The Cosmos (blockchain) ecosystem is going to explode
As we mentioned in our last post, this is not our first market cycle. The Neptune team has seen a few cycles and with each one, the landscape adapts leaving only the most resilient and well-funded protocols for the next wave. The May 2022 depeg of UST wiped out a lot of Cosmos projects causing a massive restructure effort for Terra teams and their communities. If you’re new to the Terra ecosystem, a quick summary of the UST collapse can be found on the Business Times.
The crypto market flows in 4-year cycles
Each cycle is similar to the last as they usually it builds from the developments in the prior cycle. These cycles last roughly four years before they repeat. Although this aligns well with the Bitcoin Halving Timeline, the projects that gained the most traction have repeatedly been better implementations of what was offered in the previous cycle.
Cycle 1: The Bitcoin Excitement Cycle
In the early days of Bitcoin, the cycle was driven by real world use in online marketplaces and speculation on the value of decentralised currency. During this time, the price was determined by markets on only a few select exchanges. When the largest exchange responsible for around 70% of total volume was hacked (Mt. Gox), we saw the end of the first major bitcoin cycle. We can call this the Bitcoin Excitement Cycle of late 2013. This cycle opened the doors for more crypto exchanges and implementations of blockchain.
Cycle 2: The Ethereum ICO Craze
Ethereum joined the crypto scene in 2015 as a new approach to blockchain that made it more accessible for developers to fund and build applications using smart contracts. At launch it was intriguing, but it still took a couple years for protocols to fully capitalise on the opportunity. By 2017, we were waist-deep in altcoins that brought many new ideas to market. Assisted by far more digital currency exchanges, many new users could purchase ETH and fund ICOs. Once again, speculation was at the heart of most price action. We can call this the Ethereum ICO Craze of 2017. Once the Ethereum network became expensive and slow, the hype for altcoins settled down, and the doors were open for new approaches to blockchain scalability and cost-effectiveness.
Cycle 3: The VC Flood
The third major cycle was driven by VC (Venture Capital) funding. ETH received much of the attention in the previous cycle’s ICO craze with early investors in ETH seeing enormous price growth in two years. This was a clear green light for VC firms to enter looking for the next BTC or ETH. Targeting the juiciest investment opportunities, VC money flooded into more exchanges, Ethereum sidechains, new Layer 1 networks, stablecoins, and many new applications, most notably, DeFi apps. The development and marketing efforts funded by these investment professionals drove more adoption from traditional finance companies, making it even easier for the retail market to, once again, speculate, and help drive price action. We can call this the VC Flood of 2020/2021. Now that these networks and products are well-underway and well-funded, the door is now open for blockchain-to-blockchain interoperability solutions.
This chart illustrates the amount of funding and number of crypto projects supported by VCs.
As we can see, each cycle had hints of what was coming in the next cycle:
- The Bitcoin Excitement Cycle showed digital money can work, offering new funding mechanisms for developers. At this stage it was clear we needed more exchanges and experimentation with blockchains.
- The Ethereum ICO Craze Cycle showed how smart contracts can be powerful, especially when it comes to new funding mechanisms for developers. At this stage it was clear we needed a network that was not congested for time-sensitive functions like ICOs.
- The VC Flood Cycle showed that sophisticated investors were interested in funding ideas that promoted scalable, user-friendly, and cost-effective blockchain networks and products. At this stage it has become clear (to us) that connecting these networks with trust-based bridges is problematic and true interoperability will be needed in the next cycle.
- The next cycle foundation is already being formed. We’re approaching a new era in protocol-to-protocol communication with Ethereum compatibility and interoperable chains built with the Cosmos SDK. New stablecoins are filling the gap that UST left behind and the ecosystem is already seeing the benefits that interoperability can bring.
Cycle 4 (prediction): The Big Bang of (Cosmos) Blockchains
There are dozens of Cosmos blockchains each with its own governance and set of applications. Many popular crypto assets are connected to other ecosystems in some capacity but centralisation/security issues persist for many bridged assets. Cosmos blockchains, however, are different.
Launched in 2017, Cosmos chains work with the Tendermint consensus model and use Cosmos SDK modules that allow developers to build high throughput blockchains with compatible consensus rules. With the progress of IBC (Inter‑Blockchain Communication), Cosmos networks are interoperable without needing their native assets to be ‘bridged’ or ‘wrapped’. Thanks to their advanced interoperability, Cosmos chains and applications are well-situated to take the spotlight in the next wave. We forecast this cycle to be called the Big Bang of Blockchains.
Sunny Aggrarwal (Cofounder of Osmosis Labs) saw this coming years ago where in his 2019 presentation, he spoke about “generations of blockchains” explaining the evolution of human networks and how it applies to blockchains.
Where are we in the current cycle?
If this cycle follows the rhythm of previous cycles, we are looking at a market bottom roughly one year after the previous market top. If we use November 2021 as the market top for cycle three, then a market bottom is expected in Nov/Dec 2022 (give or take a couple months).
Once we hit the bottom, we usually see approximately two years of gradual build up, a third year with a sharp increase, and a sharp decrease at the end as we enter year four. Then the cycle repeats.
Please note that this is not investment advice. This is simply an observation of the past and one team’s experience with the cyclical nature of crypto markets.
Where does Neptune fit in?
Neptune has adapted its strategy following the collapse of UST. We shifted our focus to include three foundational pillars to the platform: Independence, Product Growth, and Cross-Chain Opportunities. Once complete, Neptune will be in a favourable position for growth in the overall Cosmos ecosystem.
We are eager to share our next steps …
Another update is to follow soon. Stay tuned for more!
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