Cosmos Hub: Genesis of the Interchain

Key Insights

• The Cosmos Hub is an individual appchain focused on interoperability and security. The Cosmos Hub was launched in 2019.
• The Cosmos Hub pioneered technologies such as Cosmos SDK, CometBFT (Tendermint), ABCI, and IBC, which were later used by many Interchain networks.
• The Interchain consists of sovereign networks connected by the common interoperability protocol: IBC. The Interchain is also referred to as the Cosmos Ecosystem.
• The Cosmos Hub is sharing its validator set and providing security for Neutron and Stride via Replicated Security. Replicated Security is the first form of shared security implemented on the Cosmos Hub.
• Components of the ATOM 2.0 proposal, such as liquid staking, are being implemented and explored to improve the capital efficiency of ATOM. ATOM is the native token of the Cosmos Hub.

Background

The first blockchains were application-specific networks that served single purposes, such as Bitcoin facilitating financial transfers and Namecoin providing an identity solution. Afterward, general-purpose chains such as Ethereum offered composability as multiple protocols existed on the same platform. Finally, application-specific networks (appchains) returned as a dominant architecture but with composability included, in the form of interoperable multichain ecosystems.

Unlike other multichain ecosystems (e.g., Ethereum or Polkadot), the Cosmos ecosystem, known as the Interchain, doesn’t rely on a single root chain to facilitate data and asset transfers. The Interchain is a group of sovereign, interoperable, application-specific networks, known as appchains, while the Cosmos Hub itself is an individual appchain focused on interoperability and security. The Cosmos Hub is the genesis of the Interchain and the largest of its appchains by market cap. The Interchain model offers specialization, composability, and sovereignty for appchains.

This combination of features results in an ecosystem that is exceedingly decentralized at the social level. Interchain networks have distinct communities with distinct governance. For comparison, other multichain ecosystem models result in appchains/modular chains communities that are subsets of their respective base layer communities and are ideologically tethered to their base networks (e.g., Stacks to Bitcoin; Optimism to Ethereum; and Kusama to Polkadot).

The Cosmos Hub was launched in 2019, leveraging technologies built by the Interchain Foundation and Ignite (also known as Tendermint). Various groups continue to support the development of the Cosmos Hub and Cosmos tech stack, including the Interchain Foundation, Binary Builders, Atom Accelerator DAO, Informal Systems, Strangelove, and others. The Interchain is home to over 100 independent networks, each with its own unique supporting entities.

Technology

The Cosmos Hub is a Proof-of-Stake (PoS), sovereign blockchain with an account-based accounting model and with no native smart contract functionality. The Cosmos Hub was built with a variety of technologies and standards from the Cosmos tech stack, such as the Cosmos SDK, CometBFT, and IBC protocol, in order to facilitate all core blockchain functions (e.g., consensus). Other application-specific networks in the Cosmos ecosystem, known as appchains, are built primarily with these same technologies.

Cosmos SDK

The Cosmos SDK is an open-source software development kit (SDK) for building sovereign, multi-asset, public, PoS blockchains, like the Cosmos Hub. It’s also used for creating permissioned Proof-of-Authority (PoA) blockchains. Blockchains built with the Cosmos SDK are generally referred to as appchains (application-specific blockchains).

The SDK is designed around a modular execution stack that allows applications to mix and match elements as desired. The modular design offers developers customizability and flexibility while still enabling fast development by using pre-built, open-source elements.

Developers building with the Cosmos SDK can focus efforts solely 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 appchain stack.

CometBFT

The Cosmos SDK is used to build a custom application layer, or state machine, while CometBFT is used to securely replicate that state machine on all nodes in the network. CometBFT, an application-agnostic engine, handles the networking and consensus layers through two main components:

• A consensus algorithm, i.e., Tendermint.
• A socket protocol, i.e., the Application Blockchain Interface (ABCI).

Tendermint is a Byzantine fault-tolerant (BFT) algorithm. Tendermint Core is the default algorithm, but there are several other available versions. CometBFT achieves instant finality through Tendermint, as opposed to probabilistic finality seen with most other networks. Tendermint is a Bonded-Proof-of-Stake (BPoS) system, in which validators are selected to produce and sign blocks according to their stake (self-staked and delegated). Validators and delegators must wait 21 epochs (1 epoch = ~1 day) after their un-stake request before they can receive their tokens.

