Why Cosmos ($ATOM) is Misunderstood and Undervalued
In this article, I cover the Cosmos project, why it’s misunderstood by the market, and how its narrative is shifting in 2022.
I believe Cosmos (ATOM) is one of the most misunderstood and underrated projects in the crypto space and is set to have a huge year in 2022. In this article, I’ll cover what the Cosmos project is, talk about why it’s misunderstood by the market, explain how that narrative is shifting in 2022, and predict what that means for ATOM’s price.
What Is Cosmos?
Cosmos was founded in 2014 by developers Jae Kwon and Ethan Buchman. The project’s original whitepaper outlines the goal of creating something called the Inter-Blockchain Communication protocol, or IBC, which would allow different blockchains to interact, or “talk,” with one another. If you can think of other blockchain platforms (e.g., Ethereum, Solana, and Luna) as “supercomputers,” Cosmos’s aim is to be “the internet provider” that allows these computers to all interact with one another.
Can you imagine having a computer but not being able to access the internet? Cosmos expands the utility of high-powered networks like Ethereum and Solana by forming a connection between them, thereby metaphorically granting them access to “the internet.” In the future, I’ll be diving deeper into Cosmos, but in this article, I’ll be focusing on why the project is at such a major inflection point.
How the Cosmos Project Was Misunderstood
Currently, most investors believe that the Cosmos network’s native token, ATOM, lacks utility and is, therefore, un-investable, despite Cosmos’ usefulness as a protocol. Funny enough, I was one of those investors because this way of thinking about the project was once true.
When Cosmos’s developers were working on creating the IBC, the team was primarily focused on creating an infrastructure that lets application-specific blockchains, like Bitcoin and Ethereum, interact with one another. To accomplish this, Cosmos connects blockchains (called “zones”) through “hubs”, which are mini-ecosystems that facilitate seamless interactions with the larger Cosmos ecosystem. And all the while, ATOM was only used as a currency for the Cosmos Hub while other projects could build separate hubs that use their own tokens, which made ATOM not very useful.
For clarification, let me use an analogy: Imagine that the Cosmos network is a massive shopping mall built from the ground up. Instead of charging for rent, the Cosmos team allowed businesses to freely set up shop and make money from the mall’s customers. One section of the mall is a Cosmos section (i.e., the Cosmos Hub) where ATOM is used as currency. But, instead of forcing all the shops to use ATOM as currency, each shop in the mall is allowed to use whatever currency they want (such as Bitcoin or Ethereum). In essence, this is pretty much what Cosmos did. The Cosmos team created a super flexible platform that gave blockchain protocols the freedom to set up shop, use their own tokens, and share users that flow through the ecosystem, but didn’t capitalize on this work at all.
Now, there were a few other important initial uses for ATOM such as spam prevention, staking, and governance, but ATOM’s potential usage as a central currency for the entire Cosmos ecosystem outshines all of these. Since this is not the case as each blockchain uses its own tokens, the primary narrative around Cosmos has been that it’s a great protocol with a useless ATOM token, until now.
The Impending Narrative Shift
As we’ve discussed, Cosmos has been focused on building the IBC and there wasn't much attention on making sure ATOM had a lot of utility and value. But now that this initial mission has been accomplished, Cosmos is evolving as a project and its new roadmap is going to make ATOM incredibly valuable.
Back to our shopping mall analogy, if step 1 for Cosmos was creating a mall to attract the best businesses and customers, step 2 is offering these businesses enticing add-on services. Cosmos currently has 25 chains with more than $60 billion in market cap connecting through IBC and since April 2nd of 2021, Cosmos has had more than 5.8 million IBC transfers. With more projects partaking in the ecosystem, Cosmos is starting to offer enticing services, expanding ATOM’s utility beyond its current use cases (securing the Cosmos Hub, staking, governance, and airdrops).
So, what are these new services being offered?
· First up, in July 2021, the Delta Upgrade introduced the Gravity DEX which allows for seamless trading across different blockchain platforms. These transactions are facilitated by the ATOM token so more transactions will result in more demand for ATOM.
· Second, decentralized liquidity pools are being introduced which allows ATOM holders to collect rewards for providing liquidity for swaps.
· Third, we have “the Gravity Bridge,” which is an open and interoperable bridge between Ethereum and the Cosmos Hub. Obviously, this has huge implications for the project because Ethereum has the largest ecosystem in crypto and will generate a lot of activity for Cosmos. Since ATOM tokens are used to secure the Cosmos Hub, validators and delegators are incentivized to accumulate and stake ATOM.
· Fourth, the most exciting development in my opinion is Cosmos’ “Interchain Security”, which allows Cosmos to oversee the production of blocks for another chain in its ecosystem, such as Terra (LUNA). The participating validators would run two nodes one for Cosmos and one for Terra and earn staking rewards for both at the same time. This is a huge gamechanger that boosts ATOM’s utility because this means if you stake your ATOM, you can earn staking rewards for two tokens simultaneously (instead of just ATOM).
Looking forward, the Cosmos team believes there will be 200 chains on IBC by the end of 2022, DeFi and NFTs on Cosmos will explode, and a ton of enticing airdrops are soon to come.
Hopefully, now you can see why there is so much excitement around Cosmos and how the narrative surrounding the project is facing a drastic shift in 2022, changing the impression of ATOM from being a useless token to becoming an invaluable asset in a thriving ecosystem.
Price Predictions
Finally, this article would not be complete without everyone’s favorite topic - price predictions. This prediction is a simple exercise looking at the relative valuation of one of Cosmos’s prime competitors: Polkadot (the 10th largest crypto project as of 2/1/22). I believe if Cosmos can deliver on its roadmap, it deserves a market cap equal to Polkadot’s $19.19 billion today.
So if we divide $19.19 billion by Cosmos’s supply of 286.37 million, we get an implied price of $67.01, a gain of ~128.08% from its current prices. So, I think there’s still a lot of room left to run especially considering the continued confusion surrounding the ATOM token’s utility. Of course, this is dependent on the crypto markets holding up and with the current bearish sentiment, ATOM faces an uphill battle. But if and when the markets turn bullish once again, there could be a massive upside.
This article does not pertain ANY financial advice. Please ensure you do your own research and for full disclosure, I own a long-position in $ATOM as of the publication of this article.