Bringing DeFi to Cosmos: 11 Reasons to Get Excited About Gravity DEX, Gravity Bridge, and More
By: Christina Cosmos
Tags: Cosmos Network, Ethereum, Tendermint, Cosmos, Defi

If Inter-Blockchain Communication protocol (IBC) is the biggest development in the Cosmos, Gravity DEX marks the most significant stride forward for the Cosmos Hub. Why? Because beyond its numerous benefits as the first interchain decentralized exchange, Gravity DEX unleashes enormous potential to increase the utility of the Cosmos Hub.

Before IBC, the Hub’s native ATOM token had limited use beyond staking and governance within the Cosmos Hub. But the arrival of a thriving marketplace allows the Hub to become an actual hub — a port city if you will — with trade routes to the most important blockchain economies.

Gravity DEX provides a huge incentive for other chains to connect to it, bringing DeFi to Cosmos and generating an unlimited number of transactions — and transaction fees that will go directly to the Cosmos Hub. Let’s take a closer look at this and all the other reasons you should be excited about the upcoming Gravity DEX as proposed by the Cosmos Hub.

1. More Utility for the Cosmos Hub

Using IBC, Gravity DEX enables permissionless swaps and pools of digital assets between any two blockchains in the Cosmos ecosystem or beyond. This means substantially more utility for the Cosmos Hub as we’re no longer talking about the Hub generating staking rewards and transaction fees as a $5 billion chain.

The Cosmos Network alone is a burgeoning ecosystem worth more than $140 billion, including the likes of ATOM, LUNA, BNB, CRO, and many others. Even before the connections to other blockchains like Ethereum, Polkadot, and Celo are enabled, that’s more than 20 times the amount of liquidity and capital flowing across to the Cosmos Hub, dramatically expanding its utility.

2. New Projects Can Instantly and Permissionlessly Trade

Another really exciting feature of Gravity DEX is that it enables blockchain developers to permissionlessly list their tokens. This means that they can start trading without having to jump through the regulatory hoops or pay the expenses associated with listing on a centralized exchange. Developers can build a new chain using Starport in minutes and get immediate price discovery and liquidity on their tokens.

This functionality was simply not possible before the arrival of Gravity DEX. Chains built using Starport or Cosmos SDK had no way of selling their tokens unless they had sufficient funding, built up a large enough community, or got listed on a centralized exchange. Now, all they have to do is list their token on Gravity DEX and get started right away.

3. It’s Easier to Discover Cosmos Tokens

Apart from the larger, more widely recognized projects such as BNB, ATOM, or LUNA, that benefit from a large listing offer, it’s currently quite difficult to purchase many tokens in the Cosmos ecosystem. And that’s a shame because there are a ton of innovative projects with enormous potential in their early stages of development that aren’t listed on any exchanges yet.

Gravity DEX provides a major boost to all these hard-to-buy tokens, such as Regen Network’s $REGEN, Akash’s $AKT, Sentinel’s $DVPN, Persistence’s $XPRT, or IRISnet’s $IRIS. Now, anyone with any IBC tokens can easily swap them to get in on the ground floor of the projects that excite them in a decentralized permissionless way.

4. Gravity DEX Levels the DeFi Playing Field

The recent growth of DeFi has been phenomenal, highlighting the demand for permissionless trading, borrowing, lending, and earning. But, DeFi is increasingly pricing out smaller traders and being taken over by whales. With the recent surge in traffic on Ethereum, placing trades of below $1000 on exchanges like Uniswap doesn’t make sense anymore because of the high fees. This is alienating many retail traders.

“Generally, only people that are well off can interact with DEXs on Ethereum,” points out Cosmos advocate TicoJohnny, “If you take a look at Uniswap, it’s easy to come to the conclusion that people that want to invest $10–100 will more than likely choose to not make the trade because they’ll be burning half their investment in Ethereum fees.”

Gravity DEX as proposed by the Cosmos Hub will level the DeFi playing field and make it accessible to all types of traders again, providing drastically lower transaction fees ($0.01-$0.10) to ensure that anyone can take part.

5. Improved Price Consistency

On top of the increasingly high fees, Uniswap has some other issues as well, including slippage that leads to inconsistencies in token prices. This is particularly annoying if you’re trading on short time frames and is caused by Uniswap’s AMM model (which you can read about in detail here). Essentially, every time you do a swap price on Uniswap, it either overshoots or undershoots, creating vast arbitrage opportunities and price inconsistencies.