The ABCI is an interface to connect the application layer to Tendermint. This socket protocol can be wrapped in any language, allowing CometBFT to be compatible with any application layer.

IBC

First launched in 2021, the Inter-Blockchain Communication (IBC) Protocol is not any single instantiation of a bridge but rather a standard for bridges. The Cosmos Hub communicates with other appchains through IBC.

The IBC standard enables heterogeneous blockchains to establish cross-chain connections without adding third-party trust assumptions. Instead, participating chains agree to trust each other’s security models and use a shared messaging standard to communicate and verify state changes. This allows IBC-enabled chains to maintain their own security guarantees while remaining interoperable. IBC has continued to iterate, with features such as Interchain Accounts (ICA) and Interchain Queries (ICQ) added via Interchain Standards (ICS) proposals; IBC allows for advanced cross-chain interactions, such as the ability of one chain to control an account on another. It is the only interoperability protocol offering this degree of flexibility.

The instant finality of CometBFT provides the fastest user experience for IBC chains and also makes it impractical with probabilistic finality networks, such as Ethereum. Teams such as Polymer Labs and others are working to enable connections with Ethereum at reasonable costs. Other teams and projects are targeting IBC access to additional ecosystems as well, such as Composable Finance which recently connected the Polkadot and Kusama ecosystems to IBC; Landslide which is working to connect Avalanche to IBC by the end of 2023; and Datachain, which is supporting IBC connectivity for Hyperledger and Corda chains.

Shared Security

Replicated Security

Shared security refers to allowing the validators of one network to use stake on that chain to participate in the consensus of another network. This setup would allow smaller market cap networks to “rent” security from larger networks. The Cosmos Hub has the largest market cap of all Interchain networks and would be a prime candidate to rent out security.

Cosmos Hub security cannot be arbitrarily shared in a model like EigenLayer’s restaking due to the lack of programmability, but it can be passed through governance and enabled on an individual basis. Replicated Security (formerly referred to as Interchain Security) refers to the sharing of the full Cosmos Hub validator set with another chain, permissioned by a governance vote.

Neutron and Stride

The passing of Proposal 792 saw Neutron become the first chain to leverage the Cosmos Hub’s validator set and security through Replicated Security. Stride followed shortly after and became the second chain. As of August 2023, Neutron and Stride are the only chains utilizing Replicated Security. Neutron serves as a CosmWasm extension to the Cosmos Hub and Stride enables liquid staking for various Interchain networks and assets.

Alternative Models

There are several other versions of the shared security strategy in the Interchain. Mesh Security enables bi-directional security for networks with existing validator sets, and it focuses on stakers rather than validators. Mesh Security is being explored by both the Cosmos Hub and Osmosis. Babylon aims to leverage Bitcoin for data availability of PoS chains and, in the process, mitigate security risks such as long-range attacks.

In order to implement Mesh Security, some form of CosmWasm would likely be implemented to facilitate the required logic. The Cosmos Hub itself does not support arbitrary smart contracts, as its core focus is on interoperability. The CosmWasm VM is a virtual machine supported by various entities in the Interchain. CosmWasm supports Rust and Go because it is based on Web Assembly (WASM). The idea of implementing CosmWasm continues to be explored in the community, despite proposals for permissionless and permissioned versions of CosmWasm on the Cosmos Hub failing to pass as recently as August 2023.

Opt-in Security allows each validator to opt into running consumer chains individually, as opposed to the entire validator set having to support the other chain. This approach theoretically lowers the barrier for a chain to acquire security, enabling the permissionless launch of consumer chains. This model shares similarities with merge mining.

