Breaking down Cosmos 2.0

October 1, 2022 Stan

My newb friend asked me, “Why aren’t coin prices going up if ETH’s merge was successful?”

We’re in a bear market until the macro situation gets better. And each week, more gasoline keeps getting added to the 🔥(like everything happening in the United Kingdom).

So we’re in the stage where bullish news / partnerships won’t affect the prices as much. In the meantime, stay engaged…which is what you’re doing by reading this email!

Today We’ll be Covering:

Cosmos 2.0: Some highlights from the Cosmos 2.0 whitepaper.
Stablecoin Bill: The U.S. wants to regulate algorithmic stablecoins.
DeFi News: Do Kwon’s on the run, PancakeSwap launches a StableSwap, and more.

Let’s dive in!

📈 THE MARKETS

Total Crypto Market Cap: $973B (+5.78%, 7 days)
BTC Price: $19,283 (+4.0%, 7 days)
ETH Price: $1,327 (+6%, 7 days)
TVL in DeFi: $54.69B (+2.34%, 7 days)
Fear & Greed: 22 (Extreme Fear)

“One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do… I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up… I wait for a situation that is like the proverbial “shooting fish in a barrel.” Jim Rogers

THE BIG STORY
Cosmos 2.0 is Coming

Cosmos (ATOM) 2.0 has finally been revealed.

Cosmos has been in development since 2014, progressively growing their technology stack with Cosmos SDK, IBC, and Tendermint.

The new Cosmos 2.0 is an overhaul of their economic engine.

What Cosmos (ATOM) is, in a Nutshell:

Cosmos is a Layer 0. You can think of Layer 0 as a framework and foundation for building blockchains. Other well-known Layer 0s include Polkadot and Avalanche (via subnets).
Popular Cosmos chains include Binance Chain, Cosmos Hub, Crypto.com (CRO), and Terra Classic 😑.
Cross-Chain Interoperability. Do you remember just how many bridge exploits happened this year? Cosmos allows chains to securely communicate with one another.

Think of it like the European Union – all the nations may be independent, but there are “railways” that make communication straightforward.
Appchains. When a dApp builds on a Layer 1, they have to accept all its rules and constraints.

Imagine your dApp becoming unusable because another dApp on the network is hogging all the resources (like what happened with the NFT Otherside launch)!

Building a specific appchain on Cosmos means you can design it however you wish, negating the problem. There’s also a financial benefit that allows you to accrue all the fees!

DYDX is the #1 decentralized perp exchange. A few months ago, they made the decision to leave ETH Layer 2 (Starkware) to create their own app chain on Cosmos.

The primary issue with Cosmos

Cosmos features great technology and increasingly great adoption, however, the tokenomics sucked as an ATOM Holder.

Token inflation between 7% to 20%.
Token value accrual. Cosmos was being adopted, but value wasn’t being passed on directly to the ATOM token.

Cosmos 2.0 now has several new initiatives designed to pass on greater economic value to the ATOM token.

What’s New with Cosmos 2.0?

Liquid Staking. Staking means you’re locking up your ATOM tokens for around 18% APR per year. Until now, investors had to choose between locking up their ATOM tokens and pursuing other opportunities with their ATOM.

Cosmos is now introducing Liquid Staking which will allow for greater capital efficiency and flexibility.
Interchain Security. Securing a blockchain is expensive. Interchain security means dApps can rent their security directly from the Cosmos Hub, lowering barriers to entry for new dApps.

As an investor, you can stake your ATOM to earn various Cosmos tokens.
Interchain Allocator. This is similar to a decentralized Venture Capital fund designed to encourage the growth of Cosmos. Capital will be deployed to bootstrap Cosmos dApps and other initiatives.
Interchain Scheduler. Captures value from MEV (Maximum Extractable Value) on-chain.

Issuing New Atom Tokens

Cosmos will temporarily be bumping up issuance of new ATOM tokens. This should help subsidize security expenditures and bootstrap its new Cosmos Hub treasury.

There will be two phases:

Transition state: This will last for 36 months. $10M ATOM will be issued the 1st month (worth ~$130M) and will decrease month-on-month.
Steady state: After 36 months, the ATOM issuance will slow to 300k ATOM a month. Inflation will then be less than 1% a year.

What I have described is a quick summary of a dense 27-page read.

While I did my best to summarize it, I encourage you to read directly from the source.

Read The Cosmos 2.0 White Paper

Edgy’s Take:

Ethereum is an 800-pound gorilla in the room. I lean towards a multi-chain world over the fat protocol thesis (Where everything moves towards ETH).

If we’re heading towards a multi-chain world, then COSMOS is in a great advantage.

I like these new changes. My biggest issue prior was token value accrual and they are working towards solving this.

While there are a ton of other L0 / L1s out there, COSMOS has one of the strongest moats outside of Ethereum. I see this becoming a top 10 project by market cap.

I don’t hold any ATOM tokens now.

The macro environment + massive initial token printing could result in lower entry points. So I’m going to be patient and wait.

This could fit well into a “low risk” portion of a portfolio. I like the idea of staking ATOM and earning a diversified basket of ecosystem tokens

TOGETHER WITH 0VIX
$VIX Pre-Mining is now LIVE on Polygon

0VIX is the first veTokenomics lending market with dynamic interest rates on Polygon (MATIC).