Gravity DEX uses a different model called the Equivalent Swap Price Model (ESPM) that removes inefficient price discovery by landing on exactly the latest swap price. This makes it fairer all around and ensures that the price you see is the price you get.

6. Improved Order Execution

Gravity DEX further improves on Uniswap’s model by using batch execution to remove the possibility of front-running or price manipulation. On Uniswap, as orders are executed sequentially, skilled traders can pay more gas to ensure that their order goes through first. With batch execution, orders in the same block are processed at the same time and treated equally, meaning there are no opportunities for front-running.

7. Order Book Capability

Unlike Uniswap, Gravity DEX enables the community to build order book trading UIs. This is an extremely useful instrument for traders as it provides instant and valuable market pricing information on all tokens being bought and sold. This allows traders to get a better idea of where the price may go in the near future based on the prices and volumes that people in the market are willing to buy and sell for.

8. The Gravity DEX Testnet Competition Was a Huge Success

We received really encouraging feedback on the Gravity DEX testnet competition that ran from May 4 until May 11. This is a huge milestone as it moves the DEX one step closer to the mainnet. More than 21,775 traders competed for a massive $200K+ prize pool, racking up more than 715,030 transactions, a (total) swap volume of $900 Million, and a total locked value of ~190 Million as TLV in pool investments!

9. Staking Derivatives Coming Soon

A Cosmos Hub proposal for staking derivatives (being developed by Informal Systems and Interchain GmbH) is coming later this year that will further expand its utility. Currently, the Cosmos Hub generates rewards for staking its ATOM token to secure the network. However, the ATOM must remain bonded and cannot participate in the DeFi ecosystem.

Staking derivatives, in general, will allow users to create shadow tokens that they can use to take up long or short futures positions on the unearned portion of block rewards. As these futures tokens are not bonded, they can be freely traded on Gravity DEX (and around the Cosmos) and used in DeFi projects. To read more about this proposal, see The ATOM2021 initiative.

10. Farming Incentives

Providing farming incentives for liquidity providers is expected to encourage further participation. The Cosmos Hub does not currently support farming incentives. However, a Cosmos SDK module is being developed for this purpose: https://github.com/tendermint/farming.

The Hub community may submit a proposal to upgrade to the farming module and enable farming incentives for the Gravity DEX. We will report on the readiness of the farming module and the proposal as we get further information.

11. Gravity Bridge to Ethereum

Beyond interchain trading of Cosmos tokens, work is already being carried out to connect major chains like Polkadot and Celo to the Cosmos Hub through IBC. The most advanced non-IBC work is on the Gravity Bridge to Ethereum, which is planned to be proposed as an upgrade to the Cosmos Hub in Q2, developed by the Althea team.

The Gravity Bridge will be the most secure, efficient, and decentralized cross-chain bridge to Ethereum, and will allow for its substantial value and liquidity to flow into the Cosmos Hub, enriching the Gravity DEX marketplace. As a two-way bridge, just as native ERC-20 tokens can cross into the Cosmos, Cosmos assets can also flow to Ethereum as ERC-20 tokens as well, allowing the Ethereum community to buy Cosmos tokens on DEXs like Uniswap.

The name ‘Gravity’ for the Bridge, the DEX, and future products that will enrich and expand the utility of the Cosmos Hub holds powerful significance. Just as gravity is an invisible force that pulls objects toward each other, so will the Hub pull capital toward it, creating a positive feedback loop that drives user mass for both Ethereum and Cosmos.

Since the Gravity Bridge can perform cheaper ERC-20 sends and batched transactions, it slashes Ethereum gas fees, causing more users to access Ethereum DeFi via the Cosmos Hub and Gravity Bridge. The more users, the lower the gas costs through execution context sharing.

This activity opens up a wealth of Ethereum arbitrage opportunities, accessible only by using the Cosmos Hub. As more users access the Hub to take advantage of these opportunities, this, in turn, enhances Cosmos native DeFi and volume on Gravity DEX.

Wrapping It Up

Gravity DEX is a major development for the Cosmos Hub. Not only will it provide more utility and transaction fees but blockchain developers now have a fast-track way to create tokens and list them permissionlessly without having to go to a centralized exchange.

With all the attractive features of Gravity DEX, the connections to chains like Polkadot and Celo, and the groundbreaking Gravity Bridge to Ethereum that will pull capital to the Hub and unlock new opportunities, DeFi on Cosmos is about to take off. Are you ready?