In-depth analysis of the Cosmos ecosystem: Why we are optimistic about ATOM

Author: David Attermann, m31 Capital  Translation: Shan Ouba, Golden Finance

Despite its general unpopularity, ATOM surprisingly represents one of the best investment allocations (risk/reward) in the market today. This article will shed light on the coin’s all-time low sentiment, the impressive growth of the broader Cosmos ecosystem, and why “this time will be different.”

Introduction to Cosmos and ATOM

Cosmos is not a blockchain, but a mutual Operate a network composed of blockchains (application chains or regional chains), connected through the IBC (Inter-Chain Communication) protocol. Unlike most blockchains that share block space, developers can customize and deploy their own application chains on Cosmos, which gives them greater design flexibility (different applications have different performance/functional requirements), better scalability/less competition for block space, and perhaps most importantly, native gas tokens where applications can accrue value.

ATOM is the native token of Cosmos Hub, the first blockchain launched on Cosmos. Over the past few years, the Interchain Foundation has focused primarily on developing the Cosmos SDK, or software development kit, to enable developers to quickly and easily customize and launch application chains. The move is highly strategic: first focus on app/developer recruitment to expand network effects, and then add more functionality to the Hub and its native ATOM token.

However, since the project's launch, there has been an ongoing squabble within the community over the Hub's role in the wider ecosystem and the right of the tokens to extract value. Despite exciting growth across the ecosystem, Hub’s ongoing identity crisis has been holding back the token’s growth.

ATOM investment thesis

Sentiment is at an all-time low

Sentiment on Hub is currently at an all-time low, as is evident from ATOM's absolute and relative price performance over the past few years:

Compared with ETH, the price of ATOM has declined in the past year and a half.

ATOM has missed out on the recent broad market recovery as the market has surged recently.

And ATOM has fallen 18% in the past 12 months (BTC has risen 120% in the same period).

Cosmos has become a top Web3 ecosystem

The ecosystem is currently ranked third in developer activity:

Has an IBC annual trading volume of approximately US$50 billion:

The total ecosystem market value is US$82 billion, of which US$25 billion has been connected to IBC.

The ecosystem includes star projects in the main vertical fields of Web3, including blockchain infrastructure (Sei, Celestia, Dymension, Axelar, Neutron), DeFi (dYdX, Injective, Osmosis, Thorchain, Stride ), DePIN (Akash, Pocket, Jackal, Syntropy, Cudos, dVPN), AI (Fetch.ai, Oraichain, Soarchain, AIOZ) and RWA (Provenance, Noble)

When Provenance is included, IBC’s total TVL is US$12.8 billion, making it the second largest ecosystem by TVL. (DefiLlama and other data providers do not aggregate Cosmos TVL as it is not yet connected via a universal token)

Why "this time is different"

Jae Kwon eventually quit.

ATOM holders have made many attempts in the past to increase the value accumulation of ATOM. The Hub community has historically been divided into two groups:

• 1) Those who want to keep the ATOM design simple Those who want to maximize security (led by co-founder Jae Kwon)

• 2) Those who want to improve the value accumulation of the token , especially those by leveraging the economic activities of the broader Cosmos ecosystem

The image below is a brief summary of the Hub’s controversial history ：

Discussing the future of Cosmos Hub and Stride

Despite successive rejections, the Hub’s outlook completely changed after the unexpected passage of Proposition 848 in November 2023 (to reduce ATOM inflation from 14% to 10%). While not a huge victory on the surface, it was the last straw for Jae Kwon, who immediately announced his intention to fork Hub along with his loyal followers. The new chain AtomOne is scheduled to be launched this month.

With Kwon’s final exit, the reactivated Hub community is determined to ultimately improve the value accumulation and awareness of ATOM tokens. Although no major changes have been made yet, there are many exciting ideas (currency, security, liquidity) on the Hub forum and it is likely that there will be a wave of potentially game-changing proposals coming soon.

The IBC fee abstraction recently introduced by Osmosis is one example.

One ​​of the most common complaints from Cosmos users is the need to have native tokens for different regions in order for them to interoperate. Osmosis, the leading Cosmos DEX, recently introduced a fee abstraction module that allows users to pay IBC Gas fees with any Cosmos token (as long as the receiving blockchain has approved the upgrade). The module is still in its early stages, but if it is widely adopted, ATOM has a legitimate chance of becoming IBC’s default gas token.

Bablylon integration greatly enhances the Hub's shared security model.

Another little-known development is Hub’s recent partnership with Babylon, a Bitcoin staking protocol. The partnership, which will launch a testnet this month, will allow Bitcoin holders to stake their BTC to secure the Cosmos Hub ICS consumer chain, which will work with Babylon to bring Bitcoin security to the Cosmos Hub:

Summary

• ATOM sentiment hits rock bottom

• The Cosmos ecosystem has never been stronger

• With With Jae Kwon gone, ATOM governance can now pursue more meaningful value accumulation (along with other bullish options)

• I have no specific Catalysts or price targets; I just think the market is overlooking a series of positive developments for ATOM given its complexity and contentious history. This dynamic gives the token an extremely attractive risk/reward ratio today (for comparison, fully diluted valuations for ETH and SOL are currently 100x and 15x ATOM, respectively). Given the favorable set-up, I believe Hub only needs one governance proposal to achieve a significant revaluation.