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Does the future of MakerDAO belong to Cosmos instead of Solana?

2023-09-12 18:00

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Original author: KODI, JarvisLabs

Translated by: Deep Tide TechFlow

When even Vitalik starts selling, you know the bear market is really bad.

Last week, the co-founder of Ethereum (ETH) sold approximately $580,000 worth of holdings.

However, the matter does not stop there. First of all, what he sold was not ETH, but MakerDAO's governance token MKR.

Reason?

Because Maker co-founder Rune Christensen has recently caused a sensation in the cryptocurrency community.

We know that the Maker team has been considering launching their own chain as the final step in their Endgame plan.

However, no one, including myself, anticipated that Rune would not choose an L2 solution on Ethereum. Maker ended up selecting a fork of Solana as their underlying infrastructure.

This latest eye-catching idea is not uncommon for Rune, a practitioner in the encryption industry. No one knows Rune's intentions and actions. But this is provocative and has caught people's attention.

Don't get me wrong, I like Solana and welcome more projects to launch new chains there.

However, this decision is somewhat surprising, considering there may be better options for the entire ecosystem.

In fact, Rune even mentioned that he has considered the Cosmos (ATOM) network.

He chose Solana mainly because "the core of Cosmos is not built around efficiency... its maintenance and performance costs are higher."

The design concept of Solana is that hardware capacity should increase exponentially, and blockchain should expand together with hardware. As hardware performance improves, Solana will also improve accordingly. Therefore, Solana is always more efficient and performant than Cosmos.

However, Cosmos has other advantages in building AppChains that other ecosystems cannot match.

The Advantages of Cosmos

Cosmos aims to establish an interconnected blockchain network. The network is composed of CometBFT (formerly Tendermint), Inter-Blockchain Communication protocol (IBC), and Cosmos SDK.

CometBFT is a consensus algorithm that enables nodes to reach consensus on a network. Although it may not be the most advanced technology at present, it is still the most widely used consensus algorithm in the cryptocurrency field, including some non-Cosmos chains such as Binance Smart Chain. Therefore, it has undergone sufficient practical testing.

And it can still perform well. The Cosmos chain Sei, which focuses on transactions, has just launched at a speed of 20,000 transactions per second and a final confirmation time of 50 milliseconds. In comparison, Solana is one of the fastest chains, with a maximum transaction volume of 10,000 per second and a final confirmation time of 2.5 seconds.

However, the Cosmos SDK and IBC may be the most important features.

IBC can be said to be a revolutionary technology.

If you have ever tried to enter L2 (such as Arbitrum Optimism) from Ethereum, you will know that you need to cross-chain your assets from the mainnet to L2 for trading.

However, cross-chain bridges rely on centralized validators who must "respect" asset transfers. If these validators are attacked, they can put funds at risk, as seen in vulnerability exploits such as Wormhole and Nomad.

Building secure bridges is very difficult. No wonder four out of the top five hacker attacks on the rekt (negative events) leaderboard are related to cross-chain bridges.

IBC has eliminated all of these issues. IBC messages are trustless, meaning that they can function without the need for trust in intermediaries. The IBC protocol itself handles the validation of cross-chain messages.

In this way, you can easily establish communication channels between different blockchains.

At the same time, Cosmos SDK can easily and quickly customize a blockchain that suits your application needs. It has various modules, each of which handles specific areas (such as governance or IBC connection).

This means that developers do not have to reinvent the wheel every time they want to launch a new chain. They can focus on the core application logic, while the SDK handles the heavy lifting in the background.

So why does Maker need to build a new chain on Cosmos (or Solana) when Ethereum is still the most popular DeFi chain?

Originally, this is also part of the problem.

Sommelier Finance is a protocol built on the Cosmos blockchain, aimed at expanding the capabilities of decentralized finance based on Ethereum.

Due to the fact that the Gas fee of Ethereum is more expensive than a bottle of Dom Pérignon champagne, Sommelier seeks to open up opportunities for investors with smaller funds.

This project currently offers two main services - liquidity mining and algorithmic trading strategies. For users, simply choose one of them, lock your funds in the insurance pool, and watch your beloved crypto assets grow gradually.

The algorithmic trading insurance pool had some funds flowing in from the beginning, but it wasn't until the arrival of the main revenue insurance pool that the total locked value (TVL) exploded in growth. This is not surprising. Here is a comparison between Sommelier's "real revenue strategy" and blue-chip DeFi protocols:

Except for Maker, Sommelier outperforms any blue-chip protocol in terms of returns on ETH, BTC, and stablecoins. Even Maker's 5% return on DAI is only a temporary measure to attract TVL and will decrease to 3.19% in the coming weeks.

To achieve higher returns, the only way is to participate in riskier and more unique profit strategies, such as selling call options or providing liquidity (which may result in potential losses).

Therefore, it is not surprising that Sommelier's revenue insurance pool dominates its total locked value, with over 30 million US dollars locked, while the algorithmic trading insurance pool has only 200,000 US dollars.

So what is the secret weapon of Sommeliers?

One advantage is that its strategy runs off-chain, allowing resource-intensive algorithms to run while protecting privacy.

But I believe its main advantage lies in its ability to leverage the strengths of Ethereum and Cosmos.

Cosmos provides a sovereign foundation for back-end operations, handling governance, security, and cross-chain communication. This reduces costs by reducing transactions on the Ethereum mainnet. Meanwhile, the user-facing front-end leverages Ethereum's vibrant ecosystem.

If more developers realize the synergistic effects between these networks, we may see a wave of innovative Cosmos-based applications emerge, which will use Ethereum as a window to interact with users. Just as liquidity staking can inject much-needed liquidity into Cosmos, Ethereum-Cosmos hybrid products can also inject new vitality into this ecosystem.