The ATOM Token

Cosmos Hub’s native token, ATOM, is ICS-20 compatible. As such, it allows users to transfer ATOM between chains connected through the IBC protocol. The asset serves the following functions:

• Transactions on the Cosmos Hub require a transaction fee, settled in ATOM.
• Tokenholders can stake ATOM to operate a validator, securing the network and earning rewards.
• Tokenholders can delegate ATOM to an existing validator to help secure the network and earn a portion of the validator’s rewards.
• All staked and delegated ATOM can be used to vote in the network’s governance process.
• As an ICS-20 token, ATOM can be used for peer-to-peer transactions on any connected Cosmos chain.

ATOM has a token supply of ~350 million and a market cap of ~$4 billion as of August 2022, representing the economic security of the Cosmos Hub. Of the initial distribution of 189 million ATOM in 2019, 68% were sold in an initial coin offering (ICO) sale. Core contributors to the open-source technologies used by the Cosmos Hub also received portions of the initial distribution.

Issuance

Validators earn tokens in three ways. All validator income is shared with delegators based on a set commission rate.

• All transaction fees are distributed pro rata to validators according to the percentage of the total staked ATOM held.
• Block rewards are distributed pro rata to validators at a rate of 7%-20% according to the percentage of the total staked ATOM. Block rewards cause inflationary pressure.
• A bonus is earned linearly when the block producer includes more than 2/3 precommits. If the proposer includes 2/3rd precommits (the minimum for the block to be valid), then 1% extra is earned. The percentage can grow to 5% if the proposer includes 100% of the previous precommits. These bonuses cause inflationary pressure.

There are two forms of deflationary pressure on the ATOM token:

• Burning - The Cosmos Hub features an onchain governance mechanism where ATOM holders can vote and issue proposals. These proposals cover issues such as altering consensus parameters and community pool fund allocations. In order for a proposal to be submitted, it must have a minimum of 250 ATOM deposited to it from any tokenholder. If the proposal is vetoed, this deposit is burned.
• Slashing - Validator node rewards in ATOM can be slashed if a transaction is double-signed or a validator is offline for an extended period. Slashed rewards are subsequently burned. Furthermore, the project team has stated in its whitepaper that during the governance process, voters can take a user's initial ATOM deposit used to create any proposal considered to be spam. If more than half of the voters agree to take the deposit, those tokens are directed toward the reserve pool, minus the burned tokens.

Validators

Users that stake ATOM tokens and meet the system requirements can operate a validator to secure the network and earn rewards. Rewards are only earned by the top 180 validators, ranked according to combined self-staked and delegated ATOM tokens. The rewards are paid in additional ATOM tokens drawn from block reward issuance (~7% of the total token supply annually) and transaction fees.

There are 180 active Cosmos Hub validators. An additional 147 validators exist in an inactive state due to being outside the top 180 validators. Additionally, 203 validators are currently jailed due to misbehaving, e.g., missing too many blocks, double signing, etc.

Governance

Since its inception, there have been 121 onchain governance proposals for the Cosmos Hub, 79 of which have passed. The Cosmos Hub uses a combination of offchain and onchain governance processes. Network improvement proposals and parameter changes get designed and discussed through offchain means, typically in the Cosmos governance forum but also on various social media platforms.

Once in the onchain governance system, ATOM stakers vote on whether to approve (and eventually execute) the proposed change. Only staked or delegated ATOM tokens can be used to vote on proposals. Validators and delegators vote on proposals, with 1 ATOM being equal to 1 vote.

Delegators can let their validators vote on their behalf, or they can manually enter to disagree with their validator’s choice. All validators are eligible to cast a vote; however, for these votes to count, the validators must be ranked in the top 180 validators at the end of the voting period. For more information on the governance process, refer to Messari’s ATOM Diligence report.

ATOM 2.0

The rejected ATOM 2.0 proposal reimagined ATOM tokenomics. The goal of the overhaul was to drastically reduce ATOM’s issuance over a several-year period before removing inflation altogether. Additionally, it aimed to improve capital efficiency and position ATOM as the Interchain reserve asset via liquid staking. Ultimately, these actions would drive value accrual to the ATOM token.

While the initial proposal was rejected (possibly due to its wide breadth and quick introduction), various components continued to be explored as individual proposals. Of note, two proposals (an increase in the treasury size and a liquid staking feature to improve ATOM capital efficiency) both passed in subsequent proposals following their initial introductions in ATOM 2.0.

