Bessie Liu

Casey Wagner

Over the last few months, the SEC has taken to unilaterally labeling certain crypto assets as securities in unrelated lawsuits. But some industry participants say the agency doesn’t understand the technology behind these tokens well enough to make this claim.&nbsp;



In its complaint <a href="https://blockworks.co/news/sec-sues-coinbase">alleging Coinbase violated securities laws</a>, the SEC listed 12 additional crypto tokens as securities.&nbsp;



The SEC’s suit against Coinbase, announced one day after similar charges were <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">unveiled against Binance</a>, focuses on claims that Coinbase facilitated trading of unregistered securities and operated unregistered brokerage services.&nbsp;



In the <a href="https://blockworks.co/tag/coinbase">Coinbase</a> lawsuit, the SEC claims that the following tokens are securities: ADA, CHZ, SOL, AXS, FIL, ICP, FLOW, NEAR, MATIC, VGX, SAND and DASH. 



As of time of publication, Coinbase had not delisted any of the above assets.&nbsp;



In its Binance complaint, the <a href="https://blockworks.co/news/sec-10-tokens-securities">SEC claims 10 tokens</a>, separate from the exchange’s native BNB and BUSD tokens, are securities. The tokens listed in the suit are: SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI.&nbsp;



The <a href="https://blockworks.co/tag/sec">SEC</a>’s move to list tokens in these exchange lawsuits is not new. In its July 2022 <a href="https://blockworks.co/news/wahi-brothers-settlement-sec">lawsuit against a former Coinbase employee</a> for alleged insider trading, which settled on May 20, 2023, the SEC listed nine tokens as securities.&nbsp;



These nine tokens are: AMP, RLY, DDX, XYO, RGT, LCX, POWR, DFX and KROM. Coinbase has delisted only two of these tokens since the lawsuit was announced; Rally’s RLY and RGT, Rari’s governance token. 



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h2 class="wp-block-heading">News analysis by Bessie Liu</h2>



<h3 class="wp-block-heading">The SEC does not understand crypto tokens</h3>



The SEC has been declaring crypto assets securities — a designation that brings tokens into the same US regulatory fold as stocks and bonds.&nbsp;



The regulator’s reasoning is, however, opaque. And at least in some cases, erroneous. As demonstrated by the SEC’s <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf">lawsuit</a> against Binance on Monday, there are significant inaccuracies underpinning the agency’s move.&nbsp;



It all adds up to a demonstration that the SEC has a general lack of understanding when it comes to the relationship between individual tokens and protocols.&nbsp;



For example, the SEC has <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf">claimed</a> that the “New Tendermint” is a significant contributor to the ATOM token.



“That’s not true, just because someone has made a website and claims they contribute to Cosmos, doesn’t mean they contribute to Cosmos,” Zaki Manian, the cofounder of Sommelier Finance, a protocol in the Cosmos ecosystem, told Blockworks on Tuesday.&nbsp;



Another instance: The SEC has said the Interchain Foundation sold ATOM tokens in 2017.&nbsp;



The Cosmos Hub, the issuer of the ATOM token, <a href="https://blog.cosmos.network/cosmos-hub-to-launch-mainnet-a453d2247a34">launched in March 2019</a>, and ATOM tokens were not transferable at launch — meaning they could not be bought or sold. It was not until April 2019, after a hard fork that transfers were enabled.&nbsp;&nbsp;



“There’s a lot of history to the Cosmos approach to compliance, what you see from the SEC is a very superficial and largely inaccurate characterization of blockchain networks,” Manian said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The SEC’s facts on ATOM are pretty poorly researched. The SEC claims that ATOMs were sold in 2017. No one received an ATOM until April 2019 when the network voted to enable transfers. The claim NewTendermint is a significant contributor to Cosmos. No contribution occurred.&mdash; Zaki ⚛️🍷 (@zmanian) <a href="https://twitter.com/zmanian/status/1665778966043475971?ref_src=twsrc%5Etfw">June 5, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The ATOM token itself, according to Manian, does not meet the SEC’s standard to be a security, as determined by the Howey test, because the founding entity of the project has collapsed.&nbsp;



One characteristic of the Howey test is that investors can reasonably expect growth “derived from the efforts of others.” There is also an expectation of profit under Howey — often from the security’s originators.



When it comes to ATOM, though, many contributors to its fundraise were also developers behind the project. Thus, the developers of the network and the investors were, at least in some cases, one and the same.



“In the history of Cosmos we recruited as many of the people who had been in the fundraiser as possible, to work, to run nodes and testnets and help build the project, build infrastructure during the launch of every step of way,” Manian said.



<h3 class="wp-block-heading">‘Deflationary model’ token test incorrectly applied</h3>



When it comes to other tokens, including SOL and MATIC, the SEC has designated them securities at least partly due to their “deflationary model.”&nbsp;



Referring to <a href="https://blockworks.co/price/SOL">SOL</a>, the SEC <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf">wrote</a> that “this marketed burning of SOL as part of the Solana network’s ‘deflationary mechanism’ has led investors to reasonably view their purchase of SOL as having the potential for profit to the extent there is a built-in mechanism to decrease the supply and therefore increase the price of SOL.”



However, in the article <a href="https://www.gemini.com/cryptopedia/solana-blockchain#section-sol-token-structure-and-economics">cited</a> by the SEC to support their claim, the author, Anatoly Yakovenko, clearly states that SOL ‘transaction fees’ are burned, a distinction the SEC overlooks but that is critical to the <a href="https://docs.solana.com/transaction_fees">operation</a> of the blockchain, and which is described in more detail below.



The Solana Foundation has noted in its economic <a href="https://docs.solana.com/inflation/inflation_schedule">documents</a> that its token is an inflationary asset. In fact, the SOL token has always been <a href="https://messari.io/asset/solana/chart/sply-circ">inflationary</a>.&nbsp;&nbsp;



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1152" height="591" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=1024&amp;h=1024" alt="" class="wp-image-58200" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=1152 1152w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/06/image-8.png?w=80 80w" sizes="(max-width: 1152px) 100vw, 1152px" /><figcaption class="wp-element-caption">SOL circulating supply | Source: Messari</figcaption></figure>



The SEC drew comparisons to Polygon’s <a href="https://blockworks.co/price/matic">MATIC</a> token. The regulator has claimed that <a href="https://blockworks.co/tag/polygon">Polygon</a> has also marketed that it “burns” MATIC tokens accumulated as fees, indicating that the total supply of MATIC would decrease.”



But the SEC fails to understand something critical to the way blockchains work.&nbsp;



These “deflationary models” use a similar price modulation technique to Ethereum’s <a href="https://eips.ethereum.org/EIPS/eip-1559">EIP-1559 </a>— a fee-burning mechanism intended to minimize congestion. It’s designed to prevent block builders from manipulating fees in a bid to extract more from protocol users.&nbsp;



Polygon’s MATIC, in particular, is designed almost as a <a href="https://forum.polygon.technology/t/eip1559-london-fork-on-mainnet/549">copy-paste</a> from Ethereum.&nbsp;



“If EIP-1559 is a concern, then it’s going to be a concern for Ethereum too because it works exactly the same way,” Matt Cutler, co-founder and CEO of Web3 infrastructure company Blocknative, told Blockworks.&nbsp;



<h3 class="wp-block-heading">ETH gas fees…</h3>



Prior to EIP-1559, gas fees on Ethereum were purely market-based, meaning that everyone paid a gas fee associated with their transaction and whoever paid the most had their transaction included in the blockspace, a situation that created many negative externalities, Cutler said.



“Two trading bots could adversely affect the price of gas fees of the entire network,” he explained.&nbsp;



This in turn made gas prices unpredictable and raised concerns about the idea that privileged actors were able to influence the prices.



EIP-1559 was designed to introduce a base fee — which meant that for your transaction to be included on chain, you must pay the fee.



A base fee is set by the network and must be paid in the network’s native token — so in the case of Polygon, the fee would be paid in MATIC.



“This makes the price much more predictable, and the basic idea is this modulates issuance,” Cutler said.&nbsp;



It is important to note that in the case of ETH, EIP-1559 does not make the asset itself deflationary as it is dependent on marketplace demand. Although it does reduce supply, the rate of issuance of ETH continues to increase, Cutler notes.&nbsp;



Although one could argue that MATIC’s fixed supply could imply that the token has a “<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf">deflationary effect</a>,” its reason for burning tokens is much more complex.



