Table of Contents

1. Introduction

2. Infrastructure

   2-1. Cosmos SDK Major Update

   2-2. Cosmos on Metamask

   2-3. MultiVM

3. Projects

   3-1. Celestia

   3-2. Skip Protocol

   3-3. One Line Introduction

4. On-Chain Performance

   4-1. Development Activity

   4-2. Network Activity

   4-3. Network Security

5. Closing Thoughts

1. Introduction

In the year 2023, the Cosmos ecosystem grew rapidly while we witnessed the evolution of blockchain technology. Cosmos attracted many developers and projects with its unique interoperability and modular architecture, and you could say these features opened up new horizons for blockchain technology.

In this report, we explore the significant changes, major technical updates, and prominent new projects that took place within the Cosmos ecosystem in 2023. We also take a closer look at the technological advancements and market shifts in this ecosystem, and how Cosmos is redefining the existing blockchain paradigm.

2. Infrastructure

2-1. Major updates to the Cosmos SDK

The Cosmos SDK, which manages the modules primarily used to develop chains in the Cosmos ecosystem, has grown rapidly every year to keep pace with the technological advances of blockchain and changes in the market. The following are the major updates to the SDK that have been released in 2023.

• Version 0.47 update

• Upgrade to CometBFT: The rebranded CometBFT, fork of the previously used consensus engine called Tendermint, is now officially available in the Cosmos SDK. There are no major implementation changes in version 0.47, and this update is intended to help chains that were previously using Tendermint migrate to using CometBFT.

• Migration to cosmos/gogoproto: The Cosmos SDK was using Protobuf, developed by google, as a way to pass messages contained in transactions. However, the existing gogo/protobuf is no longer maintained, so it’s been forked and started to be managed in the Cosmos ecosystem under the name cosmos/gogoproto.

• Version 0.50 updates

• ABCI 2.0: ABCI is the interface responsible for data exchange between the consensus engine and the application layers responsible for different functions of the chain. The consensus engine CometBFT (Tendermint) is responsible for block generation and transaction broadcasting, which is the process where order of transactions is determined. There are limitations in processing transactions in the mempool in the desired order due to the design of ABCI. In order to overcome this, ABCI 2.0 added a new process called PrepareProposal to determine order of the transactions in the mempool and pass them to CometBFT.
  

• Optimistic Execution: In the previous Cosmos SDK, all validators needed to agree before a transaction could be executed and the result committed to the chain. This slowed down the execution of transactions, and to overcome this, a feature called Optimistic Execution was introduced. Optimistic Execution allows transactions to be executed and committed without the consent of all validators, resulting in higher transaction throughput.

• SDK Modules: The Cosmos SDK contains various modules for application development. Previously, updates to each module followed the SDK update version, making it difficult to track the update history of each module. In Version 0.50, the versioning of each module have changed to be independent, making it easier to track the history. Also, the data storage model, Store and IAVL, have been decoupled so that they can be updated separately.

2-2. Cosmos on Metamask

As there are various chains in the Cosmos ecosystem, each chain has an independent address even if they have the same mnemonic key. Currently, a wallet service called Keplr is used to integrate and manage them, but the need to utilize a new wallet application to utilize each new chain that emerges on Web3 is creating significant fatigue and entry barrier for users.

The Cosmos ecosystem recognizes this problem, and projects are underway to resolve it. Against this backdrop, Metamask has introduced a full support for Snap, which allows addition of customized features on Metamask. Thanks to Metamask, it is now possible to create transactions on Cosmos-based chains, and among such service is the Leap Wallet.

leap wallet (https://cosmos.leapwallet.io/portfolio/overview)

In other words, technical foundation has been laid to make it easier for users familiar with EVM-based chains to be attracted to the Cosmos ecosystem.

