have a fixed supply, a release schedule linked to on-chain activity, and continuous buy-and-burn pressure from Neutron's three income sources instead of constantly inflating the supply to maintain network security.
By utilizing Replicated Security, consumer chains can concentrate on the actual yield of the blockchain, improving ATOM stakers' yield as the price increases. This, in turn, may create a virtuous investment cycle in the Cosmos ecosystem by providing high staking yields for ATOM, which may encourage more people to purchase and stake ATOM.
Bullish Cosmos ecosystem growth
Over the last two years, the Cosmos ecosystem has experienced substantial growth as an increasing number of chains leverage the Cosmos-SDK and Tendermint consensus mechanism to create application chains. By incorporating enhanced cross-chain features such as RS, blockchains can benefit from the liquidity available in the Cosmos ecosystem.
Circle has announced that they will launch a native USDC blockchain on Cosmos. This move is expected to increase liquidity in the Cosmos ecosystem significantly. Avril Dutheil mentioned several decentralized stablecoin projects, such as Agoric's Inter Stable Token (IST) and Kujira's USK, which aim to replicate the success of Ethereum-based decentralized stablecoins on Cosmos. This development will also help to establish ATOM as a reliable collateral and enhance its value proposition. Dutheil noted that it remains to be seen whether these decentralized alternatives can scale their offerings across the Interchain. However, the building blocks are in place to create a well-integrated DeFi ecosystem on Cosmos.
The ATOM/USD pair has formed a bullish ascending triangle pattern since hitting its lowest point of $6 in June 2022. If the price breaks out of the triangle at the $14 and $15 resistance levels, it could reach the 2022 bearish breakdown levels of $33 and potentially even the all-time high of around $46. However, if the price falls below the triangle's base, which is currently around $10, the bullish thesis would be invalidated.
Based on data from CryptoQuant, the relative strength index and Stochastic indicator of ATOM are currently in the oversold category, indicating a potential change in trend.
ATOM/USD weekly price chart. Source: TradingView
The success of the bullish ATOM theory will rely on the effectiveness of the consumer chains in generating meaningful returns for ATOM stakers and their usage.
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