“[The SEC] takes a very narrow piece of a pretty big topic and says it&#8217;s an issue without taking into account all the other reasoning and benefits for doing so. EIP-1559 does not exist purely as a price up. It is a more effective mechanism, a more equitable mechanism and an easier to work with mechanism than that which came before it,” Cutler said.



President of Polygon Labs Ryan Wyatt will also be <a href="https://d1dth6e84htgma.cloudfront.net/IDC_Wyatt_Testimony_Blockchain_Hearing_2023_06_07_e9c81155cb.pdf?updated_at=2023-06-05T15:54:09.404Z">sharing testimony</a> in Washington, DC, today.&nbsp;



“I’ll discuss the critical role Web3 and blockchain infrastructure play in protecting users and ensuring privacy, and share positive use cases,” Wyatt said.



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The SEC Says These Crypto Assets Are Securities: Their Reasoning Is Wrong

Community members from the Cosmos Hub are looking to provide grants to researchers who are interested in helping the team revamp the blockchain’s native ATOM token.



An earlier governance vote had <a href="https://blockworks.co/news/no-with-veto-cosmos-community-rejects-atom-2-0-white-paper">turned down</a> a proposal, dubbed ATOM 2.0, to revamp the ATOM tokenomics, citing that there had been a lack of clarity and that the proposal itself had been too broad.&nbsp;



But, the <a href="https://blockworks.co/tag/cosmos">Cosmos</a> community has not yet given up on the idea of creating an enhanced <a href="https://blockworks.co/tag/atom">ATOM</a> token, launching the ATOM Accelerator decentralized autonomous organization (AADAO) earlier this year.



The purpose of the AADAO was to build a support community through grants that would enable contributors to participate in initiatives that would create value for ATOM token holders.



One of its first projects is to determine a vision for the Cosmos Hub and ATOM itself. AADAO has launched an initiative to reward three research teams with $30,000 each to draft a plan.&nbsp;



Each of these visions will be discussed with the community and potentially incorporated into one or more formal governance proposals, a <a href="https://medium.com/@atomaccelerator/a-community-conversation-on-the-long-term-vision-for-the-cosmos-hub-and-atom-14b160752569">blog post</a> highlighting the details of the initiative said.&nbsp;



“We want to favor a bottom-up approach to make the entire process as organic and community-driven as possible,” AADAO said in the blog post.



Grant recipients will have 45 days to publish their research on the <a href="https://forum.cosmos.network/">Cosmos Hub discussion forum</a>. Each research team would be required to publish the ideas separately, and it would be up to the community to provide feedback on the proposals.&nbsp;



It is possible that there will be more than one proposal that ends up on-chain for voting, in which case the proposal that passes a quorum threshold and receives the most votes will be executed, AADAO said.&nbsp;



“The last phase of the process is selecting and funding one or multiple teams to contribute to the implementation roadmap,” it said. “The teams interested in making the vision a reality can also apply to win grant funds from AADAO.”



Applications for grants started on April 4 and will close in exactly a month, on May 4. Grant recipients are expected to be announced on May 15, and proposals are expected to land on the Cosmos Hub between June 30 and July 7. A winning proposal will be determined by Aug. 31.



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Cosmos Hub Searching for Research Team To Revamp ATOM

The Cosmos community has voted against the latest ATOM 2.0 proposal, which aims to revamp the ecosystem’s native ATOM token. Alternatives dubbed Atom One and Atom Zero were rejected by much larger margins.



Voter turnout for the proposal reached 73.41%, a standard amount for the Cosmos ecosystem.&nbsp;



Of the token holders who participated, 47.51% voted in favor of the proposal, with 37.39% voting no with veto and 13.27% choosing to abstain.



Voting no with veto in the Cosmos ecosystem <a href="https://github.com/cosmos/governance/blob/master/overview.md" target="_blank" rel="noreferrer noopener">indicates</a> a stronger opposition to the proposal than a simple “no.” If a total of one third of voters (33%) veto a proposal, the proposal is rejected and deposits are burned.



The ATOM 2.0 white paper <a href="https://cms.blockworks.co/news/cosmos-is-forging-a-new-atom-starting-with-interchain-security/" target="_blank" rel="noreferrer noopener">was first unveiled at Cosmoverse</a> in late September. It was designed so that it could secure economic scaling and make ATOM a core collateral within the Cosmos ecosystem.



In the first version of the white paper, developers proposed a large mint of ATOM tokens for a treasury, followed by a drop in ATOM staking rewards. That would result in a reduction of the ATOM inflation rate over time, but the community was concerned with the front-loading of ATOM tokens in the first few months.&nbsp;



The proposal was revised to include community suggestions, and voting went live on Oct. 31.



Community members cited a lack of clarity on proposed changes and the broad nature of the proposal as primary reasons for their no vote.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">【① ATOM 2.0 is too broad to judge】 We believe that presenting an esoteric P26 white paper to get approval is not a good method of governance. It is simple logic, if you do not agree with everything in ATOM2.0, it is hard to vote Yes.&mdash; Takumi Asano (朝野巧己）| GAME ⚛️ | (@takumiasano_jp) <a href="https://twitter.com/takumiasano_jp/status/1591988029379739654?ref_src=twsrc%5Etfw">November 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Cosmos community member Mark W. Dalton said in the <a href="https://forum.cosmos.network/t/proposal-82-vote-on-chain-atom-2-0-a-new-vision-for-cosmos-hub/7328/12" target="_blank" rel="noreferrer noopener">discussion forum</a> that the proposal “is too much like Government stuff-in good/bad in the same bill to sneak things through. We should hone each major piece.’



Despite the criticisms, a majority of members are still supportive of ATOM 2.0’s general vision. However, they’re interested in ironing out some of the details.



In comparison to the Atom One Constitution (Proposal 83), where only 3.89% voted in favor, those who voted against the 2.0 proposal expressed the general view that the proposal was a good starting point to design the next version of the Cosmos.&nbsp;



Audit.One, a Cosmos Hub validator and contributing member of the cosmos ecosystem, <a href="https://forum.cosmos.network/t/proposal-82-vote-on-chain-atom-2-0-a-new-vision-for-cosmos-hub/7328/12" target="_blank" rel="noreferrer noopener">said</a> in the forum, “we do agree with some points and like some ideas in the paper, but we don’t agree with ‘ratifying the entire content of the paper’.”



Echoing Dalton’s sentiments, Audit.One said, “in our opinion this proposal needs to be split up in separate actionable proposals.”



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No With Veto: Cosmos Community Rejects ATOM 2.0 White Paper

Cosmos revamped its latest roadmap to position its native token, ATOM, as the preferred collateral within its ecosystem.



After a month of deliberation and in the latest instance of the growing business of digital assets activism — the proposal, ATOM 2.0, has <a href="https://www.mintscan.io/cosmos/proposals/82" target="_blank" rel="noreferrer noopener">gone live</a> for on-chain voting.



Community members have two weeks to vote on the Cosmos proposal. Quorum is set at 40%, lower than the typical pass rate of 50%. Voter turnout was around 7% at the time of publication, with over 90% ratifying the proposal.



ATOM 2.0 is a <a href="https://gateway.pinata.cloud/ipfs/QmWXkzM74FCiERdZ1WrU33cqdStUK9dz1A8oEvYcnBAHeo" target="_blank" rel="noreferrer noopener">new vision piece</a> and “counterpart” to the original 2017 Cosmos white paper that focuses on inter-blockchain communication (IBC), interchain security and liquid staking. It “marks the transition to the next phase of the Cosmos Hub as an infrastructure platform,” according to the proposal’s authors. 



The white paper was first unveiled in late September at Cosmoverse — the network&#8217;s annual conference — and has since been updated <a href="https://cms.blockworks.co/cosmos-ecosystem-will-soon-vote-on-atom-2-0-revised-white-paper/" target="_blank" rel="noreferrer noopener">twice</a> to address community concerns.



<h3 class="wp-block-heading">Disagreements on ATOM issuance</h3>



The main point of consternation from Cosmos token holders surrounds ATOM token issuance.



In an <a href="https://cms.blockworks.co/cosmos-ecosystem-will-soon-vote-on-atom-2-0-revised-white-paper/" target="_blank" rel="noreferrer noopener">earlier interview</a> with Blockworks, Zaki Manian — the co-founder of Sommelier and a key member of the Cosmos ecosystem — said that the first version of the white paper proposed an initial large mint of ATOM for a new treasury, followed by a drop in ATOM staking rewards.



