Author:Andrey Didovskiy
Compiled by: SevenUp DAO
Note: A SWOT analysis is an assessment of the fundamental, operational, technical, social, economic, and even to some extent managerial elements of a project. This is not a model for trading purposes. (NFA, please verify by yourself)
The SWOT analysis framework consists of four elements: strengths, weaknesses, opportunities, and threats. It provides a high-level understanding of the overall status of the project. Through a bird's-eye view, it can help make decisions, identify areas that need more attention, set performance goals, and organize a basic understanding of the direction of the project.
This method is rarely used in the cryptocurrency space and it is time to apply this classic valuation method to the digital asset space.
Today we’ll be doing a SWOT analysis of Cosmos (ATOM), the pioneer of interoperability and founder of IBC.
1. 💪 Advantages (internal) (beneficial)
1. AEZ
The Atomic Economic Zone (AEZ) is at the heart of Cosmos’ upcoming techno-economic reforms. The purpose of the economic zone is to strengthen the ecosystem’s alignment with the ATOM token. Many networks including Kujira, Agoric, Osmosis, Stride, Neutron, and many others have already integrated and committed to this effort. AEZ’s main focus is to enable ATOM to play a fundamental role in activities between blockchains and to unify the chains through a governance framework applicable to each chain.
2. World-class governance community
Cosmos achieves incredible levels of engagement through its social and governance platforms, either through legendary community building capabilities, crafty teams, or both. The core community is always active and involved in the advancement of the project, helping to guide the project and uphold the interesting promise of decentralization.
3. Chain adoption
There are a lot of projects popping up in the Cosmos ecosystem. More than 46 networks are hosted to date, many of which are considered worthy of attention (such as Osmosis, KUJI, Cronos, ThorChain, Injective, Secret, KAVA, Akash, etc.), and there are a number of new leading projects such as Celestia and dYdX. In the context of the industry as a whole, Cosmos may be well positioned to approach "too big to fail" territory.
4. Contribution to Web3 technology
From consensus mechanisms (CometBFT) to inter-blockchain communication protocols (IBC) to application chain papers and more, many solutions leverage technology developed by Cosmos and are available through its software development kit (SDK). The value provided in the form of new technology primitives can be found in its excellent documentation. If a project could truly be evaluated on its merits, Cosmos would be far superior to 99% of other base layer projects.
5. Changes in security models
Cosmos is undergoing a huge architectural change. Previously, the Cosmos Hub acted as a relay point and will now act as a unified security provisioning point. This shift actually emphasizes the importance of shared security (i.e. multiple different networks sharing the same set of validators).
While there are some valid objections to using an economic primitive (price) as security because of the implicit relationship between price and security, this discussion is largely theoretical and can only be derived after certain circumstances have occurred in conclusion. The new model may be enough to make Cosmos stand out among the growing number of infrastructure providers in Web3.
6. Over 67% pledge rate
The staking rate directly reflects the willingness of an ecosystem community to support a project. Over 2/3 of all ATOM in Cosmos are staked, which is one of the highest levels among similar networks. Considering that ATOM has been one of the worst performers over the past year (purely from a price perspective), long-term holders have not abandoned their positions (in fact, their holdings are up 62% year over year), Show their deep commitment. The higher the pledge rate, the more limited the circulating supply, and the more sensitive the correlation between demand and price. If this trend continues, ATOM will likely reflect this.
Considering that ATOM has been one of the worst performers over the past year (purely from a price perspective), long-term holders have not abandoned their positions (in fact, their holdings are up 62% year over year), Show their deep commitment. The higher the pledge rate, the more limited the circulating supply, and the more sensitive the correlation between demand and price. If this trend continues, ATOM will likely reflect this.
2. 😞 Disadvantages (internal) (unfavorable)
1. Poor economic performance
Although SWOT analysis typically does not consider price action, it cannot be ignored that ATOM is one of the worst performers among Tier 1 cryptocurrency projects. Regardless of the parabolic growth that has occurred on both the independent Cosmos chain and the market as a whole, market participants appear to be uninterested in ATOM. The expression of interest is similar to liquidity, that is, the self-nourishing mechanism by which interest spawns more interest.