2-3. MultiVM

Unfortunately, the Cosmos SDK does not support VMs for smart contracts. Therefore, several projects have emerged to develop VMs that are proven and used in other blockchain protocols or independent VMs that are unique to the Cosmos ecosystem. There have been attempts to integrate various VMs such as EVM, WasmVM, SolanaVM, MoveVM, etc. with the Cosmos SDK, and support for certain VMs has been highly appreciated. If more popularly used VMs are supported, it will be easier for dApp developers to get onboarded to the Cosmos ecosystem.

3. Projects

Here are some of the most interesting and notable projects that emerged in the Cosmos ecosystem in 2023.

3-1. Celestia

The hottest project in the Cosmos ecosystem of the year 2023 is undoubtedly Celestia. Celestia is a representative modular blockchain project, and it largely divides the functions of a blockchain into four parts:

• Execution: The ability to process transactions and change the state of the chain.
• Settlement: Validating transactions processed at the computation layer.
• Data Availability: Storing information from transactions and blocks and making sure it's always available.
• Consensus: The ability to determine the validity of transactions or the order in which they are included in a block.

Among these features, Celestia specializes in data availability. This, coupled with the party word “L2,” ignited the rollup boom to the Cosmos ecosystem. To this end, the framework called “Rollkit” that supports ABCI between Celestia and the Cosmos SDK has been created and supported.

Celestia Rollkit (https://docs.celestia.org/developers/rollkit)

It replaces Cosmos' consensus engine, Tendermint (or rather, CometBFT), and allows Celestia and the Cosmos SDK to communicate directly. This allows for sovereign rollups by aggregating transactions in a block and utilizing Celestia's consensus engine and data availability.

3-2. Skip Protocol

Skip Protocol is a project with the vision, “Sovereign Transaction Infrastructure for Sovereign Blockchains.” It serves to improve the UX for sovereign blockchains and make transparent the order of transaction processing to prevent malicious MEVs and qualitatively improve the network.

Among the UX improvements, the project aims to address issues with the InterBlockchain Communication (IBC) protocol. IBC is a protocol for exchanging assets between different chains within Cosmos. In order to transfer assets via IBC, a communication “channel” must be created, and each channel needs a unique ID for each of their connected chains. The figure below illustrates the channel connecting Axelar and Terra2, representing an example of sending ETH from Axelar to Terra2.

SKIP API ( https://api-docs.skip.money/docs/ibc-routing-algorithm)

The asset passed to the other chain via IBC will have a new denomination, which follows the below naming algorithm:

• ibc_denom = 'ibc/' + hash('path' + 'base_denom')

It’s important to note here that even if the same asset is sent to the same chain, it will have a completely different denomination if the value of the channel, or, the value of the path, is different. In other words, even if the asset is the same in ETH, it will be recognized as a different asset in Terra2. This is especially true when assets are delivered through a complex path, making it difficult to know which asset was delivered.

SKIP API ( https://api-docs.skip.money/docs/ibc-routing-algorithm)

To solve these problems, Skip proposes an optimal routing algorithm to deliver assets within the Cosmos ecosystem and provides a better UX by determining the denomination of assets.

The Skip protocol also provides various APIs that are useful for developing blockchains based on the Cosmos SDK, such as multichain transaction tracking and Block SDK. Skip also contributes to the development of the ecosystem by proposing to the community to include Skip's features in the Cosmos SDK.

3-3. Brief

• Sei

• Sei is branded as a chain that specializes in trading, aiming for fast Layer 1 rather than rollup, which has been a mega trend in blockchain in 2023.

• It focuses on improving the performance of the chain by utilizing various techniques such as Optimisitic processing and transaction parallelism.

• Injective

• Injective is working to build a blockchain ecosystem specialized for finance apps.

• It has strong partnerships with Figment and Binance, and is actively supporting various dApps such as Helix and Hydro to join the Injective ecosystem.

• dYdX

• dYdX is considered to be the most successful DEX and has successfully migrated to Layer 1 using the Cosmos SDK.

• With its own token, it has enhanced governance and is able to determine many aspects of the protocol.