Community members wanted less front-loading of the creation of ATOM.&nbsp;



The proposal, as such, was adjusted so only 4 million ATOMs will be minted into the community pool — with 10 tentative mints of ATOM into the treasury to follow, at the discretion of ATOM owners.&nbsp;



These disagreements also led Jae Kwon, the co-founder of Cosmos who drifted away from the blockchain in 2020, to reemerge with a counterproposal.&nbsp;



Sunny Aggarwal, co-founder of Osmosis Labs — a decentralized exchange protocol on Cosmos — told Blockworks that “ATOM 2.0 proposes inflation on the token, and it’s not yet fully clear on how [ATOM 2.0] is going to be governed and how it will be spent, and I think Jae’s whole point is that it needs to be more clear.”



In Kwon&#8217;s counterproposal, ATOM One, he wanted to create a second token, PHOTON, to be the main asset in the Cosmos ecosystem.



“ATOM 2.0 is trying to push for ATOM to be a reserve, monetary asset within the Cosmos ecosystem, while ATOM One is saying ATOM should remain conservative and just be the staking and governance token of the cosmos hub and actually create a second token called PHOTON that can be the money token,” Aggarwal said.&nbsp;



Although the outcome of the vote remains up in the air, Aggarwal said, “tensions [are] quite high,” adding that there’s a “need for more synthesis first.”



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ATOM 2.0 On-chain Voting Goes Live

<div id="highlights-block_635bf03334bd0" class="highlights">
 <ul>
 <li>If the latest ATOM 2.0 proposal receives the greenlight from the Cosmos community, it will available for on-chain voting on Oct. 31</li>
 <li>Jae Kwon, the co-founder of Cosmos, has challenged ATOM 2.0 with a proposal of his own</li>
 </ul>
 
</div>



The Cosmos ecosystem <a href="https://cms.blockworks.co/cosmos-is-forging-a-new-atom-starting-with-interchain-security/" target="_blank" rel="noreferrer noopener">revealed</a> the first version of a <a href="https://gateway.pinata.cloud/ipfs/QmWXkzM74FCiERdZ1WrU33cqdStUK9dz1A8oEvYcnBAHeo" target="_blank" rel="noreferrer noopener">new white paper</a> intended to revamp the tokenomics of its native token, ATOM, at its annual conference in Medellín, Colombia, last month.



Authors of the paper proposed that the Cosmos Hub would be at the heart of its new interchain security feature, and that there would be changes to the issuance and utility of ATOM.



Initial on-chain voting on the proposal was set for Oct. 3, but community members in the ecosystem voiced concerns centered around ATOM issuance, Zaki Manian — the co-founder of Sommelier and a key member of the Cosmos ecosystem — told Blockworks.



<h3 class="wp-block-heading">What is ATOM 2.0 issuance</h3>



In the existing ecosystem, staking rewards are fundamentally a value transfer between non-staked ATOM to stakers, Manian said.



“Currently in the Cosmos, when a block is created, ATOM tokens are distributed to stakers, validators and the community,” he added. “The mechanism of funding the system by diluting unstaked ATOMs has a time limit, and we need to fix that.”



The ATOM 2.0 white paper, as such, proposes setting up a treasury that would be tasked with using capital to find sources of revenue that are sustainable and not inflationary.&nbsp;



The initial 1.0 version of the white paper proposed a big mint of ATOM for the proposed Treasury and then a subsequent drop in ATOM staking rewards — what Manian called a “tail emission.”



But the community wanted less front loading of that creation of ATOM.



Taking into consideration community concerns, the Cosmos Hub pushed back the start of proposal voting to Oct. 24 — then again to Oct. 31 — releasing <a href="https://gateway.pinata.cloud/ipfs/QmdC3YuZBUq5b9mEr3bKTDRq4XLcxafe3LHqDNFUgUoa61" target="_blank" rel="noreferrer noopener">updated versions</a> of the white paper to include suggestions from community members.



“So now, what we propose is a 4 million ATOM mint into the community pool which currently has around one million ATOMs in it,” Manian said. “Then optionally — at the discretion of ATOM holders — ten more mints of ATOM into the treasury, if the project of going out and finding new sources of revenue, that will eventually replace staking revenue, is succeeding.”



<h3 class="wp-block-heading">A battle of proposals</h3>



As white paper changes were being made, Jae Kwon, the co-founder of Cosmos, who resigned from the blockchain in 2020, started receiving attention for his competing ATOM One proposal.



Kwon’s proposal challenged the validity of ATOM 2.0 even though fundamentally, his ATOM One proposal and Cosmos developers’ ATOM 2.0 proposals are quite similar.



The only real difference, according to Jack Zampolin, the founder of Strangelove Ventures and core developer in Cosmos, is the inclusion of the PHOTON token in Kwon’s proposal.



“Internally within the development team, this [PHOTON token] is one of those ideas that keep coming up,” Zampolin said in a <a href="https://www.youtube.com/watch?v=YbqLw3W5DsU&amp;ab_channel=Cryptocito" target="_blank" rel="noreferrer noopener">YouTube livestream</a>. “I have always been kind of opposed to this for a variety of reasons, the main one being I’ve never seen a two token model work…and I think the major reason is that it distracts from the core message of ATOM.”



“What we’ve done with ATOM 2.0 is build a set of features that work together to build this growth flywheel so that as the IBC economy grows, the ATOM economy can grow, too,” he said. “That to me is more compelling than minting another token [venture capitalists] can play around with and users don’t really know what to do with.”



It’s important to note that Kwon’s relationship with developers in the Cosmos ecosystem has been quite tumultuous, according to <a href="https://www.coindesk.com/business/2020/02/04/what-is-going-on-with-jae-kwon-and-cosmos/" target="_blank" rel="noreferrer noopener">earlier reporting</a> by CoinDesk.



Despite Kwon’s efforts, Anna Petrenko —a researcher at Everstake, a staking service platform and <a href="https://cosmoscan.net/cosmos/validators-stats" target="_blank" rel="noreferrer noopener">one of the largest</a> validators for Cosmos — told Blockworks the community is mostly in favor of ATOM 2.0.



“The mainstream opinion [on ATOM 2.0] is mostly positive, and agrees that Cosmos needs some changes,” Petrenko said. “In our opinion we think that ATOM 2.0 should lead to good results, since interchain security will attract a lot of new projects that will build in the cosmos ecosystem, and significantly scale the ecosystem itself.”



If the signaling proposal for ATOM 2.0’s latest v1.2 white paper receives the greenlight from the Cosmos community, the proposal will be available for on-chain voting Oct. 31 for a voting period of two weeks.



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Cosmos Ecosystem Will Soon Vote on ATOM 2.0’s Revised White Paper

Macauley Peterson

<div id="highlights-block_6331ebf5c23cf" class="highlights">
 <ul>
 <li>Interchain Security allows Cosmos chains to lean on the Hub for their own security</li>
 <li>“We’re trying to make EIP-1559 look like a joke,” Cosmos contributor Zaki Manian said at the Cosmoverse conference</li>
 </ul>
 
</div>



The Cosmos community has released its latest <a href="https://gateway.pinata.cloud/ipfs/QmWXkzM74FCiERdZ1WrU33cqdStUK9dz1A8oEvYcnBAHeo" target="_blank" rel="noreferrer noopener">white paper</a> for the Cosmos Hub, which has plans to radically revamp the tokenomics of the native atom token (ATOM).



The Hub will be at the center of a new feature known as interchain security, while multiple forms of liquid staking of atoms — as the preferred collateral — will provide new functionality in the ecosystem, according to presenters at the Cosmoverse conference in Medellín, Colombia, on Monday.



The Cosmos Hub doesn’t generate any protocol revenue in its current form, despite having a high market cap, nor does it accrue value to ATOM, said Zaki Manian, a Cosmos contributor and co-founder of <a href="https://www.sommelier.finance/" target="_blank" rel="noreferrer noopener">Sommelier Finance</a>.



That’s set to change; dramatically expanding the potential of liquid staking and turning on interchain security will allow ATOM holders to benefit from the growth of the Cosmos ecosystem, developers say.



