Cosmos Blockchain Project Faces ‘Existential’ Challenge with Terra’s Fall and Ethereum’s Rise

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Jai Pratap

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Jai Pratap

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Jai serves as the Asia Desk Editor for Cryptonews.com, where he leads a diverse team of international reporters. Jai has over five years of experience covering the web3 industry.

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July 27, 2023 10:25 EDT

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Cosmos, a once-pioneering blockchain ecosystem renowned for its groundbreaking concept of interconnected blockchains called “appchains” and its innovative proof-of-stake consensus mechanism, is now facing an uphill battle for survival. 

The blockchain ecosystem faces existential challenges in the wake of Terra’s collapse and the meteoric rise of Ethereum.

Terra’s Fall and DeFi’s Ripple Effect

One of the biggest blows to Cosmos came with the disastrous collapse of Terra, once one of the largest Cosmos-based blockchains. 

Terra’s decentralized stablecoin, UST, suffered a catastrophic price drop from $1 to below a penny in just a few days, triggering a liquidity crisis in Cosmos’s decentralized finance (DeFi) ecosystem. 

Cosmos’s main decentralized exchange chain, Osmosis, saw its liquidity plummet from $1.7 billion to a mere $116 million, impacting developer interest and confidence in the ecosystem.

The fallout from Terra’s demise has been far-reaching, affecting other Cosmos-based DeFi projects and leading to a decline in innovation and developer activity. 

The liquidity hole left by Terra’s collapse has proven difficult to fill, hindering Cosmos’s ability to compete with other blockchain ecosystems, especially Ethereum.

Ethereum’s Rise and Multichain Coexistence

In contrast to Cosmos’s struggles, Ethereum’s ascent as the dominant blockchain platform has been remarkable. 

Ethereum’s introduction of smart contracts completely changed the blockchain space, empowering developers to build a wide array of decentralized applications (dApps), including decentralized exchanges (DEXs) and non-fungible token (NFT) platforms.

Although Ethereum faced challenges related to scalability and high transaction fees, its community rallied to find solutions. 

The introduction of layer 2 scaling solutions, such as rollups, has enabled faster and cheaper transactions, further solidifying Ethereum’s position as a versatile and developer-friendly platform.

Embracing the concept of a multichain universe, Ethereum has fostered the development of third-party scaling networks that coexist peacefully and cater to specific use cases. 

This approach has opened doors to a diverse range of applications, including gaming and decentralized finance, making Ethereum the go-to choice for developers seeking broader adoption and vibrant communities.

Cosmos’s Existential Crossroads

Cosmos, which once monopolized the “blockchain-in-a-box” category with its Cosmos SDK, now struggles to find relevancy against newer projects in the Ethereum ecosystem that have eroded its dominance. 

Ethereum’s own toolkit, such as Optimism’s OP Stack, offers similar features like customizability, shared security, and low fees, making it an attractive alternative for developers.

The SEC’s classification of ATOM, the native token of Cosmos, as a security has also surrounded the project’s future with uncertainty. 

This classification could have potential legal ramifications, causing apprehension among investors and developers.

Moreover, Cosmos’s decentralized community structure, while reflective of the hacker culture’s openness and experimentation, has also led to internal politics and infighting that have hampered progress. 

The lack of a clear organizational structure has caused technical setbacks and governance disputes, further dampening the ecosystem’s potential.

Cosmos, once hailed as a technical marvel in the blockchain space, now faces significant existential challenges. 

Terra’s collapse and Ethereum’s rise have dealt considerable blows to Cosmos’s developer ecosystem and reputation. 

However, despite these setbacks, Cosmos’s core contributions to blockchain technology, such as interoperability and proof-of-stake, have left a lasting impact on the industry.

The next year will be critical for Cosmos to find a unique identity and differentiate itself from competitors. 

While its technical advantages still hold potential, the project must navigate through internal challenges and adapt to an evolving blockchain landscape. 

By embracing innovation and addressing its weaknesses, Cosmos can strive to reclaim its position as a prominent player in the multichain universe.