This post is the first of a series that will introduce major Proof-of-Stake smart contract platforms. We will regularly add profiles to the “Proof-of-Stake Contenders” series covering the founding history, the team and basic components of the projects, including how their protocol is incorporating staking. The first contender will be the project that we at Chorus One have until now spent most of our time on: the Cosmos Network.
The main vision behind the Cosmos Network is that of an interoperable, scalable “internet of blockchains”. The project’s goal is to enable developers to easily spin up blockchains on a per-application basis, with components that can be switched out to fit the desired use case. To achieve this, the Cosmos Network is utilizing a modular design and a Hub and Spoke model, facilitated by a multitude of technologies and developer tools that enable communication between blockchains and pluggable features such as staking, slashing, governance, etc.
Before the Cosmos Network whitepaper was released in 2016, co-founders Jae Kwon and Ethan Buchman had already been actively working together on Tendermint, a BFT (Byzantine fault-tolerant) algorithm devised to achieve consensus in an adversarial distributed setting, which serves as the basis for the Cosmos Network. Jae Kwon is the author behind the 2014 Tendermint paper, which was one of the first papers that described a possible alternative to Proof-of-Work in public blockchains drawing on distributed system research. Ethan Buchman’s thesis from 2016 on Tendermint remains one of the best technical introductions to blockchains to this day. The two are the leading forces behind the company Tendermint, which is developing the Cosmos Network on behalf of the Interchain Foundation.
The Cosmos Network fundraiser took place on the 7th of April 2017 and was one of the most popular at the time. In the Cosmos fundraiser, participants contributed over $16m in around 30 minutes to receive 168,475,963 Atoms at network launch (at a rate of ~$0.10 per Atom). The rest of the Atom allocation (25%) are distributed to the Interchain Foundation (10%), All in Bits (aka Tendermint) (10%) and seed investors (5%) at launch. The fundraiser raised a record amount at the time, on par with the Ethereum fundraiser but completed in a much shorter time.
The project has been in development since and managed to gather an active community, especially around the staking and validation ecosystem, with over 250 entities registering for the final incentivized testnet (300,000 Atoms are going to be distributed) taking place in November 2018 before the mainnet launch that is scheduled to happen at the end of this year. The testnet dubbed Game of Stakes will test the security and performance of validator infrastructure by simulating and encouraging adversarial behavior between participating parties.
Components and Definitions
The Cosmos Network is made up of many components, many of which are modular to allow for high degrees of freedom for developers that want to use the Cosmos Network to host their decentralized application. There are two main technical components to the Cosmos Network, the consensus engine (Tendermint Core) and the application interface (ABCI). The Cosmos SDK is a toolkit written in Golang that developers can use to write applications using their own modules or the ones provided by the Cosmos team.
The heart of the Cosmos Network is the Cosmos Hub, which is going to be the first blockchain in the Cosmos Network. Zones connect to the Hub and are able to send transactions to each other through the Hub. Zones will host applications built on the SDK. An example could be a decentralized exchange (DEX) that runs on its own zone. The IBC protocol developed by the Tendermint team provides a standardized way for blockchains to communicate.
In the future there could also be other Hubs with their own Zones that connect to the Cosmos Hub. Zones can have their own set of rules, modules, and even validator sets. There are many concepts for zones in various stages of development, some of the most interesting ones include Ethermint and Ethereum or Bitcoin Peg Zones.
Ethermint is a fully Web3-compatible implementation of the EVM running on the Cosmos Network; it allows Ethereum applications to be ported over to Cosmos to benefit from higher throughput and instant finality. Peg Zones describe bridge blockchains that implement a way to transfer tokens from foreign blockchains into the Cosmos Network via a two-way peg. The Cosmos team has also come up with interesting ideas on how one could onboard the Ethereum community to the Cosmos Network, e.g. by issuing a token (Photon) that essentially mirrors balances of ether holders through a so-called hard spoon (you can learn more about this concept here).