<blockquote class="wp-block-quote">“No one has ever attempted this level of economic rebuild of a large-scale cryptocurrency, and there’s a little bit of showmanship that’s required to make that all happen,” he said.</blockquote>



<h3 class="wp-block-heading">Liquid staking ramp up</h3>



Staked cryptoassets are often confined to the boundaries of their original chains — in Cosmos, sovereign chains use staking to provide for their own security, with delegators bonding tokens to validators. To reclaim their tokens, delegators typically endure a 21-day unbonding period.



Liquid staking solves this by creating a fluid market for exchange of staked assets. With more liquid staked assets comes improved cross-chain composability, according to Manian.



“We’re trying to accelerate the growth of all the liquid staking protocols so they have a seamless [user experience] for onboarding users,” Manian said.



The updates coming to Cosmos&#8217; liquid staking model will benefit protocols built for composability like <a href="https://cms.blockworks.co/cosmos-based-umee-lines-up-first-ibc-price-oracle/" target="_blank" rel="noreferrer noopener">borrowing and lending platform, Umee.</a>



&#8220;Staking derivatives are the basis for how we can utilize proof-of-stake as a benchmark or reference rate for building out the term structure of interest rates for crypto,&#8221; Umee CEO and co-founder Brent Xu told Blockworks in an email.



&#8220;Proof-of-stake rates are also a good hedge against economic inflation as you have a yield bearing asset as the basis for the protocol. This same logic applies to Ethereum,&#8221; Xu said.



Umee plans to take advantage of liquid staking to more easily offer liquid short term loans, a feature that would have been harder to make work without the upgrade.



Uses cases like this should leader to higher staking rates for ATOM across Cosmos chains.



<blockquote class="wp-block-quote">“If we’re able to then use the success of the liquid staking protocols to get the number of staked atoms to 80% to 90%, we’ll be in a good position to change inflation and new atom creation which will be allocated to the security budget,” Manian said.</blockquote>



The envisioned change in ATOM issuance may mirror the idea of the fee burn employed by Ethereum with its <a href="https://cms.blockworks.co/tag/eip-1559/" target="_blank" rel="noreferrer noopener">EIP-1559</a> in August 2021 — only more so.



“We’re trying to make EIP-1559 look like a joke,” Manian said.



<h3 class="wp-block-heading">Interchain Security</h3>



Another area of focus ahead for the Cosmos ecosystem will be the launch and development of interchain security.&nbsp;



Until now, the Cosmos Hub can be seen as a model home inside a new housing development, Billy Rennekamp, Cosmos Hub lead at Interchain.io, said. In this metaphor, the “neighborhood” around the Hub began to grow based on the model. But the Hub’s position at the center is valuable and “can be transformed into an asset to the community,” Rennekamp said.



Cosmos pioneered the use of proof-of-stake (PoS) technology, predating Ethereum’s switch to PoS by three and half years. New blocks are composed and added to the chain by validators — network nodes that stake cryptoassets as a sort of collateral to ensure their honest work.&nbsp;



Unlike Ethereum, which sports 435,000 staking validators and counting, there are a limited number of validators by design in Cosmos — <a href="https://hub.cosmos.network/main/validators/overview.html" target="_blank" rel="noreferrer noopener">175 currently</a> on the Cosmos Hub, and fewer on other chains. Individual token holders choose validators to which to delegate their stake.



The more tokens staked with a decentralized set of validators on a chain, the more secure it becomes, and the Cosmos Hub has been able to generate the most diverse set of validators with significant economic value at stake.



“Interchain Security basically allows the Cosmos Hub to run many blockchains in parallel, all with the same security attributes,” Jehan Tremback, Sommelier core developer and cofounder of Althea, explained in Medellín.



Another way of conceptualizing it is as “validator set replication,” added Rennekamp.



“You take the validator set of the Cosmos Hub, use IBC to send that set to other blockchains — so they don’t need to have their own staking token, they don’t need to have their own validator set — the same people get the validator set of the Cosmos Hub and the same security as ATOM,” he said.



In return, Cosmos’ sovereign chains will pay for that security in their own tokens to ATOM validators and delegators.



This story was updated on Monday Sept. 26, at 4:25 pm ET with comments from Brent Xu.



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<hr class="wp-block-separator">

Cosmos Is ‘Forging a New ATOM’ Starting With Interchain Security

Ben Strack

<div id="highlights-block_624cbd01af609" class="highlights">
 <ul>
 <li>Avalanche and Polkadot join BTC, ETH and six other tokens in the digital currency asset manager’s $480 million Digital Large Cap Fund</li>
 <li>Grayscale had added 25 assets to its list of investments under consideration in January</li>
 </ul>
 
</div>



Grayscale Investments is adding three cryptoassets across its three diversified funds and removing two others from the products as part of a quarterly rebalance.&nbsp;



The asset manager’s Digital Large Cap Fund has bought Avalanche (AVAX) and Polkadot (DOT), the firm told Blockworks. No tokens were removed from the fund.



The fund, which launched in 2018 and has $480 million assets under management, enables investors to gain exposure to the upper 70% of the digital currency market.



AVAX and DOT each have market capitalizations above $24 billion, according to data compiled by Blockworks — ranking 10th and 11th, respectively.&nbsp;



The two cryptoassets join bitcoin (BTC), ether (ETH), solana (SOL), cardano (ADA), uniswap (UNI), chainlink (LINK), litecoin (LTC) and bitcoin cash (BCH) in the fund. Combined, AVAX and DOT’s allocation in the fund is about 3.3%.



Grayscale has also added Cosmos (ATOM) to its Smart Contract Platform Ex-Ethereum Fund. No assets were removed as a result of the rebalancing.&nbsp;



ATOM has a market cap of roughly $8.6 billion, which is the 23rd highest among crypto tokens, ahead of LINK and behind LTC. 



The investment vehicle, which offers investors the chance to bet on Ethereum’s largest competitors, <a href="https://cms.blockworks.co/grayscales-latest-fund-focuses-on-smart-contract-platforms/" target="_blank" rel="noreferrer noopener">launched last month</a>. The index-tracking fund’s original holdings were ADA, SOL, AVAX, DOT, Polygon (MATIC), Algorand (ALGO) and Stellar Lumens (XLM). ATOM now makes up roughly 5% of the Grayscale DeFi Fund.



Though no tokens were added to Grayscale’s DeFi Fund, two were removed.&nbsp;



Both SushiSwap (SUSHI) and Synthetix (SNX) were omitted from the fund after failing to meet the market capitalization requirements, according to a Grayscale spokesperson.&nbsp;



SNX’s market cap is slightly less than $1.4 billion, according to data compiled by Blockworks. SUSHI’s market cap is roughly $800 million.



The DeFi fund launched last July and has about $8 million in assets. Cryptoassets remaining in the fund are UNI, Aave (AAVE), Curve (CRV), MakerDAO (MKR), Amp (AMP), Yearn Finance (YFI) and Compound (COMP).



Grayscale added 25 assets to <a href="https://cms.blockworks.co/grayscale-considers-25-new-digital-assets/" target="_blank" rel="noreferrer noopener">a running list of investments</a> it is considering making available to investors in January. Though AVAX and DOT were previously on the list, ATOM was added at that time.



The firm continues to update the list as the digital asset ecosystem expands and it reviews more assets, Grayscale said at the time.



“The process of creating an investment product similar to the ones we already offer is a complex, multifaceted process,” the company said in a statement. “It requires significant review and consideration and is subject to our internal controls, custody arrangements, and regulatory considerations, among other things.”



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Grayscale Adjusts Cryptoassets Exposure in Diversified Funds

Jacquelyn Melinek

<div id="highlights-block_265c0c79e983282d327edc3de0c8788e" class="highlights">
 <ul>
 <li>If the whale abruptly pulled out their funds — currently worth about $122 million — they could single-handedly wipe out JUNO liquidity on decentralized exchanges</li>
 <li>The proposal, if passed, could set an “interesting” and “potentially dangerous” precedent, a community member named Kavaskous on Twitter said</li>
 </ul>
 
</div>



In less than 24 hours, thousands of Juno token stakeholders have banded together in a bid to correct perceived errors in the network’s stakedrop by confiscating one crypto whale’s token wealth. A stakedrop is a method of widely distributing tokens as a reward for staking the tokens of another blockchain or decentralized application.



