Cosmos Finds Missing Piece to Ecosystem Growth

July 21, 2023
6 min read

The Cosmos ecosystem has been teeming with innovation and development since its launch in 2019. 

Today, Cosmos boasts one of the most active, sophisticated, and passionate developer communities in Web3 working to bring the Internet of Blockchains to life. 

However, when you look at top L1 blockchain ecosystems as of July 2023, and measure growth by the total market capitalization of all the projects on each network, Ethereum ($242B) and BSB Chain ($187B) lead by a significant margin. Cardano ($16B) and Polkadot ($14B) are competing for a distant third, and Cosmos’ IBC-enabled ecosystem sits at $9B.

Many complex factors create the conditions for a decentralized ecosystem to grow. One major gap that has impeded Cosmos from the start is the lack of a trusted, 1:1 asset-backed stablecoin with deep, fungible liquidity issued natively on an IBC-enabled chain.

In early July, Tether announced that Kava will be the gateway for users and builders to issue U.S. dollar-pegged USDt natively on Cosmos. This is big news for Cosmos users and builders, now let’s unpack why.

The Big Question That A Native Stablecoin Answers

Why does the Cosmos ecosystem need an asset-backed, natively issued stablecoin anyway?

Well, asset-backed ecosystem-native stablecoins like Circle’s USD Coin (USDC), and Tether’s USD token (USDt), have been shown to nurture development, help bootstrap liquidity, and foster market participation in the ecosystems where they are deployed.

If you’re a developer, stablecoins are the backbone of the DeFi dApps you build. They provide cost-efficient leverage without price volatility. They serve as a predictable unit of account for smart contracts, let you build dApps that interface with TradFi systems, and importantly – let dApps operate across multiple blockchains, providing a greater potential user base with more complex, multi-chain operations.

If you’re a user, stablecoins provide critical price stability that helps you store and preserve the value of your positions over time in the face of market volatility, lets you easily enter and exit decentralized money markets to lend, borrow, stake, and more, and allow you participate in an array of cutting edge DeFi services and offers.

Up until now, all 1:1 asset-backed stablecoins that exist on Cosmos have been issued on other chains (for example BUSD on Binance Smart Chain, and USDC on Ethereum), then bridged to Cosmos using a third-party solution. 

Without a natively issued 1:1 asset-backed stablecoin option, builders and users have been forced to settle for wrapped stablecoins. While practical, assets issued on other ecosystems must be bridged by third-party solutions, that require trust in their tech. Unfortunately, since 2017, $2.5 billion has been lost in third-party bridge hacks, making wrapped stablecoins too risky an option for many.

In light of this situation, the prospect of a native stablecoin provides a strong answer to many concerns and challenges that Cosmos builders and users have struggled with to date.

A Solution to Unlock Cosmos Growth

The absence of a native, liquid, and fully collateralized stablecoin makes it difficult for DeFi dApps to succeed and impedes overall ecosystem dynamics. 

Like any DeFi ecosystem, Cosmos needs deep, fungible stablecoin liquidity to attract users who are excited and willing to participate in Cosmos DeFi. Without that liquidity, a powerful positive flywheel effect that could accelerate overall ecosystem growth will be much harder to activate. And the Internet of Blockchains will be delayed from seeing mainstream adoption for yet another season.

Without a reliable stablecoin, both users and builders grapple with fundamental challenges. Users, discouraged by the risk of their assets potentially evaporating, refrain from participating. And the lack of a stable medium of exchange stifles developers' innovation before it even begins.

Native-issued USDt stands to spark a remarkable transformation on Cosmos. 

By reducing dependence on wrapped stablecoins and mitigating the risks associated with third-party bridging solutions, Cosmos-issued USDt can facilitate a safer and more robust environment for DeFi. 

If you’re a builder, natively issued Cosmos USDt eliminates the unpredictability of third-party bridging solutions, and allows your focus to shift towards crafting ingenious, complex multi-chain operations that leverage Cosmos' interoperability. 

For users, native USDt on Cosmos presents a safer, more secure way to store and transfer value, mitigating crypto market volatility and third-party bridging risks. The heightened security and stability open up a range of exciting DeFi services and offers. 

What’s Next? 

The hard work that has been ongoing building out DeFi on Cosmos has a huge opportunity to be seen and experienced by new and existing Cosmos community, so if you’ve been waiting for resolutions to the challenges above before getting involved, the wait is finally over.

The Kava Rise Cosmos USDt rewards program is designed to fuel the adoption of Cosmos dApps and Ethereum blue chips while making the world's most trusted stablecoin accessible to new and existing Cosmos users.

Join Kava Rise Cosmos USDt to help bootstrap deep, fungible stablecoin liquidity on Cosmos and receive a pro-rata share of monthly KAVA rewards that you can use to incentivize users.