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Evmos Introduction - EVM Hub of the Cosmos
Jake Kennis
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TLDR;

  • Evmos is an EVM compatible layer 1 chain on Cosmos that is built out on the Cosmos SDK and secured via Tendermint BFT Consensus
  • ERC-20 assets on Evmos will be interoperable with Cosmos native assets via their ERC-20 module. This taps into the $75b worth of liquidity sitting in IBC-enabled chains and allows for any ERC-20 token to move throughout the Cosmos ecosystem to take advantage of liquidity, yield, lending and more. Unlocks new opportunities such as borrowing against your native ATOM for stables on Evmos.
  • Allows for new blockchain design. Evmos will enable application-specific blockchains and offer an opt-in shared security model for them to exist. You can have DeFi and NFT-focused chains that decide on their own level of security while maintaining the control and value generation of their protocol. Using app-specific blockchains, Evmos is also able to offer rollups natively on them using Celestia as a data availability layer.
  • Multiple bridges are in place to port liquidity from existing EVM chains as well as Solana via Wormhole. Most Ethereum users will be eligible for the EVMOS airdrop, which will be used for fees, incentives on the platform, security and governance.
  • Alpha: Diffusion Finance is going to be one of the first AMMs to deploy on Evmos following mainnet. Can be decent yields to follow. In addition, we will be closely tracking the flows to Osmosis; in particular, the possible stableswap pools that will be supported using UST and other stables brought over from Evmos. We see this as a potential yield opportunity.

Evmos Overview

Evmos is an EVM compatible layer 1 blockchain that is built using the Cosmos SDK and secured via Tendermint Consensus. They offer a seamless moat for EVM based apps to deploy on their chain while being natively compatible with the greater Cosmos ecosystem. This composability between ERC-20 tokens and Cosmos native tokens is a key differentiator because it means that apps that deploy on Evmos inherit the instant finality and cheap fees of Evmos while also accessing the liquidity across any IBC enabled Zone. As it stands at the time of writing, Evmos applications would allow developers to gain access to $75b worth of liquidity across the Cosmos ecosystem with no bridging or trusted third parties involved. Evmos’s value proposition is compelling for developers because it will be the first implementation of the EVM where it can natively interact with all of these different blockchains such as Osmosis where it can have more access to liquidity. In short, Evmos makes smart contracts more scalable and interoperable with any IBC chain.

Evmos takes these other EVM compatible layer 1s and pushes the interoperability one step further - similar to other EVM chains, Evmos apps will be EVM compatible with higher scalability but it will also tap into the community and overall liquidity of the broader Cosmos ecosystem. This is a key distinction compared to other EVM chains where they are fighting for liquidity as opposed to composing horizontally with an existing ecosystem. Another key differentiating factor of Evmos is its shared security model for the app-specific chains that can opt-in for shared security from Evmos. This offers an interesting design advantage that we will discuss more later in the report.

The key component of cross-chain composability comes down to IBC. In short, IBC is a generalized interoperability protocol that connects sovereign blockchains. IBC is constantly being implemented across many blockchains including but not limited to NEAR, Polkadot, Celo and many others. There are also transport layers such as LayerZero that will bring IBC to other ecosystems like Solana, Ethereum and even Bitcoin. As IBC continues to grow, the total addressable market for Evmos will also grow.

We have seen the emergence of EVM-compatible chains in 2020 as they enabled users to interact with their favorite protocols for a fraction of the price. Given the vibrant developer community and tooling built around the EVM, many layer-1s like Avalanche and Fantom were able to bootstrap communities through forking key DeFi components to even having Ethereum apps easily port over to their chain. In short, the EVM is very powerful and brings lots of network effects and proved to be a huge benefit for smart contract platforms. Until recently, Cosmos was not EVM compatible. We will dive into the two EVM solutions on Cosmos: Evmos and Cronos Network. Ultimately, we feel that Evmos is well positioned to become the EVM Hub of Cosmos due to some of its core features mentioned later in the report.

Evmos vs Cronos

We have seen Cronos, the first Cosmos EVM chain, go live on mainnet on November 7th and has a TVL of $1.91b at the time of writing, ranking amongst the top 10 chains by TVL. Cronos has seen a wide range of DEXs and dapps port over and it bootstrapped a community using Crypto .com as an easy fiat onramp. Although Cronos has brought the first EVM chain to Cosmos, the actual applications living on Cronos are not compatible with native Cosmos tokens and it has a limited set of IBC channels available between it and various other Zones (chains with IBC enabled). Hence, there is no way to use these ERC-20 tokens with other Cosmos Zones.