Let’s break that down…

0VIX’s Goals:

Become the primary lending market on Polygon, supporting the 39,000+ DApp ecosystem
Govern protocol liquidity demands across Polygon through their unique veTokenomics
Become the native money market on Polygon zkEVM
Lead a new standard of risk assessment with Quantitative In-House Risk Assessment Research

So, what can YOU do with this “Polygon Money Market Protocol”?

Supply crypto assets for a competitive APY
Borrow against your supplied assets
Earn pre-mined $VIX with every protocol interaction
Lock $VIX for veVIX and controls market rewards once token launches

0VIX has been audited by 3 top auditors in the space: Omniscia, Watchpug, and Peckshield.

0VIX is in beta which means you have a first mover advantage.

They’re offering juicy pre-mining $VIX rewards that are automatically accumulated when you supply and/or borrow assets on the DApp.

As the Polygon ecosystem keeps growing, 0VIX’s native token is well positioned to control the flow of liquidity.

Get ahead of the curve by capturing some $VIX pre-mining incentives!

Start earning $VIX rewards

📰 Breaking Down the New U.S. Stablecoin Bill Proposal

Stablecoins are a critical part of the crypto market. Right now, they account for ~15% of the entire crypto market cap ($152B).

Its future might just have been changed forever.

We all knew Terra Luna’s UST collapse back in May would have consequences.

Last week, the US House of Representatives released a draft bill designed to regulate stablecoins, specifically algorithmic stablecoins.

What Does This Mean for the Future of Stablecoins?

The bill introduced a framework for stablecoin issuance, and there are three key takeaways:

New “endogenously collateralized stablecoins” will be criminalized. Essentially, one cannot issue a stablecoin that is backed by another token that one also controls. Like what Terra did with LUNA and UST – this is too much concentrated risk in one entity.
There will be two-year grace period for existing algorithmic stablecoins to change their model.
Non-bank stablecoin issuers that register with the Fed within 180 days will operate under the bill.

Some details are still quite unclear and require further clarification. For example, if Terra were able to buy enough BTC to back 80% of its UST and only rely on LUNA for the remaining 20%, would that be acceptable under this new framework?

How Will This Impact the Top Decentralized Stablecoins?

There are several stablecoins with multi-billion-dollar market caps. Who’s going to be affected?

Who might be impacted?

$FRAX – backed partially by $FXS, FRAX updates its ratio depending on its utilization rate. This bill will put FRAX under scrutiny as it is partially endogenously collateralized by a token from the same issuer.
$USDD – 30%+ backed by $TRX. This bill will put USDD under scrutiny as it is partially endogenously collateralized by a token from the same issuer.
$USDN – backed by $WAVES. This bill will put USDN under scrutiny as it is partially endogenously collateralized by a token from the same issuer.

Who might NOT be impacted?

$DAI – not backed by $MKR but can be used as a last resort tool to cover the protocol’s deficit in case the Maker protocol loses money. This bill shouldn’t impact MKR, except if it starts to utilize MKR more frequently.
$MIM – not backed by $SPELL. This bill shouldn’t impact MIM, as it is backed by other assets, primarily FTT.
$LUSD – not backed by $LQTY. This bill shouldn’t impact LUSD, as it is primarily backed by ETH.

Will it pass?

In general, there are five stages a new bill must traverse before being passed. For what it’s worth, this bill is currently at stage 0, meaning that it hasn’t officially been introduced yet.

So, there will be time for the crypto industry and lobbyists to push back.

I will be cautious of algorithmic stablecoins in the foreseeable future, given the current regulatory landscape. Unless there’s a specific reason for you to utilize them, it’s probably best to invest in and trade centralized stablecoins instead.

There’s no perfect stablecoin – you have to pick your poison.

About the author: Marco is a Research Director at DAR, a crypto market data & research firm that works with institutions the likes of FTSE Russel and Bloomberg. He also writes crypto analysis and musings on his personal blog, Pensive Pragmatism.

🍿 DeFi Bites

Robinhood, one of the world’s most popular stock trading apps, launched a beta version of its crypto wallet on Polygon.

California Governor Gavin Newsom vetoed CA’s “BitLicense” Bill, which would have created a licensing regime for anyone hoping to facilitate crypto transactions.

Coinbase rejects proprietary trading allegations that were first published by the Wall Street Journal, claiming that the exchange used internal funds to make trades with the goal of making a profit.

FTX plans to raise $1 billion at a $32 billion valuation, the same valuation as its last round, in order to gain more capital for acquisitive purposes.

Interpol issues a Red Notice for Do Kwon, a worldwide request for law enforcement to locate and arrest Kwon.

PancakeSwap is launching its StableSwap. The BNB chain-based DEX is starting its stablecoin trading pairs with lower slippage and lower trading fees. The StableSwap is an implementation of Curve Finance’s AMM on PancakeSwap.

Cardano has begun activating its Vasil upgrade which will enhance Cardano’s smart contract capabilities through Plutus V2 and increase its efficiency.

Helium has launched a crypto-powered 5G mobile service in partnership with T-Mobile. It is set to launch in Q1 2023 and will tap into both the T-Mobile and Helium networks for customers in the US.

StarkNet, a L2 Ethereum network, has been added to the Infura platform, providing developers with more scalable solutions for faster and cheaper transactions across the Ethereum ecosystem.

Harmony announced its recovery plan following the Horizon bridge hack. The Harmony team has decided not to mint more ONE tokens and proposed the use of the foundation treasury for recovery funds instead.