Holders of the governance token of Juno, a layer-1 blockchain in the Cosmos ecosystem, are <a href="https://wallet.keplr.app/#/juno/governance?detailId=16" target="_blank" rel="noreferrer noopener">voting</a> on proposal #16 to reduce a whale address from over 2.5 million JUNO tokens to 50,000 tokens — removing over 98% — which would be placed in a community reserve fund. For reference, a whale is an entity or individual that owns a significant amount of tokens for a specific cryptocurrency. The move, according to the text of the proposal, comes after “numerous discussions with the community.”



The Juno Network launched with the full intention to be completely community driven, a community member TheJunonaut <a href="https://twitter.com/TheJunonaut/status/1501957396779855874?s=20&amp;t=eJ6QATBcRs-FN44TVTioPw" target="_blank" rel="noreferrer noopener">tweeted</a>. “Hence, $JUNO was distributed to $ATOM stakers via a 1:1 stakedrop with a hard whale cap of 50K as the community agreed to ensure fair distribution across the network,” they added.



At issue is whether the individual or entity in question deliberately circumvented the rules of the stakedrop by staking ATOM across dozens of wallets, thereby unfairly inflating its resulting stake in JUNO. The disparate wallets were subsequently consolidated into one.



Given the amount of tokens the whale now has, if they abruptly converted their JUNO to other assets, they could single-handedly wipe out liquidity on decentralized exchanges, resulting in a sharp decline in the JUNO price. But the concern among community members is not limited to their short-term financial interest. The asset concentration itself creates risks to on-chain governance by enabling the whale to potentially bribe validators — the guardians of network consensus — with delegations to serve the whales’ interests, a community <a href="https://gateway.ipfs.io/ipfs/Qmf3bGHiSiPTTNohNv4tBn5rvTChoQZNp8UDbGMxPq9HYC#Correcting-the-gamed-stakedrop---Proposed-by-Core-1-after-numerous-discussions-with-the-community" target="_blank" rel="noreferrer noopener">post</a> said.



“Proposals as a whole have flaws to them, but this proposal itself is super complicated,” Twitter user cryptolikemo said <a href="https://twitter.com/L1am_Crypto/status/1502316603177906178" target="_blank" rel="noreferrer noopener">during a Twitter Spaces</a> discussion, Friday.



<blockquote class="wp-block-quote">
“People are saying this is black and white, and saying, ‘yes is the obvious answer,’ and if you voted no, people are saying you’re evil.”
</blockquote>



It’s not clear that gaming the system was the whale’s explicit goal, however. The ATOM staking, required to be eligible for JUNO’s airdrop, must have occurred prior to Feb. 18, 2021, the date of an important <a href="https://stargate.cosmos.network/resources" target="_blank" rel="noreferrer noopener">Cosmos milestone</a> upgrade. But Juno’s stakedrop <a href="https://medium.com/@JunoNetwork/jun%C3%B8-tokenomics-and-utility-powering-the-worlds-first-fully-interoperable-smart-contract-ce9f490c4d97" target="_blank" rel="noreferrer noopener">was not announced</a> until July.



Regardless of the intent, not everyone agrees with the concept of redistributing wealth in this way.



“People who game airdrops deserve to keep their money,” George Wosmongton, a pseudonymous founder of <a href="https://cms.blockworks.co/?s=osmosis" target="_blank" rel="noreferrer noopener">Osmosis</a> Protocol, <a href="https://twitter.com/wosmongton/status/1502116226637524992?s=20&amp;t=pgZ6VJNQzjSZTyv36Uj-wQ" target="_blank" rel="noreferrer noopener">tweeted</a>. Wosmongton said holders should direct the blame toward the JUNO team instead of condemning the whale.



The wallet address in question currently has about <a href="https://www.mintscan.io/juno/account/juno1aeh8gqu9wr4u8ev6edlgfq03rcy6v5twfn0ja8" target="_blank" rel="noreferrer noopener">3.1 million JUNO tokens</a>, worth about $122 million as of Friday. The tokens are currently bonded, meaning they are staked to the network and are receiving additional rewards. Overall, about 28.77 million, or 38.5%, are bonded JUNO tokens, and 44.6 million, or 59.73%, are unbonded tokens, according to JunoScan <a href="https://junoscan.com/" target="_blank" rel="noreferrer noopener">data</a>.&nbsp;



Bonded tokens contribute to the security of delegated proof-of-stake networks such as Juno. In return for this commitment on the part of token holders — in this case, it takes 28 days for tokens to unbond — owners continuously earn rewards in the form of more tokens. By contrast, unbonded tokens are not locked, and an owner can transfer or exchange them at any time.



“If every day they’re getting 10% of staking rewards, that’s a lot of money,” cryptolikemo said. The whale was regularly selling a significant fraction of the staking rewards into the market, <a href="https://twitter.com/TheJunonaut/status/1501957438584475648" target="_blank" rel="noreferrer noopener">data shows</a>.



The proposal could be a first for the crypto community as it tries to redistribute the wealth of a major holder in the network. This gives some members pause, while others underline the urgency of the matter.



“Action needs to be taken quickly if the proposal goes through,” Liam Connor, Cosmos NFT YouTuber, said on the Twitter space meeting.



<blockquote class="wp-block-quote">
“If it takes three weeks to come up with a plan of action after, the whale will unbond and sell the tokens before we take the wallet.”
</blockquote>



Juno Network’s future is uncertain, and the situation may have broader implications for token governance and redistribution among crypto communities, cryptolikemo hinted.



If the proposal goes through, this could set an “interesting” and “potentially dangerous” precedent, Twitter user Kavaskous, who is also a crypto miner and ambassador and liquidity provider for Osmosis, said.



“If it’s executed without any problems [and] as long as this is a one-time thing, I think it’ll be fine in the long term, but if it gets repeated it could be slippery,” Kavaskous said.



Macauley Peterson contributed reporting for this story.



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Juno Network Stakeholders To Decide Fate of Whale’s Millions in a Crypto First

Sam Martin

<div id="highlights-block_617725d07bf3f" class="highlights">
 <ul>
 <li>ATOM is up 36% over the past week despite the broader market sell-off</li>
 <li>The Cosmos network is set to thrive in 2022 with increased developer interest and the Theta upgrade</li>
 </ul>
 
</div>



The Cosmos Network is home to nearly 50 protocols representing $151.8 billion of value.



Electric Capital&#8217;s <a href="https://medium.com/electric-capital/electric-capital-developer-report-2021-f37874efea6d" target="_blank" rel="noreferrer noopener">annual developer report</a> revealed that monthly active developers on Cosmos grew approximately 70% throughout 2021.



The rise of Osmosis, a DEX built on Cosmos, has driven significant traffic to the Cosmos ecosystem while attracting $1.2 billion of total value locked (TVL).



The Theta upgrade, scheduled tentatively for the first quarter of 2022, is another upcoming catalyst for ATOM and the Cosmos ecosystem as a whole.



Cosmos&#8217; token ATOM market dominance is approaching an all-time high, currently hovering near 0.47%.



<h3 class="wp-block-heading">Latest in Macro:</h3>



<ul><li>S&amp;P 500: 4,677, -0.41%</li><li>NASDAQ: 14,935, -0.96%</li><li>Gold: $1,796, +0.26%</li><li>WTI Crude Oil: $78.97, -0.60%</li><li>10-Year Treasury: 1.773%, +0.04%</li></ul>



<h3 class="wp-block-heading">Latest in Crypto:</h3>



<ul><li>BTC: $42,017, -3.00%</li><li>ETH: $3,222, -5.90%</li><li>ETH/BTC: 0.0767, -3.04%</li><li>BTC.D: 40.03%, +0.95%</li></ul>



<h3 class="wp-block-heading">Cosmos overview</h3>



As previously <a href="https://cms.blockworks.co/scrt-osmo-and-atom-rally-as-cosmos-ecosystem-claims-center-stage-markets-wrap/" target="_blank" rel="noreferrer noopener">covered</a> by Blockworks, <a href="https://v1.cosmos.network/intro" target="_blank" rel="noreferrer noopener">Cosmos</a>&nbsp;(ATOM) is an ecosystem of blockchains that can scale and interoperate with each other. Historically, blockchains have been unable to interact with one another and had minimal transaction throughput with different programming languages, making it hard to attract developers to new chains.