Further, we are particularly interested in an EVM chain that is able to be compatible with the greater Cosmos ecosystem - one that can seamlessly integrate ERC-20 tokens with native Cosmos coins. Evmos aims to be the EVM Hub of Cosmos. It will connect many chains - application-specific Ethermint chains, Cosmos chains via IBC, Ethereum via the Gravity Bridge, and other EVM environments. The EVM can now live on Cosmos and horizontally scale across other Zones using IBC. Some of the advantages of the EVM living on Cosmos include the following:

  • Fast finality from Tendermint consensus
  • The composability and modularity of the Cosmos SDK
  • Web3 and EVM compatibility
  • Horizontal scalability via IBC
  • Application-specific chains using the Evmos shared security

So how will Evmos attract developers and users to its chain?

Enter the Rektdrop

To bootstrap a community, Evmos announced a very clever airdrop they call a ‘rektdrop’. The idea behind the airdrop is to bootstrap a community of members enabling broad distribution across the most amount of chains and to reward those who spent too much on gas fees, had to use bridges, and for those who were even exploited. This incentivizes Ethereum users to start migrating, especially the most active users via the gas drop. The gas drop is a function of the amount of gas they spent, filtered by the top applications sorted by TVL and volumes. They also reward Cosmos stakers, Osmosis LPs and much more. Check out the full airdrop details here for more information. Once Evmos launches on mainnet, we believe that there will be lots of growth on the ecosystem - both from Ethereum apps porting over and from new DeFi initiatives native to Evmos.

Why would a project deploy on Evmos over a layer 2?

Again, Evmos enables EVM compatibility on Cosmos with fast finality and cheap transactions. More importantly, it is an IBC enabled chain and will be interoperable with other Cosmos Zones where it can send ERC-20 tokens, NFTs and communicate with other Cosmos based smart contracting frameworks and modules. This type of communication creates very high level implementations of DeFi strategies and pushes forward the interoperable design space between different ecosystems (we will cover some examples later on). In addition, apps can choose to deploy as their own chain using the Ethermint module and have an opt-in model for shared security. Let us dive into the core components to better understand the advantages of Evmos.

Evmos Core Components

Evmos is an iteration of the Ethermint project that was originally launched in 2016. Ethermint was an R&D project that aimed to bring the EVM on top of Tendermint - having smart contracts with fast finality. Eventually, the Etheremint project lost support and funding from the community so Evmos stepped in. However, Evmos takes the original thesis behind Ethermint one step further - it will be a fully interoperable smart contract platform where you can build very interesting economic models that enable interoperability and interchain composability between IBC-enabled chains. They deployed an EVM module on the Cosmos SDK which allows for smart contracts and ERC-20 tokens to live natively on Evmos.

Given you can create smart contracts on Evmos and use ERC-20 tokens, how can these tokens actually interact with the rest of the Cosmos ecosystem?

ERC-20 Module

To resolve this, Evmos recently deployed its ERC-20 module that ultimately allows DeFi applications to interact with Cosmos-based blockchains. There was no prior way of using these ERC-20 tokens across the Interchain - seamlessly converting between ERC-20 tokens and Cosmos native tokens and vice versa, without bridging. In order to bootstrap liquidity for the pairs of ERC-20 - Cosmos tokens, they will enact incentives from the DAO which will be covered more in-depth in the ‘Tokenomics’ section.

With this module, not only can ERC-20 tokens become more useful across the ecosystem but any Cosmos-based asset can be used within the Evmos DeFi ecosystem. An example of this would be converting your Cosmos native ATOM into a ERC-20 representation that can be used on a lending protocol built on Evmos. This module also allows for more DeFi experimentation given you can now build DeFi applications based on ERC-20 smart contracts. Let us go over 2 rather high-level implementations that this module unlocks.

  1. Sommelier Finance is a Cosmos Zone that allows for automated yield strategies for LPs to use to maximize yields across applications such as Uniswap v3. They currently use the Gravity Bridge to manage Ethereum transactions. However, if Uniswap v3 deploys on Evmos, then Sommelier can interact with these applications by sending an Ethereum transaction through IBC. This can reassign the liquidity positions and rebalance positions deployed on Evmos for smaller latency than the Gravity Bridge and for significantly lower fees.

