Cosmos governance has approved the v9-Lambda update, which will include interchain security and possibly kick off a “real performance virtuous cycle.”
The Cosmos (ATOM) community has approved the vote to add “Replicated Security (RS)” to their chain, with 99.99% of votes in favor. The long-awaited update will be rolled out on March 15, 2023, with the v9-Lamba update.
RS is the first version of Cosmos’ Interchain Security (ICS) feature, which allows blockchain networks in the Cosmos ecosystem to share validation resources to improve security.
Only protocols approved by Cosmos governance will be added as consumption chains in the next update. Eight consumer chains are potential candidates to be selected as consumer chains. These include Neutron, Polymer DAO, Duality, Stride, SimplyStaking, Fair Block, and Comdex, all of which are looking to launch or migrate to Interchain Security.
Cosmos’ Interchain Security could start a virtuous circle of real performance
The Replicated Security feature will distribute up to 25% of the consumption chain fees to Cosmos Hub stakers. Protocols can also allocate a portion of token inflation and revenue streams to ATOM stakers.
ICS implementation allows consumer chains to fully focus on growing the network economy, as Cosmos Hub validators provide reliable security against 51% attacks and double spend. This will not only bring additional performance to ATOM stakers, but will also allow consumer chains to optimize their growth.
At present, ATOM’s reward per staking once adjusted for inflation is 6.82%, compared to a 24.37% annual return. Additional returns from consumer chains will improve the annual return for ATOM holders, encouraging more buying and staking activity.
Neutron is a smart contract platform that will likely be the first consumer chain to use the new ICS feature. Neutron’s CEO, Avril Dutheilhe told Cointelegraph,
“As a result (of RS), Neutron does not have to continually inflate the NTRN bid to keep validators honest or pay betting returns to governance participants, as they do not contribute to securing the network.”
Instead, NTRN can afford to have a fixed supply, a release schedule indexed to on-chain activity, and constant buy-and-burn pressure from Neutron’s three revenue streams.”
This will allow consumer chains to focus on the actual performance of the blockchain and will bring additional returns to ATOM stakers as its price increases. Consequently, the high returns for staking ATOM will motivate more users to buy and stake ATOM. Therefore, it could give rise to a virtuous investment cycle in the Cosmos ecosystem.
The bullish growth of the Cosmos ecosystem appears
The Cosmos ecosystem has grown significantly in the past two years as more chains use the Cosmos-SDK and the Tendermint consensus mechanism to build app chains. Implementing enhanced cross-chain features like RS will allow blockchains to benefit from the liquidity of the Cosmos ecosystem.
Circle’s announcement of a native USDC blockchain on Cosmos will likely be a powerful catalyst for improving the liquidity of the ecosystem. Dutheil mentioned multiple decentralized stablecoin projects like Agoric’s IST and Kujira’s USK, which are looking to replicate the success of Ethereum (ETH)-based decentralized stablecoins on Cosmos. It will also help establish ATOM as a reliable collateral and enhance your value proposition. He added:
“Whether or not these decentralized alternatives will manage to scale their offering via Interchain remains to be seen, but at least the building blocks are there to finally bring a well-integrated DeFi ecosystem to Cosmos.”
Technically, the ATOM/USD pair has formed a bullish ascending triangle pattern since the formation of the June 2022 lows at $6. A breakout of the triangle around the $14 and $15 resistance levels could see the asset touch the $14 and $15 resistance levels. Bearish 2022 breakout levels around $33, with a slight chance of touching all-time highs around $46. However, the bullish thesis would be invalidated if price breaks below the bottom of the triangle, currently hovering around $10 .
Data from CryptoQuant shows that ATOM’s RSI and Stochastic indicator is in the oversold category, suggesting a possible trend reversal.
Although ATOM’s bullish thesis seems plausible, its realization will depend on usage and whether or not consumer chains can bring significant benefits to ATOM stakers.
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