Other ATOM 2.0 features still in discussion around the community include permissionless shared security models and social coordination (i.e., governance) hubs for Interchain technologies (e.g., IBC, CosmWasm, etc.). The community has since failed to pass additional proposals for

• burning ATOM based on transaction fee volume;
• incentivizing holders to stake tokens held; and,
• improving the Cosmos Hub's fee mechanism to minimize spam transactions.

The Interchain

The Interchain consists of sovereign networks connected by the common interoperability protocol: IBC.

Appchains

Many Interchain networks are appchains: blockchains designed to fulfill a specific use case. This design provides greater flexibility for application developers, as the architecture can be specialized to optimize a single function. By comparison, generalized platforms, such as Ethereum, can serve a wide range of arbitrary use cases but cannot optimize their architecture for any one function.

Generalized platforms can build a network effect collaboratively via various protocols with different functions and unique communities. As more protocols and users join a network, it would attract more builders, resulting in a positive feedback loop and, theoretically, an increase in value. While no individual appchain has a broad enough audience to compete with the network effect of a single generalized network, a group of appchains can. The Interchain is by nature a highly composable system of blockchains, offering specialized application layers to optimize functions and a network effect of interconnected appchains. To maintain this architectural advantage, appchains must preserve their composability while mitigating the disadvantage of having a smaller scope of audience per individual appchain.

Aside from offering the decentralization of purpose and throughput, the Interchain model and appchains also provide social decentralization, as networks are sovereign from each other. Unlike other multichain ecosystems (e.g., Ethereum with rollups and Polkadot with parachains), the Interchain doesn’t rely on a single root chain to facilitate data and asset transfers. Each network is fully socially sovereign, like a mini-DAO with its own governance.

The Multichain Model

Instances of IBC bridges are between exactly two networks. Directly connecting every single appchain would require n2 IBC connections to achieve full interoperability. In response, the Interchain has adopted a hub-and-spoke topology (although it’s not a perfect analogy since there can be multiple “hubs”) to minimize the number of hops between chains. In practice, this hub-and-spoke model with multiple hubs becomes a classic decentralized model.

Most Interchain networks, also referred to as “Zones,” are either application-specific and offer one primary function, or they provide a more general platform for application development like Ethereum. A handful of networks have specialized for interoperability, sometimes referred to as “Hubs,” with the Cosmos Hub being the primary example. Typically, networks are incentivized to specialize in interoperability in order to route and validate the information passed between different chains in exchange for fees. Through Tendermint and IBC, any given Interchain network can plug into another and, by extension, gain access to other IBC-connected networks.

The Interchain’s decentralized ethos is exemplified by the “Hub”-style interoperability role not being exclusive to the Cosmos Hub — given that networks are not locked into using the Cosmos Hub and can therefore maintain their sovereignty. This decision also aids scaling, as “Hubs” can integrate with specific groups of networks for reasons such as geographic or ideological alignment, isolating bandwidth.

Interchain Networks

All Interchain networks are connected by IBC, but not all Cosmos SDK-built networks have IBC enabled. On the other hand, there are IBC-enabled networks that are not built with the Cosmos SDK, such as Kusama. The Interchain hosts great diversity in sectors such as

• Decentralized Finance (DeFi)
  • Osmosis, an AMM DEX.
  • Injective, an order book and derivatives platform.
  • Terra Luna, a smart contract DeFi platform.
• Infrastructure:
  • Celestia, a modular data availability layer.
  • Nyx, a communication infrastructure network supporting network-level privacy through the Nym mixnet.
  • Akash, a decentralized compute network.
• Privacy and secure computation:
  • Namada, an Interchain, asset-agnostic privacy protocol.
  • Penumbra, a network supporting shielded, cross-chain swaps and transfers.
  • Secret Network, a network enabling private computation through fully homomorphic encryption.
• Bridging interoperability:
  • THORChain, a cross-chain DEX enabling native decentralized swaps.
  • Axelar, a bridge and overlay network to communicate between networks.
  • Wormhole, a cross-chain bridge connecting the Interchain to Ethereum, Solana, and other networks.
• Cross-ecosystem integration:
  • Babylon, a security solution leveraging Bitcoin.
  • Evmos, an EVM-compatible and Ethereum-connected network.
  • Composable Finance, a CosmWasm network connecting the Interchain and Polkadot through IBC.