  2. If Klima deploys on Evmos, then Regen Network can send their eco-credits natively over IBC into the KlimaDAO. These eco-credits can be used within Evmos or they can trade them across the greater EVM ecosystem.

    Bridging to Evmos

In terms of bridging to Evmos, they are built in such a way that any EVM bridge that is used today can actually be built on top of Evmos. Because they are a Cosmos chain, they will already have IBC enabled for cross-chain interoperability between IBC-enabled Zones. However, they will also support native EVM bridges to be deployed on Evmos such as the Gravity Bridge, Optics, Connext and Wormhole. These bridges allow for any EVM layer 1, sidechain, rollup and even Solana assets to access the Cosmos ecosystem.

Evmos Security and App-specific Chains

Evmos
Source: Evmos

One of Evmos’s most unique features is the security guarantees it is able to provide and the ability to create app-specific Ethermint chains. These Ethermint chains support all types of implementations like rollups like Cevmos or app-specific chains that are DeFi or gaming-focused. There are many reasons that an application would want to be its own chain - it opens up new design space and enables self-sovereignty, runtime customization and performance. Even Compound recognized the need for its own chain in 2020.

The main drawback to this self-sovereignty model for blue chips like Compound is the need to secure the chain because you would no longer inherit the shared security of Ethereum. However, similar to the Interchain Security model popularized by the Cosmos Hub, these app-specific chains will be able to borrow the security from Evmos. This shared-security model is a work in progress and will make it more opportune to deploy an app-specific chain as you can have the same security guarantees as an app that deploys natively on Evmos.

To really highlight the design space of Evmos and Cosmos more broadly, let us revisit the Cevmos implementation. The high-level idea is to bring rollup technology to Cosmos. To do so, they need an execution layer, settlement layer and a data availability layer. Cevmos will have all three and will be built upon an Ethermint chain as an app-specific chain optimized to be a settlement layer for rollups. Given it is its own chain on top of Evmos, it won't force rollups to compete with existing smart contracts on Evmos. This type of blockspace competition can be seen on Ethereum where rollups posting data to Ethereum as a DA layer must also compete with other smart contracts for fees. This is an extremely advantageous design space for Evmos given it is built for rollups by default.

Although these rollups will be integrated on its own Ethermint chain, they will still be able to utilize IBC through Evmos. Any rollup on Evmos can therefore decide on its own design space while also being able to take advantage of IBC interoperability - rollups with cross-chain interoperability. This is still an unclear subject for apps that deploy on Ethereum rollups, whereas rollups that deploy on the Cevmos Ethermint chain won't ever need to fragment their liquidity and will decide on the level of security and cheaper fees of Evmos. To better understand the modular stack of Cevmos, use the figure below to visualize the different layers. Evmos is positioned to be the EVM Hub of the Cosmos ecosystem given its native interoperability with Zones via IBC and the ERC-20 module.

Evmos
Source: Evmos

Although Evmos is well positioned to be the EVM Hub, how will they incentivize the necessary infrastructure to be in place to route these IBC packets across any N number of channels?

Incentives for Relayers

Running relayers is an extremely important part of the IBC stack. To send packets of data between chains, you need relayers to transfer these packets. However, running relayers is expensive and it acts as a bottleneck for app-specific chains that want to connect to every other IBC-enabled blockchain. To mitigate this issue, Evmos plans on giving rebates for IBC relayers using the Evmos token. These fee rebates will encourage people to run relayers and therefore seamlessly connect other IBC chains with Evmos to allow for cross-chain interoperability with the maximum number of chains. Running relayers is a vital piece of infrastructure to access every Cosmos chain. Incentivizing the number of relayers you can support increases the number of supported IBC channels. More relayer infrastructure = more IBC interoperability.

The dApp Store

Evmos adopts an app store model to redistribute fees and rewards both developers and network operators. This built-in, shared fee revenue model is termed the dApp store, where the developer gets a bigger cut of the revenue, while the app store operator gets a cut for providing network and infrastructure services. In this case, the network operator rents out the infrastructure required to run a decentralized application.

