Interview: Osmosis Is Determined To Be The Coinbase Of The Cosmos

Zinger Key Points
  • Osmosis is a decentralized exchange that connects to 47 other networks and allows users to create liquidity pools.
  • Osmosis Founder, Sunny Aggarwal spoke at Cosmoverse ‘22 about mesh security wearing a chainmail hauberk.
  • Aggarwal believes that applications – not networks – win user relationships.
  • Aggarwal aims to create a friendly user experience that allows non-crypto natives to onboard into Web3 with Osmosis.
Interview: Osmosis Is Determined To Be The Coinbase Of The Cosmos

In late September, Cosmos Network held its first Cosmoverse '22, described as the most inclusive Cosmos ecosystem event, with three days of presentations at the Las Palmas hotel in Medellin, Colombia.

Despite the bear market, the event had a decidedly positive atmosphere. It celebrated the launch of ATOM 2.0, introducing a white paper that outlined new tokenomics and an economic model for the future. 

Cosmos has had some challenges in 2022, including the collapse of Terra Network LUNA/USD. Terra was at one point the largest project in the Cosmos ecosystem.

Yet, at the time of writing, according to the Cosmos Chain Registry, Cosmos has a greater than $62.5-billion market cap with a separate $9.2-billion market cap for the Cosmos SDK aka Intex-Blockchain Communication (IBC).

The self-described "internet of blockchains" is a unique interchain system with a central Cosmos Hub but encourages projects to use the Cosmos SDK to develop their dedicated networks to meet needs for scaling and specialization.

One standout success in the Cosmos ecosystem is Osmosis OSMO/USD. This decentralized exchange allows users to connect to more than 47 chains for transactions and create their own liquidity pools. Osmosis Founder Sunny Aggarwal spoke on the first day of Cosmoverse, wearing a chainmail hauberk to represent the need for mesh security.

Osmosis faced a steep drop in token price in May, but a bullish rating in InvestorsObserver brought the price of the token up by 3.8%, and the innovative DEX looks to be a rising star in the Cosmos ecosystem. 

Benzinga interviewed Aggarwal on its crypto web show Web3 Anarchy to learn more about Osmosis' plans for growth and the pros and cons of Fat Protocol philosophy vs. the advantages of greater decentralization. 

This story is part of the Benzinga Future of Crypto 2022 summit-related content. Aggarwal will be speaking about the intersection of art and technology at the first Future of Crypto live summit on Dec. 7 in New York City at Pier Sixty.

Some of the best minds and most important projects in Web3 will be in attendance, including Rarible, Cosmos, Yuga Labs, Solana, Laguna Labs and Algorand. Keynote speakers include Jordan Belfort, Kevin O’Leary and Anthony Scaramucci.

Photo: Sunny Aggarwal, Source: Cosmoverse 22

BZ: How did Osmosis come to be a Cosmos project?

Aggarwal: "Keep in mind, I had been working on Cosmos for about six years when we started Osmosis. We always believed in full sovereignty and full customizability of chains. We were working on the Cosmos stack for a long time, Tendermint and the Cosmos SDK called IBC . Once the tooling of those things had gotten to the level that we were happy with, we said, 'OK, what do we want to build?'

BZ: What are the pros and cons of the single-chain model vs. Cosmos' interchain model? 

Aggarwal: "There are definitely pros and cons of a single chain model. Reasoning about security is easier – one app with one contract wants to interact with another contract. We can all just assume we all are under the same security regime. 

However, you then lose a lot of the sovereignty. I think there's a trade-off between finality and community decision-making power – or, as I like to say, sovereignty. By sovereignty, we mean the ability of a community to make its decisions and change its protocol as the community makes social consensus decisions, not always what's written on the blockchain. Let's say there's a hack or something. The chain wants to reverse the hack. We saw Ethereum do it, but that was back when Ethereum was small and nimble. It's unclear if Ethereum could do that again, where it can coordinate a fork in case of a bug or hack. 

Right now, everyone in crypto is following a fat protocol thesis, which is the idea that all the value accrues to the base protocol, whether it's ETH, SOL, etc. I think it's silly. Go back to the 1990s, people were not sure how value would accrue on the Internet back then. Companies like AOL and CompuServe tried to build little walled gardens. But what really ended up winning was the applications – the Googles and Amazons. Those are the things that are actually sticky, and they have relationships with users. So they built their own infrastructure. And now, AOL and CompuServe are dead, and AWS, which Amazon built for themselves, and then provided it to others, is dominating."

BZ: What problems were you trying to solve Osmosis? Where did that lead?

Aggarwal: "We were really interested in privacy and still are. We decided that in order to innovate at the privacy layer, we just can't do it on an existing platform. Because to innovate at the privacy layer, you must change the cryptography and other things that happen at the base blockchain level. If you're constrained to writing smart contracts on top, you don't have that ability. That's why we decided we needed to build our own blockchain. 