Developer Ecosystem

There have been over 400 contributors to the Cosmos Hub's development, including contributions from Interchain Foundation, Informal Systems, Iqlusion, and Ignite (formerly All in Bits Inc.). The Interchain has over 500 monthly full-time developers and over 1,600 part-time developers, as reported by Electric Capital. These metrics are the third highest among all networks, only behind Ethereum and Polkadot.

In the broader Interchain, CosmWasm VM provides a huge advantage in onboarding developers compared to VMs with domain-specific languages (DSLs). Due to its compatibility with the Cosmos SDK and generalist approach to programming languages, CosmWasm is used by many appchains and boosts interoperable smart contract functionality. As mentioned, CosmWasm on the Cosmos Hub is still being intellectually explored by the community. Additionally, many execution environments exist in the ecosystem with various VMs, as CometBFT’s ABCI is flexible enough to support any application layer.

Competitive Landscape

The Interchain is not the only multichain ecosystem. Ethereum’s rollup-centric focus and Polkadot’s parachains are examples of similar visions of a multichain future. However, the Interchain sets itself apart by prioritizing sovereignty as opposed to the shared security prioritized by other ecosystems.

Ethereum’s rollup-centric roadmap has seen dozens of L2 rollups deployed and even plans for composable rollup ecosystems and fractal scaling. Similar to the Cosmos model, Ethereum’s rollup model offers decentralization of purpose and throughput. However, it does not offer social decentralization. Data availability, security, and governance make the rollup model a centralized ecosystem model.

While the centralized ecosystem model is good for collaboration (e.g., the OP Stack being contributed to by teams from Optimism, Arbitrum, Base, and Boba Network), it doesn't encourage as much ideological diversity. There are already many teams moving away from the EVM and building custom VMs (e.g., Starknet, Fuel, and Aztec). Even so, they are still subject to base layer decisions and, therefore, must be ideologically aligned with Ethereum in order to reasonably build in the ecosystem.

The Interchain has many distinct ideological groups. THORChain is focused on native asset swaps; Namada and Penumbra on onchain privacy; Secret Network on implementing fully homomorphic encryption; Babylon on accessing Bitcoin’s security; and Ethermint on reducing the costs of EVM activity. But, all of these chains are in the Interchain because of the convenience of building with the Cosmos stack.

The rollup model is beginning to change with the introduction of independent data availability layers (e.g., Celestia, EigenDA, and Polygon Avail), enabling sovereign rollups that can post data elsewhere. At this time, the vast majority of L2s are using the EVM while solely using Ethereum for data availability, socially and technically tethering them to Ethereum.

Independent networks have recently begun to migrate into multichain ecosystems, with the Celo community showing interest in moving from L1 to Ethereum L2. In June 2022, dYdX, an appchain DEX in the Ethereum ecosystem, began its migration to become an Interchain network.

Ethereum, Polkadot, Avalanche, and other multichain ecosystems may all become IBC integrated at some point, effectively joining the Interchain. Bridging can be particularly difficult between Tendermint’s instant finality and other forms of probabilistic or hybridized consensus, but teams are working on it now.

Conclusion

The Cosmos Hub has been the symbolic heart of the Interchain since 2019. It has remained a pioneer of the shared technology uniting the sovereign Interchain networks. However, its role is expanding beyond that of a technological leader; it is also emerging as a potential security hub for certain Interchain networks.

In 2023, the Cosmos Hub has once again taken the lead within the Interchain by introducing Replicated Security. Through Neutron and Stride, the first chains to adopt Replicated Security, the Cosmos Hub's validator set now extends security to multiple networks. Meanwhile, other Interchain networks retain their autonomy in both technical aspects and social coordination. With a robust validator set and a substantial market cap for the ATOM token, the Cosmos Hub is poised to offer Replicated Security to additional networks, along with other shared security mechanisms.

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