In the current cryptocurrency market, the ATOM token, despite its general unpopularity, has unexpectedly become one of the best investment options (risk/reward) in the eyes of investors. This article will delve into the all-time low sentiment for the ATOM token, the incredible growth of the Cosmos ecosystem, and why the outlook for ATOM will be different this time around.
Introduction to Cosmos and ATOM
Cosmos is not a single blockchain, but a network of interoperating blockchains (application chains or regional chains) connected through the IBC (Inter-Chain Communication) protocol. Unlike most blockchains that share block space, developers can customize and deploy their own application chains on Cosmos, giving them greater design flexibility, better scalability, and less competition for block space. . Best of all, apps can accumulate value through native gas tokens.
ATOM is the native token of Cosmos Hub, the first blockchain launched on Cosmos. In the past few years, the Interchain Foundation has mainly focused on developing the Cosmos SDK (Software Development Kit) to enable developers to quickly and easily customize and launch application chains. This move is highly strategic: first focus on application and developer recruitment to expand network effects, and then add more features to the Hub and its native ATOM token.
ATOM investment thesis
Sentiment is at an all-time low
Sentiment on the Hub is currently at an all-time low, which is evident from the absolute and relative price performance of ATOM over the past few years: compared to ETH, the price of ATOM has declined over the past year and a half. The market has surged recently, and ATOM has missed out on the recent broad market recovery. And ATOM is down 18% in the past 12 months (BTC is up 120% in the same period).
Cosmos has become the top Web3 ecosystem
The ecosystem currently ranks third in developer activity and has approximately $50 billion in annual IBC transaction volume. The total ecosystem market value is US$82 billion, of which US$25 billion has been connected to IBC. The ecosystem includes star projects in the main 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 Provenance is included, IBC’s total TVL is $12.8 billion, making it the second-largest ecosystem by TVL. Although DefiLlama and other data providers have not yet aggregated Cosmos TVL, this data is still very convincing.
Why "This time is different"
Jae Kwon finally quits
ATOM holders have made many attempts in the past to increase the value accumulation of ATOM. The Hub community has historically been divided into two factions: The following figure is a brief summary of the controversial history of Hub.
Despite successive rejections, the Hub’s prospects completely changed after the unexpected passage of Proposition 848 in November 2023, which would reduce ATOM inflation from 14% to 10%. This was the last straw for Jae Kwon, who immediately announced his intention to fork Hub along with his loyal followers. The new chain AtomOne is scheduled to be launched this month. With Kwon finally exiting, the re-energized Hub community is determined to ultimately improve the value accumulation and perception of ATOM tokens.
Osmosis recently introduced IBC fee abstraction
One of the most common complaints from Cosmos users is the need to have native tokens for different regions in order for them to interoperate. Osmosis, the 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 it is widely adopted, ATOM has a legitimate chance of becoming IBC’s default gas token.
Babylon integration significantly enhances Hub’s shared security model
Another little-known development is Hub’s recent partnership with Babylon, a Bitcoin restaking protocol. The partnership, which will launch a testnet this month, will allow Bitcoin holders to stake their BTC to secure the Cosmos Hub ICS consumer chain, which will work with Babylon to bring Bitcoin security to the Cosmos Hub.
Conclusion: ATOM sentiment is at rock bottom, but the Cosmos ecosystem has never been stronger. With Jae Kwon gone, ATOM governance can now pursue more meaningful value accumulation (along with other bullish options). While there are currently no specific catalysts or price targets, the market is overlooking a number of positive developments for ATOM given its complexity and contentious history. This dynamic gives the token an extremely attractive risk/reward ratio today (for comparison, the fully diluted valuations of ETH and SOL are currently 100x and 15x ATOM, respectively). Given the favorable setup, I believe Hub only needs one governance proposal to achieve a significant revaluation.