2. Token Economics
One issue that has long been controversial surrounding Cosmos is the design of its core system; while the technology is excellent and indeed adopted, the economics of the ATOM token failed to capture value. A period of sub-optimal performance due to a relatively high double-digit perpetual inflation rate, the requirement not to act as Cosmos chain fees, and an early failure to address these issues resulted from an inefficient initial implementation that forced the project to secure early community members invisible costs. This issue can (and is currently) fixed, but there's no guarantee that the new model itself won't be flawed.
3. IBC lacks asset interoperability
In technical design, a less discussed nuance of inter-blockchain communication protocols is the accounting system that occurs during the transfer of assets between chains. Each transfer generates its own path. ETH on Osmis (osm-ETH), move it from Osmosis to Kujira and it becomes (osm-kuji-ETH). If transferred to Cronos, the asset would become (osm-kuji-cro-ETH). Therefore, it loses composability, as the path of other ETH may differ depending on how it is transferred.
Let’s say Party A has 10 ETH in KAVA’s liquidity pool, and Party B wants to provide liquidity in the same pool. By moving their 10 (osm-kuji-cro)ETH to KAVA, Party B's assets will become (osm-kuji-cro-kava)ETH, which is different from Party A's (kava)ETH in the pool, so Party B There is no way to join KAVA's liquidity pool unless complex customization is done, or the path of their ETH is traced.
4. Performance degradation of IBC
Once hailed as one of the most promising innovations in interoperability, the Interblockchain Communications Protocol (IBC) has contributed to the rise of more than 45 independent chains hosted on Cosmos. However, demand for IBC appears to be declining over the past year. Total transfer volume dropped by more than 38%, with unique senders and receivers each down 48%. If this trend continues, it may not be long before we see this once-revered technology disappear into the chaos of obsolescence.
3. 🧐 Opportunities (external) (beneficial)
1. ATOM 2.0
The Foundation has launched a series of initiatives to transform ATOM’s token economics. Solve the problems of centralization, value accumulation and inflation through various parameter adjustments. Already slowly rolling out via Governance Proposal 848, the staking rate dropped from about 14% to 10%, reducing the effective yield from 19.3% to 13.4%. With inflation lower, users are more likely to hold on to their assets and look for DeFi applications. Value accumulation will be achieved by combining an independent environment with the use of ATOM tokens to facilitate cross-chain settlements. As for centralization, Cosmos currently scores 8 on the Nakamoto coefficient, meaning that only 8 out of 177 validators are needed to disrupt the network. Under the new system, incentives will be created that discourage overly centralized allocations; a tax that increases as validator balances increase, thereby financially incentivizing end users to increase delegation to smaller validators.
2. Widespread adoption of IBC
This is an unknown and a potential with huge positive impact, and if the new ATOM token model can fully capture value as it promises, and IBC can provide seamless interoperability capabilities as it promises, Cosmos will have a great opportunity to accelerate adoption by And go further into the industry.
3. Fork proposal
Tendermint founder and Cosmos co-creator Jae Kwon is known for his positive and progressive attitude. Recently, he said it would be best to fork Cosmos given its current governance shortcomings. Overall, forks tend to be troublesome events that can negatively impact the integrity of the original chain and lead to community fragmentation.
For Cosmos, however, this appears to have the opposite potential, as it would end ongoing disputes within the network and provide holders with new tokens. Whether it’s purely speculative airdrop hunters or some genius economic solution, talk of a possible fork has actually been relatively well-received in the crypto market. This could have a very strong short- to medium-term impact on price as people try to beat each other to the punch and qualify for the hard fork.
4. 😳 Threat (external) (unfavorable)
1. Terra Luna Incident
Terra is an IBC-compliant network built using the Cosmos SDK that handles billions of dollars in UST transactions. After an eye-catching explosion of growth that wiped hundreds of billions of dollars off the crypto market in just a few days, the entire industry was severely impacted, with Cosmos' losses exceeding 75% within two months of the incident. Frankly, there is no direct value correlation between Cosmos and Terra Luna; however, the use of SDKs based on them actually casts a shadow on Cosmos' image in what is probably one of the most glaring failures of any crypto protocol.
2. Decline in activity and revenue
Despite extremely positive market sentiment, Cosmos has seen a decline in utilization. The number of daily active addresses decreased from >17,000 to approximately 16,000, and the number of daily transactions decreased by nearly 33%, from approximately 63,000 to approximately 63,000.