With this model, developers building on Evmos get a real stake in the growth and governance of the protocol itself. Project builders can then focus on creating value and impact for the dApp, rather than on spinning up new governance tokens and leveraging connections to capital.

Evmos Tokenomics

EVMOS is not only used for transaction fees and securing the protocol via staking but it is built to enable a more equitable distribution of value across three main actors: Developers, Users, and Block proposers. EVMOS serves to align incentives across these three main actors. Currently, block proposers typically capture the lion’s share of value, for instance, on Ethereum, burning gas fees increases the network ownership shares of network operators. Evmos seeks to resolve this imbalance and redistribute gas fees more fairly through EVMOS. One way Evmos is doing this is through the creation of usage incentive pools that will act as a gas subsidy for end users. Token holders can decide through governance on which dApps get gas subsidies for their users over a predetermined time period, and distribute incentives in a more equitable manner.

EVMOS token holders are empowered to steer the DAO towards different outcomes through the following actions:

  • Paying developers and network operators for their services via built-in shared fee revenue model (the dApp Store)
  • Voting on protocol upgrades
  • Registering tokens on the ERC20 module for EVM-IBC integration with ERC-20s
  • Allotting usage incentives for applications on Evmos
  • Enabling precompiles for useful, high-priority functionality   ### Usage Incentives & Fees

Evmos token distribution is built out in such a way for popular protocols to receive EVMOS incentives. This can be similar to the Curve Wars, but in this case, no tokens will be locked up beside the LP positions users might have staked. 25% of the block emission is going toward a pool dedicated to incentivizing users across the top protocols. These incentives create a positive sum relationship - if an app gets sufficiently large, it will earn more ownership of the base layer. Users receive more rewards and apps earn more ownership in the L1 ( not just rent seeking via fees paid to miners/validators).

The idea would be to allocate Evmos tokens from the usage incentives pool to a contract where you would lock up your DEX LP positions, money market IOUs or other liquidity IOUs. (i.e. a UNIv2 LP position, an AAVE aToken/Compound cToken or Connext liquidity.) These are usually represented as ERC20 tokens. Again, there is a similar mechanic in place to the Curve wars - the more popular the app, the better incentives via the Evmos rewards. The contract will be governance controlled so that token holders can decide what applications on the Evmos chain would be eligible for usage incentives farming. These incentives are effectively a liquidity mining program that is linked to the base layer and controlled by community governance (similar to a decentralized Avalanche Rush as the users vote on rewards, not a centralized entity). The program is expected to total 200 million Evmos tokens in 4 years, with the potential to be larger should governance vote to increase the Usage Incentives pool size to accelerate user growth.

Token Distribution & Schedule

Overview Evmos will have an initial supply of 200 million tokens at genesis, with 40% issued via the rektdrop, 10% via community pools and 50% into a strategic reserve. 300 million tokens will be issued in the first year, and the target will be to issue 1 billion tokens in 4 years.

Under the initial token model, the new tokens will be issued under an exponential decay schedule, where the inflation is decreased every year (365 daily epochs). The community can propose alternative inflationary models should rewards be deemed too low after year 4.

Evmos
Source: Evmos
Evmos
Source: Evmos
Evmos
Source: Evmos

Community Pool

  • The community pool will be initially seeded with 40 million Evmos tokens and will continue to be funded by 10% of newly released tokens.
  • The pool will be used to bootstrap important tooling, infrastructure, educational content and other resources

Team Vesting

  • 25% of the tokens per epoch (weekly) are going to be issued to developers of the Evmos protocol.
  • This makes up 200 million Evmos tokens, and they are subject to a cliff and vesting. They are also not transferable nor stakeable until they are released.

Strategic Reserves

  • At genesis, there will be an allocation of 100 million Evmos set aside in a strategic reserve
  • It will be used to fund initiatives through grants and support validators through delegation who are highly active in the network, beyond just running an institutionally backed node. This could include providing relayer services, building out explorers, maintaining open source tooling and deploying dashboards that show overall market growth on the network.

Staking Rewards

  • At genesis there will be 150 active validators which will be dependent on the amount delegated to each validator. The number of possible validators is subject to governance and can be adjusted.
  • 40% of newly released tokens will go towards rewarding the active validators and their delegators proportionally based on the amount of Evmos tokens staked.

