One such presentation was that by Sunny Agrawal of Osmosis Labs, who discussed Mesh Security.

In short: the Hub-and-Spoke model of Cosmos as it stands isn’t enough as it lacks true sovereignty and is a model already present in other systems such as Polkadot. What’s needed is a mesh system comparable to NATO, where blockchains, especially those interwoven economically, provide security to each other while still maintaining independent sovereignty.

This relates to Interchain Security: the Cosmos-specific category of shared security that uses Inter-Blockchain Communication (IBC).

Mesh Security refers to Interchain Security V3 run bidirectionally, whereby Cosmos-based chains also provide security back to Cosmos Hub.

Below I’ll be discussing just what this entails, and how it relates to the Cosmos ecosystem as it stands today.

Why is InterChain Security Important?

Interchain Security was defined above and refers to the ability of a larger blockchain (i.e. Cosmos Hub) to share security by lending cryptocurrency capital to smaller chains. This is important because staking in a blockchain increases network security, yet smaller blockchains tend to have less value staked and as such are more prone to attacks by malicious actors.

Given that Cosmos intends to be an Internet of Blockchain with an easy-to-use SDK, smaller blockchains must be assured that they’re secure as well. As such, Interchain Security is very important to the Cosmos ecosystem and a strong selling point in attracting new developers.

Interchain Security is currently at V1 which refers to Cosmos Hub providing security to single chains.

V2 is in progress and refers to Cosmos Hub providing security to multiple chains by having a subset of their Validators choosing to validate other chains as well.

This is great, but there’s still no sovereignty. V3 expands upon V2 by enabling Cosmos-based blockchains to have their own sovereign validators as well.

Mesh Security takes this one step further and can in turn be combined with superfluid staking, an idea introduced at Cosmoverse 2021, to create a concept known as interfluid staking (which I’ll explain below!).

Mesh Security

Hub-and-Spoke blockchains are not enough as they’re already being worked on and do not actually provide sovereignty. In order for Cosmos to truly become decentralized without a chain at the centre, it must become a system of interconnected blockchains that can secure one another, rather than only being secured by Cosmos Hub.

Mesh Security does this by taking Interchain Security V3 and running it bidirectionally, as shown below.

This idea draws very strong similarities to NATO and was a metaphor used by Sunny in his speech. Despite all the challenges happening at the moment, if we zoom out on the evolutionary timeline of humans, we’ve never had as much security as we do at present. NATO is a great example whereby if one member is attacked, all others are obliged to come to their protection, ensuring mutual security in the event of a malicious attack.

Non-coincidentally, these NATO members are also heavily intertwined economically, as high levels of economic integration are typically associated with high levels of security integration.

The same is being done in Cosmos. In the context of Osmosis and Axelar Network, they are heavily intertwined economically as Osmosis represents ~69% ($62.9M) of Axelar’s total TVL moved to Cosmo as of October 6th, 2022. Additinally, 4 of the top 10 assets on Osmosis are bridged by Axelar. Therefore, it makes sense that they also intertwine their security.

This is the idea of cross-chain staking and is how Mesh Security is done.

Cross-Chain Staking

As might be expected, many Cosmos-based blockchains actually share an overlap in terms of their validators. For example, Sunny referenced a graph created by Numia that used data from Mintscan, where it’s seen that 75% of the validators on Juno are also running validators on Osmosis. And in turn, 72% of Osmosis validators also validate on Juno.

The concept is that a Validator could validate transactions on both Osmosis and Juno. They could then be incentivized to have good behaviour across both chains, and be slashed across both chains as well in the event of validating a wrong block.

And by correlating their identity across both chains, they could be rewarded with additional incentives. In turn, they’d be considered more trustworthy and new delegators would choose those that engage in cross-staking as they’re more incentivized towards good behaviour.

Would this result in excessive voting power for a validator? Couldn’t a significant validator overtake Osmosis? The solution is that voting power could be capped so that even if they stake 8% of all tokens, they may be capped at 2% voting power.

What about centralization of validators? This is in fact good as it shows overlap of communities across the various chains, and we should be taking advantage of this.

Interfluid Staking

At Cosmoverse 2021 Sunny explained superfluid staking, whereby one could both be a liquidity provider and staker at the same time, similar to liquid staking. The idea of it is that one could drop assets into a liquidity pool (e.g. OSMO/JUNO) and receives a Liquidity Provider (LP) share that has underlying economic value to it, which can then be staked itself. It follows the normal rules of staking (for example, it still has an unbonding period) but also enables a message to be sent via IBC to the blockchain that corresponds with the other token in any Osmosis-based liquidity pool (e.g. Juno for a OSMO/JUNO pair). This can be done to let the JUNO tokens superfluid staked within the OSMO/JUNO pool to also provide security to Juno’s chain itself.