The Tie released a <a href="https://research.thetie.io/a-journey-through-the-cosmos-atom/" target="_blank" rel="noreferrer noopener">research article</a> on the Cosmos network in July of 2021 describing the ecosystem&#8217;s vision: &#8220;To make it easy for developers to build blockchains and break the barriers between blockchains by allowing them to transact with each other. This vision is achieved through a set of open source tools such as&nbsp;<a href="https://tendermint.com/core/">Tendermint</a>, the&nbsp;<a href="https://v1.cosmos.network/sdk">Cosmos software development kit (SDK</a>) and inter-blockchain communication (IBC), designed to let people build custom, secure, scalable and interoperable blockchain applications quickly.&#8221;



Cosmos is home to nearly 50 protocols representing $151.8 billion of value. Twenty-eight of these protocols are linked via IBC, a protocol designed for interoperability between arbitrary state machines, according to the project&#8217;s website.



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="926" height="718" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-11.59.27-AM.png" alt="" class="wp-image-13654" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-11.59.27-AM.png?w=926 926w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-11.59.27-AM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-11.59.27-AM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-11.59.27-AM.png?w=331 331w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-11.59.27-AM.png?w=337 337w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-11.59.27-AM.png?w=282 282w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-11.59.27-AM.png?w=80 80w" sizes="(max-width: 926px) 100vw, 926px" /><figcaption>Source: cosmos.network</figcaption></figure>



<h3 class="wp-block-heading">Developer activity </h3>



Electric Capital&#8217;s <a href="https://medium.com/electric-capital/electric-capital-developer-report-2021-f37874efea6d" target="_blank" rel="noreferrer noopener">annual developer report</a> revealed that monthly active developers grew approximately 70% throughout 2021. The Cosmos network is home to over <a href="https://cosmos.network/ecosystem/tokens/" target="_blank" rel="noreferrer noopener">$151 billion of assets</a>, and the third most active developers in all of crypto, behind only Ethereum and Polkadot.



<div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="576" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg" alt="" class="wp-image-13655" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=464 464w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/full-time-devs-since-launch-1024x576.jpg?w=1920 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Electric Capital</figcaption></figure></div>



<h3 class="wp-block-heading">Osmosis: The DEX of IBC</h3>



Osmosis (<a href="https://www.coingecko.com/en/coins/osmosis" target="_blank" rel="noreferrer noopener">OSMO</a>) is an advanced automated market maker (AMM) protocol that allows developers to build customized AMMs with sovereign liquidity pools. Built using the Cosmos SDK, Osmosis utilizes IBC to enable cross-chain transactions, according to the <a href="https://docs.osmosis.zone/overview/#what-is-osmosis" target="_blank" rel="noreferrer noopener">project&#8217;s website</a>, and has driven significant traffic to the Cosmos ecosystem. 



The protocol aims to extend the use of AMMs within the Cosmos ecosystem beyond traditional token swap-type use cases. &#8220;Through the customizability offered by Osmosis such custom-curve AMMs, dynamic adjustments of swap fees, multi-token liquidity pools, the AMM can offer decentralized formation of token fundraisers, interchain staking, options market, and more for the Cosmos ecosystem,&#8221; reads the <a href="https://docs.osmosis.zone/overview/#what-is-osmosis" target="_blank" rel="noreferrer noopener">project&#8217;s documentation</a>.



The Osmosis DEX has logged 1.22 million IBC transfers over the last 30 days, more than double that of Cosmos itself and nearly 10 times more than Terra, according to data from <a href="https://mapofzones.com/?period=720&amp;testnet=false&amp;tableOrderBy=totalIbcTxs&amp;tableOrderSort=desc" target="_blank" rel="noreferrer noopener">Map of Zones</a>.



Osmosis has grown to $1.2 billion of liquidity and over $100 million in daily trading volume, according to its <a href="https://info.osmosis.zone" target="_blank" rel="noreferrer noopener">stats page</a>. Some of the main drivers for growth are:



<ul><li>Incentivized pools paying out very attractive yields to liquidity providers; the ATOM/OSMO pair currently pays out 102.29% APR according to the <a href="https://app.osmosis.zone/pools" target="_blank" rel="noreferrer noopener">application</a>;</li><li>High staking rewards on the OSMO token, currently yielding 95.1% rewards the popular <a href="https://wallet.keplr.app/#/dashboard" target="_blank" rel="noreferrer noopener">Keplr wallet</a>;</li><li><a href="https://twitter.com/0xkrane/status/1478275712444416000?s=20" target="_blank" rel="noreferrer noopener">Airdrops</a> for LP&#8217;s and stakers of OSMO for up-and-coming projects in the Cosmos ecosystem;</li><li>The upcoming integration of CosmWasm smart contracts and <a href="https://defitimes.io/defi-101/superfluid-staking-simply-explained/" target="_blank" rel="noreferrer noopener">superfluid staking</a></li></ul>



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="375" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png" alt="" class="wp-image-13662" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screen-Shot-2022-01-07-at-12.45.21-PM-1024x375.png?w=1156 1156w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: Info.osmosis.zone</figcaption></figure>



<h3 class="wp-block-heading">Theta upgrade</h3>



The Theta upgrade, scheduled tentatively for the first quarter of 2022, is another upcoming catalyst for ATOM and the Cosmos ecosystem as a whole. Highlights of the upcoming upgrade, <a href="https://hub.cosmos.network/main/roadmap/cosmos-hub-roadmap-2.0.html" target="_blank" rel="noreferrer noopener">per the project&#8217;s documentation</a>, include:



<ul><li>Cosmos SDK v0.45<ul><li>Groups module: Enables higher-level multisig permissioned accounts, e.g., weight-based voting policies</li><li>Meta-Transactions: Allows transactions to be submitted by separate accounts that receive tips</li><li>Governance module improvements: Execution of arbitraty transactions instead of just governance proposals and will enables much more expressive governance module</li></ul></li><li>NFT module<ul><li>Enable simple management of NFT identifiers, their owners, and associated data, such as URIs, content, and provenance.</li><li>An extensible base module for extensions including collectibles, custody, provenance, and marketplaces.</li></ul></li><li>Tendermint v0.35 — the Cosmos consensus engine</li><li>Interchain accounts<ul><li>A requirement in order to manage accounts across multiple blockchains.</li><li>Aims to provide locking/unlocking mechanisms across IBC-enabled blockchains.</li><li>Allows custody providers to service any IBC connected blockchain through a common interface on the Hub.</li></ul></li><li>Liquid staking<ul><li>Frees secure and low-risk delegations for use in other parts of the Cosmos ecosystem</li><li>Features include enabling transfer of rewards and voting rights</li></ul></li><li>Other potential upgrades still being discussed such as a Cosmos-to-Ethereum gravity bridge as well as budget and farming modules.</li></ul>



<h3 class="wp-block-heading">ATOM dominance</h3>



ATOM is nearing all-time highs in terms of market dominance over the total cryptocurrency market. It currently accounts for 0.47% of the entire crypto market capitalization, according to data from <a href="https://www.tradingview.com/chart/5GPs0hRQ/?symbol=CRYPTOCAP%3AATOM.D" target="_blank" rel="noreferrer noopener">Trading View</a>.



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="1000" height="683" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/ATOM.D_2022-01-07_14-04-28.png" alt="" class="wp-image-13666" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/ATOM.D_2022-01-07_14-04-28.png?w=1000 1000w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/ATOM.D_2022-01-07_14-04-28.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/ATOM.D_2022-01-07_14-04-28.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/ATOM.D_2022-01-07_14-04-28.png?w=376 376w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/ATOM.D_2022-01-07_14-04-28.png?w=382 382w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/ATOM.D_2022-01-07_14-04-28.png?w=321 321w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/ATOM.D_2022-01-07_14-04-28.png?w=80 80w" sizes="(max-width: 1000px) 100vw, 1000px" /><figcaption>Source: Trading View</figcaption></figure></div>



ATOM was last trading near $41.50, up 36.3% over the past seven days, with a market cap of $11.76 billion, according to data from <a href="https://www.coingecko.com/en" target="_blank" rel="noreferrer noopener">CoinGecko</a>. 



For more information on what else is coming to Cosmos in 2022, refer to their recent <a href="https://blog.cosmos.network/whats-coming-to-cosmos-in-2022-ce8e48d383ab" target="_blank" rel="noreferrer noopener">blog post</a>.