Risks and Other Considerations

Evmos is not live on mainnet at the time of writing but there are certain risks and considerations to take into account. As with all smart contract platforms, there is always the risk of smart contract risks. In addition, there are many bridges that involve trusted third parties. They will also need to incentivize enough liquidity so that people can trade in and out of ERC-20 tokens and Cosmos native tokens through the ERC-20 module. We will be closely monitoring that as well as the pairs that will be supported on the network.

Roadmap

They will deploy on mainnet January 20th, 2022 with IBC enabled. IBC-enabled channels with Osmosis and the Cosmos Hub will be available by the end of January for the Evmos token to have sufficient liquidity. Following their mainnet, they will focus on the Ethermint chains as well the Cevmos partnership with Celestia. More information about that can be found here.

Tharsis Team

The Tharsis team makes up the core developers of Evmos. The team is leveraging the Cosmos SDK to build the first interoperable EVM-based chain on the Cosmos Network. It has been developing Evmos for almost a year now and have already made some significant contributions with things such as the ERC-20 module. Their key building blocks will enable use cases around composability, interoperability, and fast-finality with the EVM.

The team has worked with:

Tharsis
Source: Tharsis

Partnerships

Evmos has been announcing new partnerships every week leading up to their mainnet launch. Some of the key partnerships include the following:

  • Orjtech

    • Delivering critical performance improvements to Evmos and Cosmos through auditing and remediating issues found with the Evmos Repository
  • Kyve

    • Storing and Accessing Decentralized Blockchain Data Streams. The data uploaded is permanently stored on Arweave and the network participants (uploaders and validators) are incentivized to keep the system reliable.
  • Blockdaemon

    • Providing Evmos Developers With A High-Availability RPC Cluster
  • Celestia

    • Open, Scalable and Modular Stack For EVM-based Applications. Integrating Celestia as a consensus layer - link to Celestia report
  • Covalent

    • A Unified API to Access Indexed Blockchain Data
  • Pocket Network

    • Providing Crucial RPC Infrastructure For Evmos Developers and End-Users

Takeaway

Given the recent success of Cronos becoming a top 10 chain by TVL in just under 3 months, the demand for an EVM on Cosmos is extremely high. As mentioned earlier, Evmos will have many more onramps and bridging in place to connect other Cosmos chains, Ethereum, every EVM chain, rollups, and even Solana tokens. At the time of writing, Cronos is only connected to the Crypto.org chain and the Cosmos Hub - it is limited to the cross-chain interoperability that Evmos will support natively via IBC.

Evmos has been long in development and will support a rapid design space. Some of the design approaches include app-specific blockchains with opt-in shared security, IBC interoperability across the most amount of chains, interoperability with CosmWasm protocols and other EVM modules, rollups and much more.

The team is very strong and it is made up of long-time Tendermint and IBC engineers. With their upcoming airdrop, they will have one of the highest distributions of their native token across multiple chains. This will incentivize the top Ethereum users and multichain enthusiasts to bridge over funds using the same tooling they are used to. We think that Evmos can become the EVM Hub of the Cosmos and are excited to see the design space it opens up to bring the EVM across the interchain.

We will be closely monitoring the cross-chain volumes over the supported bridges following mainnet. There are expected to be good yield opportunities for LPs across the ecosystem as well as cross-chain opportunities between Cosmos chains.

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Disclosure: The authors of this content and members of Nansen may be participating or invested in some of the protocols or tokens mentioned herein. The foregoing statement acts as a disclosure of potential conflicts of interest and is not a recommendation to purchase or invest in any token or participate in any protocol. Nansen does not recommend any particular course of action in relation to any token or protocol. The content herein is meant purely for educational and informational purposes only and should not be relied upon as financial, investment, legal, tax or any other professional or other advice. None of the content and information herein is presented to induce or to attempt to induce any reader or other person to buy, sell or hold any token or participate in any protocol or enter into, or offer to enter into, any agreement for or with a view to buying or selling any token or participating in any protocol. Statements made herein (including statements of opinion, if any) are wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader or any other person. Readers are strongly urged to exercise caution and have regard to their own personal needs and circumstances before making any decision to buy or sell any token or participate in any protocol. Observations and views expressed herein may be changed by Nansen at any time without notice. Nansen accepts no liability whatsoever for any losses or liabilities arising from the use of or reliance on any of this content.