What's interesting is that the Cosmos ecosystem had a lot of pent-up demand for liquidity. So if you go look on CoinGecko, let's say out of the top 200 assets by market cap, the Cosmos ecosystem has the most after Ethereum.

This is part of the whole Cosmos thesis of why people like to build on all these other Layer 1s. They try to all capture all the values in one native Layer 1 token, whether it's like Avalanche AVX/USD, Solana SOL/USD or Polygon MATIC/USD. In Cosmos, it's all just app chains, so the value flows into your application token. That causes many tokens, but the problem is that it's hard for them to get listed on centralized exchanges because the exchange has to run a new chain. It's not as easy as adding an ERC-20. They have to run new node software. So there were all these high-value assets that had no liquidity. Osmosis was able to come in and say, 'Hey, here are the first steps.' It's very easy to get listed on or integrated into Osmosis because all you have to do is integrate one IBC protocol, and the integration process is automated. That's kind of what helped Osmosis kick-off, and that helped kick off DeFi on Cosmos."  

BZ: So is a building around a central chain just better for fundraising? How does it impact development?

Aggarwal: "Building around a central chain can be good for more than just fundraising. It's great that a lot of money and human capital is going into improving the base core infrastructure of these blockchains. Solana has made actual innovations at the protocol layer. ZK roll-ups and stuff that's valuable innovation at the protocol layer. But it has this trade-off in that protocol devs are isolated from application devs. I think you can actually notice this a lot in Ethereum, where there's this big divide between the ETH core developers versus the app developers, and sometimes their incentives are not fully aligned. The core Devs often don't know what the application developers need. 

In Cosmos, there's not one core development team. There are multiple core development teams, and a lot of core development teams have their own applications as well. Osmosis consists of core developers of the Cosmos stack, but we have our own chain. This is a very interesting phenomenon because it means the core Devs better understand what app devs need. I think that's why the Cosmos SDK has become such a popular stack because there's actually an understanding of what needs to be built and they are really focused on developer UX. And that's why I think that building apps on Cosmos SDK is much easier than it is on roll-up platforms."

BZ: What does decentralization mean to you in terms of the value it adds to the overall project? It seems like it's a pretty core tenet of Cosmos' beliefs.

Aggarwal: "Decentralization means that no one entity can fail or go Byzantine and destroy the project as a whole. The project will keep going – like with Bitcoin. The founder just dipped, and the project was able to keep going on. And I think that was like a test of how decentralized it is and how much of a movement it is. And so I think that's what we see with Cosmos as well. 

Cosmos went through the same process with the founder, Jae Kwon, who left after a bit, and the project was kind of thrown into turmoil for a little while. And that's kind of why people didn't hear from us too much from 2020 to 2021. But we managed to figure it out."

BZ: How do you feel about greater regulatory oversight of cryptocurrencies in the US?

Aggarwal: "I think that the Security Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) are starting to get a little more aggressive. In crypto, I think it's just making innovation a lot harder. I think it's making the US a less attractive place to build things. There are a lot of builders who are trying to leave the U.S. right now for more friendly jurisdictions. So we'll see how it plays out, I guess."

BZ: What is Osmosis' strategy for the future?

Aggarwal: "The bear market gives us time to build. By the time the next bull cycle comes around, we want to have the Osmosis product ready to the point where users can be peoples' first entry into crypto. Today, it's Coinbase. If you're trying to get someone into crypto for the first time, you have to send them to Coinbase. We want to make Osmosis user-friendly, easy to onboard, and well-connected enough for new users so you get the whole range of crypto assets, so you can buy and sell everything in one place. That's what we're working towards. We've always been product-oriented – making things friendly and playful. Because I think, at the end of the day, getting the retail users is the key.

Liquidity will flee to wherever they're getting the highest return on the fees. The institutional volume will go through aggregators to wherever the highest liquidity is. But the retail users are the users who are sticky and come to whatever is the easiest to use, and they build relationships. 

We're also expanding the suite of products that Osmosis offers. Today, it's just the DEX. But soon, there will be more options, whether they be built in-house or through external teams, building on Osmosis. If you go on a centralized exchange today, like Binance, they have spot trading, but they do a lot of other things. They have launchpads, fiat on ramps, and Information Services, and all sorts of stuff. I think all of those kinds of things need to eventually be part of the Osmosis suite. We're working on a number of things towards this vision right now."

The Last Word

Reviewing Cosmos next to other "alternative blockchain network" reviews is like reviewing a bunch of automobiles and then reviewing one cargo train. It's hard to put them side-by-side, and in one case, looking at the whole requires perspective. And it's incomplete to look at Osmosis without looking at Cosmos as a whole. 

Osmosis is realistic about the fact that their audience is going to be predominantly blockchain-native because the Cosmos ecosystem is a bigger stretch for most "normies." However, with the greater control and ability to adapt that goes along with Osmosis' dedicated chain and a focus on creating a mass-audience user experience, it may one day be that new retail users won't care where their exchange resides. 

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