A closer look: Cosmos ($ATOM)

Holding Name: Cosmos ($ATOM)

Strategy: Titan Crypto

Percent weighting of strategy: ~2.0%

TLDR: Cosmos released a white paper for what is being labeled as ATOM 2.0 with the primary goal to make the cryptocurrency not only more desirable but also a widely deployed reserve asset in the interchain. The move is intriguing but we won’t get ahead of ourselves as the expected inflation rate over the next 9 months gives us pause. Long term, however, we see this as a meaningful opportunity for growth and adoption for the cryptocurrency.

Holding overview: Cosmos is a decentralized network of independent parallel blockchains, each powered by BFT (Byzantine Fault-Tolerance) consensus algorithms. 

The Cosmos blockchain was developed to facilitate communication between distributed ledgers without relying on a centralized server. The mission of the blockchain is to create an interoperable platform of open-source blockchains that could streamline transactions between them. Interoperability is what enables communication between two or more systems. 

Why we own it: Heralded as an “Internet of blockchains” by many, Cosmos powers an ecosystem of blockchains holding more than $60B of assets. The blockchains are designed to scale and interoperate with each other, united by the Cosmos SDK toolkit. Interoperability is treated as a spectrum and allows every chain on the network to choose how it interacts with the others (sovereignty).  

2022-2023 is expected to be an action-packed year(s) for Cosmos with multi-faceted upgrades planned to radically improve the utility of the Cosmos Hub and $ATOM tokens which may provide the opportunity for meaningful price action over a long time horizon.

What’s the latest: Cosmos released a white paper this week for what is described as ATOM 2.0. The white paper outlined plans to make $ATOM more desirable and a widely deployed reserve asset in the interchain.

According to the release, ATOM 2.0 intends to upgrade its platform by including interchain security, whereby blockchains can lease security from Cosmos Hub for rewards paid in the consumer chain native token. This is believed to meaningfully simplify blockchain onboarding. 

The upgrade will seek to provide liquid staking which will allow stakers to remain liquid while simultaneously helping to secure the network. This move should increase the staking ratio which in turn may lower the inflationary pressures associated with ATOM. A lower ratio forces the Hub to increase the security subsidy by accelerating issuance - a net positive.

The ATOM 2.0 upgrade includes a new issuance regime which proposes a lower inflation rate. This will ramp in two phases: the first phase will last ~36-months and issuance will  temporarily increase for the first 9 months as it bootstraps initial funding for a new Cosmos Hub Treasury. This will start at ~10 million ATOM per month and stabilize at a steady rate of ~300,000 ATOM per month at the end of the 36th month. Under this steady state phase, inflation will eventually be less than 1%, a positive for the cryptocurrency, in our eyes.

Furthermore, ATOM 2.0 outlines the interchain scheduler which will allow Cosmos to create a common market for multi chain block space. The goal of interchain scheduler is to monetize the IBC (Inter-blockchain communication protocol) where the Cosmos Hub collects revenues from interchain economic activity through this block space market and charging a matching fee. 

And finally, the interchain allocator will allow the Cosmos Hub treasury to be used to help drive growth of ecosystem chains in return for future upside.

Sign posts moving forward: While the crypto winter hasn’t been kind to alt-coins more broadly, the multifaceted upgrades provide the groundwork to radically improve the token’s utility. We will closely follow the developments with respect to the upgrade and adoption and growth over the coming months.

The content contained in this material is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, solicitation of an offer, or investment advice.

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