• Stride

• Stride is a liquid staking service similar to Ethereum's Lido. In the Cosmos ecosystem, liquid staking is inherently difficult because assets are fragmented across multiple interchains.

• Stride aims to enable multi-chain liquid staking in the Cosmos ecosystem by utilizing ICA (InterChain Account), ICQ (InterChain Queries), and ICS (InterChain Security).

• Coreum

• Coreum is a Layer 1 blockchain specialized for enterprises, supporting Wasm-based smart contracts, RWA tokenization, NeoBanking applications, etc.

4. On-chain performance

4-1. Development Activity

While development activity on Cosmos' network has remained generally healthy, Q2 saw the highest number of smart contract deployments (2,226) and the highest growth rate (21.4%). The number of core developers has been on a gradual upward trend, which is also a sign of active building of the ecosystem infrastructure.

Meanwhile, the number of smart contracts deployed in Q2 and Q3 last year totaled 2,226 and 1,777, respectively, higher than Q4's 1,701. While it is true that development activity has slowed down compared to the previous two quarters, we believe that the activity level has sustained considering the decrease due to the year-end period in Q4.

4-2. Network Activity

The most noticeable of the Cosmos network activity is that the development activity in Q2 and Q3 translated into growth across the whole ecosystem in Q4. As shown in the table, TVLs in the Cosmos ecosystem continued to decline through Q3, but then increased significantly in Q4.

The explosive growth in TVL in the Cosmos ecosystem in Q4 can be attributed to a combination of two factors. The first is the influx of liquidity across Layer 1 themes in mid-October. In 2H, a lot of liquidity flowed into the Layer 1 ecosystem, with Solana, Cosmos, and Avalanche driving the overall TVL with explosive performance.

In addition, the developer-friendly infrastructure environment, including the Cosmos SDK, and the large network of blockchain connections built on the IBC ecosystem contributed to the practical utility for users. A closer look at the TVL trend shows that it's not just a temporary uptick, but a sustained trend. Satisfaction with the maturity of the protocols is likely driving liquidity across Layer 1, boosting Cosmos and discouraging user churn.

The number of active wallets also increased by nearly 55% in Q4 to 2,280,335 compared to Q3 (1,470,050), which was the lowest performing quarter, reflecting a vibrant ecosystem. This is driven by the interoperability of the Cosmos IBC ecosystem, which led to increased on-chain activity, such as users participating in events on each protocol and utilizing tokens through DeFi.

In addition, as shown in the TVL trend of key protocols in the IBC ecosystem, the consecutive hype of Cosmos SDK-based protocols in the second half of the year also played a role in revitalizing the ecosystem. In fact, we can see that the TVLs of the protocols increased with a slight staggering. Unlike projects like THORChain, which saw growth from the beginning of Q4, Injective protocols saw explosive TVL growth from the end of Q4 to the present. We can interpret this as a sequential flow of liquidity and transaction activity within the Cosmos IBC ecosystem.

4-3. Network Security

Cosmos currently has a total of 180 active validators. The top 9 validators hold 40.89% of the staked $ATOM supply. There are currently 2.44B $ATOM staked on Cosmos, which is approximately 65% of the total supply.

5. Closing Thoughts

The year 2023 was a landmark year for the Cosmos ecosystem, which witnessed the development of several projects and significant changes. We believe that these changes show that Cosmos is not merely one area of blockchain technology but is driving innovation across the entire blockchain ecosystem.

Celestia, Skip Protocol, and other notable projects showcase the diversity and flexibility of the Cosmos ecosystem and how it's constantly growing. These projects are pioneering new use cases for blockchain technology and helping to create a more efficient and user-friendly blockchain environment.

The growth and development of the Cosmos ecosystem reinforce our excitement for the future of blockchain technology. They open the door to new opportunities for developers, users, and investors, and pave the way for innovation that will continue for years to come. We expect the Cosmos ecosystem to continue this positive trend in the coming years, and that new technological challenges and opportunities will continue to emerge along the way.