This superfluid staking can be combined with mesh security to provide what’s known as Interfluid Staking.

Conclusion

Interchain Security is currently at phase V1 whereby Cosmos Hub can provide security to individual chains. During his presentation at Cosmoverse 2022, Sunny outlined his vision for Mesh Security which is Interchain Security V3 that’s run bidirectionally.

Mesh Security entails each Cosmos-based blockchain providing security to each other, including to Cosmos Hub itself. This can be done by incentivizing validators active across multiple blockchains to correlate their identities, and in turn slashing them across multiple blockchains in the event of poor performance on any given one.

In turn, this can be combined with superfluid staking, an idea first proposed at Cosmoverse 2021, to create interfluid staking where not only security but staking can be shared throughout the Cosmos ecosystem in a safe and secure manner.

RS is the first version of Cosmos’s Interchain Security (ICS) feature, allowing blockchains in the Cosmos ecosystem to share validation resources for improved 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’s interchain security could start a virtuous real yield cycle

The Replicated Security feature will distribute up to 25% of the consumer chain fees to Cosmos Hub stakers. The protocols can also allocate a portion of token inflation and revenue streams to Cosmos ATOM stakers.

The ICS implementation allows consumer chains to focus entirely on the growth of the network’s economy, as Cosmos Hub’s validators provide reliable security against 51% attacks and double-spending. This will bring additional yield to ATOM stakers and allow consumer chains to optimize for growth.

The staking reward for ATOM after adjusting for inflation is 6.82%, with 24.37% annual returns. The additional consumer chain yields will improve ATOM holders’ annual yield, encouraging more buying and staking activity.

Neutron is a smart contract platform that will likely be the first consumer chain to use the new ICS feature.

This will allow the consumer chains to focus on the blockchain’s real yield and bring additional yield to ATOM stakers as the price increases. Consequently, high yields for staking ATOM will motivate more users to purchase and stake ATOM. Hence, potentially giving rise to a virtuous investment cycle in the Cosmos ecosystem.

The Cosmos ecosystem has grown significantly in the last two years as more chains use the Cosmos-SDK and Tendermint consensus mechanism to spin up application chains. Implementing improved cross-chain features like RS will allow blockchains to benefit from the liquidity in the Cosmos ecosystem.

Circle’s announcement of a native USD Coin blockchain on Cosmos will likely be a potent catalyst to improve the ecosystem’s liquidity. Dutheil mentioned multiple decentralized stablecoin projects like Agoric’s Inter Stable Token (IST) and Kujira’s USK, which look to replicate the success of Ethereum-based decentralized stablecoins on Cosmos. It will also help establish ATOM as a reliable collateral and improve its value proposition

Stargate is a set of upgrades that complete the original roadmap as envisioned and laid out in the Cøsmos Whitepaper. For the first time ever, Cøsmos blockchains will be able to connect with each other using the first standardised protocol for Inter-Blockchain Communication (IBC). In effect, the Stargate upgrade marks the implementation of IBC!!

There are several blockchains that claim to be Sovereign, Decentralised, Scalable and Sustainable but only a one can claim that it will be able to do all of the above while solving the riddle of blockchain Interoperability. Cosmos Network is within arm’s reach of completing the vision of its original roadmap. The tool that will facilitate this vision is the Inter-Blockchain Communication Protocol (IBC).

In addition the upcoming release of IBC with the Stargate upgrade, will mark the completion of the three layers of the Cøsmos stack: Tendermint Core, Cosmos-SDK, and IBC.

The Inter-Blockchain Communication protocol (IBC) is a reliable & secure inter-module communication (interoperability) protocol that handles reliable transport, authentication, and ordering of data across different sovereign blockchains.

IBC can be used by any application which builds on top of reliable & secure inter-module communication. Example applications include cross-chain asset transfer, atomic swaps, multi-chain smart contracts (with or without mutually comprehensible VMs), and data & code sharding of various kinds.

This is why IBC has been called the TCP/IP for blockchains.

Josh Lee on a recent article provided a great explanation of how the IBC protocol works, that is worth sharing here:

It was the simplicity and flexibility of TCP/IP that allowed it to be the standard Internet communication protocol for nearly 50 years. It is used in computers, servers, mobile phones, and even small IoT devices, and has survived many improvements and iterations of the Internet.

Similar to the TCP/IP protocol, the unique aspect of IBC is that it separates the ‘application layer’ from the ‘transport and network layer’ (or TAO, transport, authorisation, organisation). This means that IBC defines how data is sent and acknowledged across blockchains, but it doesn’t define what that data is or how it should be structured. This sets IBC apart from other interoperability solutions which require a lot more standardisation in the application layer. Adding additional requirements for standardisation can add a layer of politics which decreases the diversity of blockchain architecture that can exist in the interoperable network.