Reports: updates to tokenomics helped ATOM outperform competitors, including BTC and ETH

In Bloomberg’s list of Layer-1 crypto assets compiled as part of the October issue of Cryptos Outlook, only two networks have real returns on staking better than the Ethereum benchmark rate of 5.03%. Polkadot is at a 0.77% premium, and Cosmos is at 0.10% to Ethereum’s rate. By the way, you can read the most interesting part of this analysis here.    

The Cosmos network’s ATOM token also appears in Kaiko Research’s Q3 2022 analysis. It was one of the most successful tokens of September, outperforming BTC, ETH, and its closest Layer-1 competitors. 

“This outperformance was largely related to the rumored (and now confirmed) updates to ATOM’s tokenomics, which are designed to improve value accrual. Volumes for the token rose on spot markets and perpetual futures markets ahead of the announcements from the team, surging particularly high on Binance,” the analysis says. 

What is Cosmos, and why are bridges a bad thing?

Cosmos developers say their project aims to solve some of the “toughest problems” facing the blockchain industry, particularly Proof-of-Work (PoW) protocols using a connected blockchain ecosystem. They describe it as “blockchain 3.0”. Cosmos founders also want to make blockchain technology less complicated for developers through a modular structure that makes it easier to work with decentralized applications. Finally, the inter-blockchain communication protocol makes it easier for blockchain networks to interact, preventing fragmentation. 

The Cosmos software development kit makes it easy to build a network using existing code snippets. In the long run, complex applications are expected to be much easier to create. 

The network has good scalability, allowing it to process significantly more transactions than blockchains such as Bitcoin or Ethereum. 

Many bridges have been hacked this year. The Ronin hack stole $615 million, and the Wormhole hack stole $320 million. About $1.4 billion has been lost to bridge hacks since the beginning of 2022. Recall that the purpose of a bridge is to provide a connection between two different blockchain ecosystems over which different tokens can be transferred. 

A more secure solution for interchain communication is when the network allows communication between them by allowing different blockchains to communicate with each other on the same or different networks. In such cases, there is no need for bridges. Cosmos is one of the most ambitious projects aimed at this.

… and about the perks of ATOM

This is the native token of the Cosmos network. But ATOMs are mined differently than other PoW networks. The computational power of nodes does not determine their reward for mining. Instead, nodes are rewarded based on the number of ATOM tokens they put on the line.  

To place a bet on tokens, you must lock your ATOM tokens for a certain period so the network can use them for its security (stacking). At the end of the betting period, the ATOM tokens are returned with a bonus of additional tokens. There are also penalties in the form of fines for dishonest stackers. 

In addition, to become a Cosmos Network validator, a participant must be at least in the top 100. Such a participant also receives the right to vote for changes to the network. Voting rights are directly related to the number of ATOMs that are placed. 

The rise in the price of this token is related to rumors of an improvement in the ATOM token itself. Each blockchain embedded in Cosmos uses its validators and thus protects itself with its tokens at the expense of share proof.  

ATOM has a market capitalization of $3.8 billion (as of Oct. 10), which would make it much harder for a hacker to take over the network, given the amount it would take to seize control of a small chain of startups with fewer validators.  

The more new networks launched and ATOM opted in, the more commissions the stakers would receive, stimulating demand for ATOM. 

The closest competitor to Cosmos is Polkadot. But the ATOM/DOT ratio rose from 0.85 in June to 2.5 in early September. Cosmos is ahead by a wide margin.   

At the time of writing, the value of the ATOM token is about $12.92, and DOT is twice cheaper — $6.39 (according to CoinMarketCap).