<h3 class="wp-block-heading">NFTs</h3>



Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found below:



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="854" height="662" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screenshot-2022-01-08-at-00.20.31.png" alt="Top Ethereum and Solana projects" class="wp-image-13682" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screenshot-2022-01-08-at-00.20.31.png?w=854 854w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screenshot-2022-01-08-at-00.20.31.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screenshot-2022-01-08-at-00.20.31.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screenshot-2022-01-08-at-00.20.31.png?w=332 332w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screenshot-2022-01-08-at-00.20.31.png?w=337 337w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screenshot-2022-01-08-at-00.20.31.png?w=283 283w, https://blockworks-co.imgix.net/wp-content/uploads/2022/01/Screenshot-2022-01-08-at-00.20.31.png?w=80 80w" sizes="(max-width: 854px) 100vw, 854px" /></figure>



If you made it this far, thanks for reading! I am looking forward to catching up on Monday.



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ATOM Splits From Market as BTC, ETH Bomb: Markets Wrap

<div id="highlights-block_617725d07bf3f" class="highlights">
 <ul>
 <li>The Cosmos ecosystem helps secure over $130 billion of assets</li>
 <li>SCRT, OSMO and ATOM all rally 15% or more </li>
 </ul>
 
</div>



The Cosmos ecosystem continues to mature and now helps secure over $130 billion of assets. 



Secret Network (SCRT) and Osmosis (OSMO) explode higher due to upgrades and increased usage. 



Non-fungible tokens (NFTs) stall amid Osmosis rally. 



Other notable news includes Indian lawmakers are attempting to make digital assets more accessible to their citizens; Do Kwon explained why he is suing the US Securities and Exchange Commission (SEC), and US regulators are exploring how they could allow banks to hold digital assets. 



<h3 class="wp-block-heading">Latest in Macro:</h3>



<ul><li>S&amp;P 500: 4,574, +.06%</li><li>NASDAQ: 15,235, +.04%</li><li>Gold: $1,793, -.83%</li><li>WTI Crude Oil: $84.44, +.81%</li><li>10-Year Treasury: 1.61%, -.032%</li></ul>



<h3 class="wp-block-heading">Latest in Crypto:</h3>



<ul><li>BTC: $60,786, -3.27%</li><li>ETH: $4,175, -.22%</li><li>ETH/BTC: .0693, +3.67%</li><li>BTC.D: 44.16%, -2.13%</li></ul>



<h2 class="wp-block-heading">Cosmos Ecosystem Takes Center Stage</h2>



<a href="https://v1.cosmos.network/intro" target="_blank" rel="noreferrer noopener">Cosmos</a> (ATOM) is an ecosystem of blockchains that can scale and interoperate with each other. Historically, blockchains have been unable to interact with one another and had minimal transaction throughput with different programming languages making it hard to attract developers to new chains. 



&#8220;The end goal is to create an Internet of Blockchains, a network of blockchains able to communicate with each other in a decentralized way. With Cosmos, blockchains can maintain sovereignty, process transactions quickly and communicate with other blockchains in the ecosystem, making it optimal for a variety of use cases,&#8221; <a href="https://v1.cosmos.network/intro" target="_blank" rel="noreferrer noopener">according</a> to the Cosmos website.



This vision is achieved through a set of open source tools like Tendermint, the Cosmos SDK and IBC designed to let people build custom, secure, scalable and interoperable blockchain applications quickly.



Cosmos secures more than $137 billion of assets and is arguably the most developed ecosystem outside of Ethereum. Despite the success of the project, Cosmos&#8217; native token, <a href="https://coinmarketcap.com/currencies/cosmos/" target="_blank" rel="noreferrer noopener">ATOM</a>, is just the 24th largest cryptocurrency by market capitalization ($9.137 billion). As of reporting, ATOM was trading near $41, up 16.5% over the last 24 hours. 



<h3 class="wp-block-heading">The market awakens</h3>



&#8220;The market is finally beginning to wake up to Cosmos, which is arguably the most developed ecosystem outside of Ethereum. Almost like the Cosmos ecosystem being home to $100BN+ of assets and many of the industry&#8217;s leading blockchains matters,&#8221; wrote Ryan Watkins of Messari. 



The top 10 coins that Cosmos helps secure are:



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="976" height="652" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-4.40.24-PM.png" alt="" class="wp-image-9921" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-4.40.24-PM.png?w=976 976w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-4.40.24-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-4.40.24-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-4.40.24-PM.png?w=385 385w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-4.40.24-PM.png?w=391 391w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-4.40.24-PM.png?w=328 328w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-4.40.24-PM.png?w=80 80w" sizes="(max-width: 976px) 100vw, 976px" /><figcaption>Source: cosmos.network</figcaption></figure>



<h2 class="wp-block-heading">Secret Network Explodes</h2>



Secret Network (SCRT) is a protocol that has privacy for smart contracts by default, solving a problem that has long plagued the digital asset industry. This allows developers and users to build and use applications that are both permissionless and privacy-preserving, and ultimately protects users personal information and unlocks hundreds of use cases that previously were not possible.



Arguably the largest upgrade in protocol history, Supernova, is set to go live on Mainnet on November 9, which could be driving the bullish price action seen over the last month (+320.19%).



<h3 class="wp-block-heading">Supernova highlights</h3>



<ul><li>Inter-blockchain communication (IBC) integration, which will connect Secret Network with all blockchains in the Cosmos ecosystem.</li><li>Additional modules that should greatly simplify network upgrades and workflows for companies that want to integrate Secret Network seamlessly in consumer-oriented applications.</li><li>New Secret applications launching on mainnet, new partners and collaborators, and millions of new possibilities for users and developers.</li></ul>



Guy Zyskind, the founder and CEO of Enigma — one of the core development teams behind Secret Network <a href="https://scrt.network/blog/supernova-explosive-vision-future-secret-network" target="_blank" rel="noreferrer noopener">wrote</a>, &#8220;Supernova introduces our IBC integration,&nbsp;finally connecting Secret Network with blockchains across the Cosmos ecosystem (in addition to our bridges to Ethereum, BSC, Monero, Terra, Polkadot, and more!). IBC allows SCRT to be used in cross-chain Cosmos applications (such as Osmosis &amp; Gravity DEX) and provides our privacy features to the entire Cosmos ecosystem.&nbsp;This further cements our position as the data privacy hub for the decentralized web&nbsp;and unlocks our next phases of growth and adoption.&#8221;



<h3 class="wp-block-heading">Osmosis Rallies</h3>



Osmosis (<a href="https://coinmarketcap.com/currencies/osmosis/" target="_blank" rel="noreferrer noopener">OSMO</a>), the leading automated market maker (AMM) in the cosmos ecosystem, has rallied over 23% in the last 24 hours. Liquidity and trading volume have raced higher today, as seen in the image below. Having launched on June 19, 2021, the growth has been very impressive.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="369" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png" alt="" class="wp-image-9924" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.38.41-PM-1024x369.png?w=1199 1199w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Source: info.osmosis.zone</figcaption></figure>



The total number of transfers via IBC relayers far outpaces any other project in the Cosmos ecosystem. The seven-day volume of transfers can be seen below:



<figure class="wp-block-image size-full"><img decoding="async" loading="lazy" width="896" height="373" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.46.21-PM.png" alt="" class="wp-image-9925" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.46.21-PM.png?w=896 896w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.46.21-PM.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.46.21-PM.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.46.21-PM.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.46.21-PM.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.46.21-PM.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.46.21-PM.png?w=80 80w" sizes="(max-width: 896px) 100vw, 896px" /><figcaption>Source: mapofzones.com</figcaption></figure>



<h3 class="wp-block-heading">Non-Fungible Tokens (NFTs)</h3>



Trading data from <a href="https://opensea.io/rankings" target="_blank" rel="noreferrer noopener">OpenSea</a> and <a href="https://solanalysis.com" target="_blank" rel="noreferrer noopener">Solanalysis</a> of some of the top Solana and Ethereum projects can be found in the photos below:



<div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="337" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png" alt="" class="wp-image-9926" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.49.58-PM-1024x337.png?w=1225 1225w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Top Ethereum Projects</figcaption></figure></div>



<div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="1024" height="288" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png" alt="" class="wp-image-9927" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2021/10/Screen-Shot-2021-10-26-at-5.50.15-PM-1024x288.png?w=1230 1230w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Top Solana Projects </figcaption></figure></div>



