ATOM's sentiment is at a low point.
Author: DAVID ATTERMANN
Translation: DeepTechFlow
Currently, the token Atom is not popular in the cryptocurrency market, but I believe Atom is one of the best investments (risk/reward) in the current market.
This article will explain the historical low sentiment of the token, the impressive growth of the broader Cosmos ecosystem, and why "this time is different".
Review of Cosmos and ATOM
Cosmos is not a blockchain, but a sovereign blockchain network connected by the IBC (Inter-Blockchain Communication) protocol. Developers do not need to share block space with other applications (as most blockchains do), but can customize and deploy their own application chains on Cosmos, providing them with more design flexibility (different applications have different performance/feature requirements), better scalability/less block space competition, and perhaps most importantly, applications can accumulate value through native Gas tokens.
ATOM is the native token of Cosmos Hub, the first blockchain launched on Cosmos. Over the past few years, the Interchain Foundation has mainly focused on developing the Cosmos SDK, or software development kit, which allows developers to quickly and easily customize and launch application chains. This move is very strategic: first focus on application/developer recruitment to grow network effects, and then add more functionality to the Hub and its native ATOM token.
However, since the project's inception, there has been ongoing internal discord within the community regarding the role of the Hub in the broader ecosystem and the rights to extract token value. Despite the exciting growth of the broader ecosystem, the ongoing identity crisis of the Hub has hindered the development of the token.
Investment Argument for ATOM
Sentiment at Historical Lows
Currently, the sentiment of the Hub is at historical lows, which is evident from the absolute and relative price performance of ATOM over the past few years compared to ETH.
During the recent market rally, ATOM missed out on the recent broad market recovery.
And ATOM has fallen by 18% in the past 12 months (while BTC has risen by 120% during the same period).
Cosmos has become a top Web3 ecosystem
The ecosystem currently ranks third in developer activity:
With approximately $500 billion in annual IBC transactions:
The total ecosystem market value is $820 billion, with $250 billion already connected to IBC.
The ecosystem includes star projects in the major verticals of Web3, including blockchain infrastructure (Sei, Celestia, Dymension, Axelar, Neutron), DeFi (dYdX, Injective, Osmosis, Thorchain, Stride), DePIN (Akash, Pocket, Jackal, Syntropy, Cudos, dVPN), AI (Fetch.ai, Oraichain, Soarchain, AIOZ), and RWA (Provenance, Noble).
When including Provenance, the total TVL of IBC is $12.8 billion, making it the second largest ecosystem by TVL. (DefiLlama and other data providers do not aggregate Cosmos TVL as it has not yet been connected through a universal token connection)
Why "This Time is Different"
Jae Kwon has finally exited.
ATOM holders have tried multiple times in the past to increase the value accumulation of ATOM. The Hub community has historically been divided into two factions:
1) Those who want to keep the ATOM design simple to maximize security (led by co-founder Jae Kwon)
2) Those who want to improve the value accumulation of the token, especially through leveraging the broader economic activity of the Cosmos ecosystem
The following image provides a brief summary of the controversial history of the Hub:
Discussion of the future of Cosmos Hub and Stride
Despite continuous rejections, after Proposal 848 (which reduced ATOM inflation from 14% to 10%) unexpectedly passed in November 2023, the prospects of the Hub completely changed. Although not a huge victory on the surface, this was the final straw for Jae Kwon, who immediately announced his intention to fork the Hub with his loyal followers. The new chain AtomOne is planned to be launched this month.
With Kwon's final exit, the reinvigorated Hub community is determined to finally improve the value accumulation and awareness of the ATOM token. Although no major changes have been made yet, there are many exciting ideas on the Hub forum (monetary, security, liquidity), and there is likely to be a wave of proposals that could change the game rules emerging soon.
The recent introduction of IBC fee abstraction by Osmosis is an example.
One of the most common complaints from Cosmos users is the need to hold native tokens from different regions to make them interoperable. Osmosis, a leading Cosmos DEX, recently introduced a fee abstraction module that allows users to pay IBC Gas fees with any Cosmos token (as long as the receiving blockchain has approved the upgrade). The module is still in its early stages, but if widely adopted, ATOM has a legitimate chance to become the default Gas token for IBC.
The integration of Babylon greatly enhances the shared security model of the Hub.
Another lesser-known development is the recent partnership between the Hub and Babylon, a Bitcoin re-staking protocol. This partnership, launching a testnet this month, will allow Bitcoin holders to stake their BTC to secure the Cosmos Hub ICS consumer chain, bringing Bitcoin security to the Cosmos Hub alongside Babylon:
In summary:
Currently, I have three main reasons for being bullish on ATOM:
ATOM's sentiment is at a low point
The Cosmos ecosystem has never been stronger
With Jae Kwon's departure, ATOM governance can finally pursue meaningful value accumulation
I don't have specific catalysts or price targets, I just believe that given its complexity and controversial past, the market has overlooked the bullish developments of ATOM. This dynamic gives the token an extremely attractive risk/reward ratio today (in context, the FDV of ETH and SOL are currently 100 times and 15 times that of ATOM's FDV, respectively). Given favorable conditions, I believe the Hub is only one governance proposal away from its market revaluation.
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