ATOM bulls are closely watching as Cosmos interchain security prepares for March 15 launch

The Cosmos community voted 99.99% to include Replicated Security (RS) in their chain. The long-awaited upgrade is scheduled to go live on March 15, 2023 with the v9 Lamba upgrade.

RS is the first release of Cosmos’ Interchain Security (ICS) feature, which allows blockchains in the Cosmos ecosystem to share validation resources for enhanced security.

Only protocols approved by Cosmos governance will be added as consumer chains in the upcoming update. Eight consumer chains are potential candidates for selection, including Neutron, PolymerDAO, Duality, Stride, Simply Staking, FairBlock, and Comdex.

Cosmos interchain security could set in motion a virtuous real return cycle

The Replicated Security feature distributes up to 25% of consumer chain fees to Cosmos Hub players. The protocols may also allocate some of the token inflation and revenue streams to Cosmos (ATOM) stakers.

The ICS implementation allows consumer chains to fully focus on growing the network economy as Cosmos Hub’s validators provide reliable protection against 51% attacks and double spend. This will bring additional returns to ATOM stakers and allow consumer chains to optimize growth.

The staking reward for ATOM after adjusting for inflation is 6.82% with an annual return of 24.37%. The additional income from the consumer chain will improve the annual income of ATOM holders and encourage more buying and wagering activities.

Cosmos staking rewards inflation adjustment. Source: Staking Rewards

Neutron is a smart contract platform that will likely be the first consumer chain to use the new ICS capability. Avril Dutheil, Neutron’s general manager, told Cointelegraph:

“As a result [of RS]Neutron does not need to continually inflate the Neutron (NTRN) supply to keep validators honest or pay staking returns to governance participants as they do not help secure the network.”

Dutheil added, “Instead, NTRN can afford to have a fixed supply, a release schedule aligned with on-chain activity, and constant buy-and-burn pressure from Neutron’s three revenue streams.”

This will allow consumer chains to focus on the actual yield of the blockchain and bring additional yields to ATOM stakers as the price increases. Consequently, high returns for staking ATOM will motivate more users to buy and stake ATOM. This potentially leads to a virtuoso investment cycle in the Cosmos ecosystem.

Bullish growth of the Cosmos ecosystem appears

The Cosmos ecosystem has grown significantly over the past two years as more chains use the Cosmos SDK and the Tendermint consensus mechanism to launch application chains. By implementing enhanced cross-chain capabilities like RS, blockchains can benefit from the liquidity in the Cosmos ecosystem.

Circle’s announcement of a native USD coin (USDC) blockchain on Cosmos will likely be a powerful catalyst in improving the ecosystem’s liquidity. Dutheil mentioned several decentralized stablecoin projects such as Agoric’s Inter Stable Token (IST) and Kujira’s USK that aim to replicate the success of Ethereum-based decentralized stablecoins on Cosmos. It will also help establish ATOM as a reliable security and enhance its value proposition. Dutheil added,

“Whether these decentralized alternatives manage to scale their offerings across the interchain remains to be seen, but at least the building blocks are in place to finally bring a well-integrated DeFi ecosystem to Cosmos.”

Technically, the ATOM/USD pair has been forming a bullish ascending triangle pattern since the June 2022 lows were formed at $6. A breakout of the triangle around the $14 and $15 resistance levels could see the asset tap hit 2022 bearish breakdown levels around $33 with a slim chance of reaching the all-time highs around $46. However, the bullish thesis would be invalidated if the price breaks through and falls below the base of the triangle, which is currently hovering around $10.

CryptoQuant data shows that ATOM’s Relative Strength Index and Stochastics indicator are in the oversold category, suggesting a possible trend reversal.

Weekly ATOM/USD price chart. Source: TradingView

While an optimistic ATOM thesis seems plausible, its implementation depends on usage and whether or not consumer chains can bring meaningful returns to ATOM players.

The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.

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