<h3 class="wp-block-heading">Notable News</h3>



<ul><li>Metamask will be improving support for ledger wallet owners, <a href="https://twitter.com/MetaMask/status/1453089090908262404?s=20" target="_blank" rel="noreferrer noopener">according</a> to their Twitter. </li><li>Lawmakers in India are pushing to reform cryptocurrency laws to make them more accessible to their citizens, <a href="https://twitter.com/IndiaToday/status/1453046045995409413?s=20" target="_blank" rel="noreferrer noopener">according</a> to India Today. </li><li>Do Kwon, founder of Terra Form Labs, expained why he is suing the SEC, <a href="https://news.yahoo.com/crypto-founder-do-kwon-explains-why-hes-suing-the-sec-195945610.html" target="_blank" rel="noreferrer noopener">per</a> Yahoo. </li><li>US regulators are exploring how they could allow banks to hold digital assets, <a href="https://www.reuters.com/business/finance/us-regulators-exploring-how-banks-could-hold-crypto-assets-fdic-chairman-2021-10-26/" target="_blank" rel="noreferrer noopener">according</a> to Reuters.</li><li>Valkyrie filed for a leveraged BTC ETF, <a href="https://twitter.com/EricBalchunas/status/1453026808073531394?s=20" target="_blank" rel="noreferrer noopener">according</a> to Eric Balchunas</li></ul>



If you made it this far, thanks for reading! Looking forward to catching up tomorrow.



<hr class="wp-block-separator"/>



Are you a UK or EU reader that can&#8217;t get enough investor-focused content on digital assets? <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



<hr class="wp-block-separator"/>

SCRT, OSMO and ATOM Rally as Cosmos Ecosystem Claims Center Stage: Markets Wrap

<div id="highlights-block_6154982a80c71" class="highlights">
 <ul>
 <li>Terra’s inter-blockchain communication (IBC) integration is expected to increase the adoption of its stablecoin, TerraUSD (UST), throughout the Cosmos ecosystem</li>
 <li>Upgrades include increased transaction speed and rewards for stakers, adjustments to burning mechanisms, and a bridge for UST between Terra and Solana</li>
 </ul>
 
</div>



The Terra network has undergone a successful upgrade today, known as Columbus-5, a significant milestone in the protocol’s history. The upgrade to Terra will introduce a number of changes, chief among them, the adoption of inter-blockchain communication (<a href="https://ibcprotocol.org" target="_blank" rel="noreferrer noopener">IBC</a>) which will connect Terra-based assets to the Cosmos ecosystem.



IBC will also create a bridge between the Cosmos ecosystem and the Terra, Solana ($SOL) and Polkadot ($DOT) blockchains. Ethereum will be added to that list soon. Overall, about 250 decentralized applications (dApps) will potentially be added to the ecosystem.



The ability for Terra’s stablecoin, TerraUSD ($UST), to move freely between IBC-connected blockchains is expected to drive demand by fuelling economic activity in DeFi for those that currently lack a USD-pegged stablecoin. For instance, the Cosmos hub, which connects about a dozen blockchains through IBC, currently does not have a USD-pegged stablecoin available for use in its applications, although a stablecoin pegged to the euro <a href="https://medium.com/e-money-com/announcing-e-moneys-eeur-as-the-first-stablecoin-to-be-listed-on-osmosis-amm-decentralised-98f4df0e8fc3" target="_blank" rel="noreferrer noopener">recently debuted</a>.



Columbus-5 also takes advantage of prior upgrades to Cosmos dubbed <a href="https://stargate.cosmos.network/" target="_blank" rel="noreferrer noopener">Stargate</a> which, in addition to IBC, included improvements to performance — promising efficiency gains of 10x to 100x — and developer tools, such as wider support for programming languages.



<h3 class="wp-block-heading">Banking on UST</h3>



Terra’s $UST is known as an algorithmic stablecoin that uses a process referred to as seigniorage, which means that to mint (create and put into circulation) new units of $UST, the equivalent dollar amount of Terra’s native token, $LUNA, must be burned (removed from circulation).



However, the system works both ways. If demand for $UST begins to decline, then $LUNA will be minted while $UST is burned, which theoretically allows it to keep its value stable at around $1.



As demand for $UST increases, it begins to trade at a premium and arbitrageurs purchase $LUNA on an exchange and burn it for $UST to capture that spread and bring the peg back down to $1.



On the other hand, as demand for $UST declines and trades at a discount, arbitrageurs can redeem their $UST for $LUNA in order to return the peg back to $1.



There are many new projects set to launch on Terra post Columbus-5, with names like Ozone, <a href="https://twitter.com/orion_money" target="_blank" rel="noreferrer noopener">Orion Money,</a> <a href="https://twitter.com/mars_protocol" target="_blank" rel="noreferrer noopener">Mars Protocol</a>, <a href="https://twitter.com/nebula_protocol" target="_blank" rel="noreferrer noopener">Nebula Protocol</a>, <a href="https://twitter.com/Levana_protocol" target="_blank" rel="noreferrer noopener">Levana Protocol</a>, <a href="https://twitter.com/alice_finance" target="_blank" rel="noreferrer noopener">Alice</a> and <a href="https://twitter.com/astroport_fi" target="_blank" rel="noreferrer noopener">Astroport</a>. This will presumably increase demand for $UST (which in turn deflates the $LUNA supply) as these projects seek to bootstrap liquidity by distributing their own reward tokens.&nbsp;



<h3 class="wp-block-heading">Feeling the burn</h3>



Prior to Columbus-5, a large portion of burned $LUNA would be rerouted to a community pool and the remainder would be burned. After Columbus-5, the community pool portion will be entirely burned as well, thus reducing the total supply.



Terra’s <a href="https://tendermint.com/" target="_blank" rel="noreferrer noopener">Tendermint</a>-based proof-of-stake consensus mechanism requires that transactions are processed by a set of 130 validators (later this number will rise to 300). Holders of $LUNA can opt to delegate their tokens to one or more validators of their choosing, helping to secure the network and, in the process, earning a reward. Columbus-5 will increase those incentives.



Swap fees generated from the Terra Station wallet — Terra’s equivalent to the popular Metamask app and browser extension — which contains a built-in decentralized exchange, will now be distributed to stakers as well, rather than being burned.



Members of the Terra community (known as LUNAtics) are hoping this will lead to more of the supply becoming locked in the protocol — a 28-day unbonding period is imposed before delegators can withdraw their stake.



<h3 class="wp-block-heading">Not your regulator’s stablecoin</h3>



TerraUSD, as an algorithmic stablecoin, isn’t backed by anything. Its stability is a function of the&nbsp; supply, demand and arbitrage. These types of stablecoins are experimental and highly controversial. If any of these stability factors cease to exist, the value of $UST and $LUNA could quickly deteriorate.



Earlier this year, during the May 19 to May 23 crash, $UST survived a crisis when the price of $LUNA fell by 75% over the space of three days and the stablecoin briefly lost its peg. Since then, the protocol has added more stability mechanisms, while the variance of $UST from a dollar overall has declined.



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/54ZrJ1DtTBskH0qeAsfwlka6XqXgolFXjl-VYueG-LZN-xuT_7eRmtBCzkN_EYbL3roG-Vv8R855CVCsCkpz6AOF8GC2MvXrMSfFlotzYjyA9Fln9gk8LkB_XRirVBDk8hFjdZ71=s0" alt=""/><figcaption>Source: <a href="https://app.flipsidecrypto.com/dashboard/terra-stablecoin-peg-variance-RwdHUa" target="_blank" rel="noreferrer noopener">Flipside Crypto</a></figcaption></figure>



Another risk is potential regulation. Gary Gensler, Chairman of the SEC, recently <a href="https://cms.blockworks.co/secs-gensler-stablecoins-are-poker-chips/" target="_blank" rel="noreferrer noopener">said</a> that “These stablecoins are acting almost like poker chips at the casino right now.” The pending regulatory action surrounding stablecoins, particularly algorithmic stablecoins, is unknown.



The Federal Reserve has also been keeping a close eye on the stablecoin market. It has become abundantly clear regulators want investors to tread carefully.



At time of publication, $LUNA has a market cap of roughly $14 billion and $UST has a market cap of roughly $2.7 billion, according to <a href="https://www.coingecko.com/en/coins/terra-luna" target="_blank" rel="noreferrer noopener">CoinGecko</a>, making them the 12th and 57th largest cryptocurrencies respectively. 



This story was updated on September 30, 2021, at 7:07 AM ET.