The Cosmos Hub is a Proof-of-Stake blockchain that is secured by the native cryptocurrency of the Cosmos Network: Atoms. Atoms are bonded to (staked with) validators either by validators themselves or by other stakeholders (delegators). Delegators are able to delegate their stake with whichever validator(s) they wish to. If you want to learn more about validation and delegation in Proof-of-Stake, check out this blog post first.
To be able to achieve high performance, the Cosmos Network validator set is limited to 100 validators at launch. There are many cryptoeconomic mechanisms (incentives and penalties) in place to ensure that the protocol runs at it is supposed to, some of these include slashings and lockup periods. Slashing refers to destruction of locked up stake when undesired behavior is detected (through cryptographic evidence). These attributable actions include signing two different blocks at the same height (also called double-signing or equivocation) and being unavailable (offline) for an extended period of time. The lockup of three weeks (in Cosmos: bonding period) is required to prevent long range attacks.
The important thing to note is that in Cosmos, token holders delegating their stake to validators are held responsible for their validators’ actions. This means that they receive rewards in relation to the performance of their validator(s), but also face risks of slashings due to validator misbehavior. This is done to ensure that delegators do their due diligence and choose to delegate to trusted, non-malicious validators with a secure infrastructure setup.
For taking part in securing the blockchain ledger, the Cosmos Network compensates stakers (validators and delegators) with block rewards in the form of inflated Atom tokens and transactions fees paid by users of the network in whitelisted tokens of the Cosmos Network (in the beginning only Atoms, but overtime this may include whatever tokens validators are willing to accept). Returns from staking in Cosmos are based on a variety of factors. Some of these are related to the state of usage of the network and some to the performance of a validator.
The network will likely have negligible transactions fees due to its performance, especially in the bootstrapping phase. This means that rewards for staking will mostly depend on inflated Atoms. The annual inflation rate is targeted to be 7%, which will be reached if more than 66% of the total Atom supply have been staked for an extent period of time. If there are less than 66% of Atoms at stake, the inflation rate will gradually adjust and rise up to a ceiling of 20%.
The image below shows the range of possible annual yields in Atoms when delegating at an assumed 15% commission rate. The chart is cut off at a 20% of total Atom supply staking because at very low staking levels effective yields from staking reach extremely high rates of above 100%. Because of the dynamically adjusting inflation rate effective yields will gradually move towards the upper bound when below 66% of the supply are staking and towards the lower bound when above 66% of the supply are staking respectively.
This analysis shows that incentives in the Cosmos Network are designed to heavily encourage staking, as the Atom is mainly designed to be a staking token on which the security of the Cosmos Network depends.
Finally, Cosmos also features an on-chain governance mechanism that is going to ensure that protocol upgrades happen in a formalized manner. Atom holders will vote on governance proposals with a 1-token-1-vote system. Governance proposals can be submitted by anyone, proposals with a minimum amount of deposits behind them enter a voting period. Delegators will inherit the votes of their validators, but are also able to vote on governance proposals themselves by overriding their validators decision. If a proposal fails, the deposited tokens are lost. To learn more about the Cosmos governance process, check out the documentation here.
Projects building on top of the Cosmos Network
Due to its proximity to the Ethereum ecosystem, focus on decentralized applications, and due to Tendermint being one of the most advanced BFT algorithms in production, many projects are already building or consider to host their applications on the Cosmos Network once it goes live. A collection of candidates that have expressed an interest or are experimenting with the Cosmos SDK and Tendermint, including projects like OmiseGO, BigchainDB, FOAM and many others is available in this thread on the official Cosmos forum.
Cosmos is a visionary project with a sound design that pioneered many concepts which were adopted by other cryptocurrencies. Our team at Chorus One is extremely excited about the upcoming Game of Stakes testnet competition and to finally be able to demonstrate the robustness of our validator infrastructure in an adversarial setting. To stay up-to-date with our operations and the nearing launch of the Cosmos Network, visit our website or join the mailing list and other social channels linked below.
More on Staking and Delegating
Chorus One Proof-of-Stake Blog Posts
Cosmos Delegator FAQ
[Technical] Introduction to the Proof-of-Stake Security Model
[Technical] PoS FAQ Ethereum
About Chorus One
Featured image by Richard Lee taken from Unsplash.