The Decline of Cosmos: Implications for Blockchain Interoperability and Decentralized Ecosystems

The Cosmos ecosystem, once heralded as the "Internet of Blockchains," has faced mounting challenges in 2025 as capital and developer activity migrate to competing platforms like Ethereum and Solana. While Cosmos has made strides in staking and interoperability, its struggles with value capture, decentralization, and ecosystem sustainability underscore broader risks for multi-chain networks. This analysis examines the implications of these trends for blockchain interoperability and the long-term viability of decentralized ecosystems.

TVL Trends and Staking Dynamics: A Mixed Picture

Cosmos' Total Value Locked (TVL) in 2025 shifted toward lending, liquid staking, and restaking protocols, reflecting a move away from activity-driven TVL. By mid-2025, staked ATOM rose by 15.7% to 274.04 million, reversing a late-2024 decline. This growth was fueled by a stable staking APR of 16.34%, supported by Proposal #996, which redirected 98% of inflation to stakers. However, the number of unique delegators fell by 1.38% to 1.28 million, as small airdrop-farming wallets exited. Meanwhile, whale dominance increased, with holders of over 100,000 ATOM controlling 54.63% of staked assets. This concentration raises concerns about centralization, as institutional and large-scale participants gain disproportionate influence.

Restaking activity, while steady, also highlights a growing reliance on larger stakeholders. Active restakers rose from 18.5% to 20.7% of total delegators, but the decline in smaller delegators suggests a shift toward a more centralized staking environment. These trends indicate that while Cosmos' staking mechanisms remain robust, the ecosystem's decentralization is under pressure.

Capital Flight and Ecosystem Migration

The broader crypto market's volatility in late 2025 exacerbated capital flight from Cosmos. As institutional activity waned and prices declined, projects migrated to Ethereum and Solana, which offered superior infrastructure, governance, and value capture mechanisms. Ethereum's DeFi TVL reached $99 billion in 2025, while Solana's app revenue hit $2.39 billion, driven by low fees and high throughput. Solana's average transaction fee of $0.017 (median $0.0011) made it a preferred platform for retail users and developers.

Cosmos lost several key projects to these ecosystems. For instance, Helium migrated 1 million+ IoT devices to Solana for scalability, while DeGods/y00ts returned from Ethereum, drawn by Solana's cost advantages. These migrations reflect a broader trend: developers and users are prioritizing platforms that balance performance, cost-efficiency, and developer tooling. The impact on Cosmos' TVL was significant, as projects that once contributed to its ecosystem now bolstered Ethereum and Solana's dominance.

Interoperability and IBC: Progress Amid Challenges

Cosmos' Inter-Blockchain Communication (IBC) protocol remains a cornerstone of its value proposition. By late 2025, IBC connected over 115 blockchains, facilitating a monthly cross-chain volume exceeding $1 billion. The IBC v2 upgrade streamlined cross-chain communication, reducing handshake steps and introducing flexible verification methods like zero-knowledge proofs. These advancements position Cosmos as a critical infrastructure layer for multi-chain interoperability.

However, the ecosystem's ability to capture value remains limited. Despite IBC's technical prowess, Cosmos-based chains like Noble have struggled to attract sustained liquidity. Critics argue that the ecosystem's complexity and lack of compelling user-facing applications hinder adoption. Projects like Nillion and Babylonchain have leveraged Cosmos SDK for privacy and cross-chain security, but these successes are overshadowed by the broader exodus of capital and talent.

Sustainability Risks and the Future of Cosmos

The sustainability risks facing Cosmos are multifaceted. First, the growing influence of whales threatens decentralization. With 54.63% of staked ATOM controlled by large holders, the network's governance and security could become increasingly centralized. Second, the migration of projects to Ethereum and Solana undermines Cosmos' TVL and economic model. While the Cosmos Hub generates value through security fees and inflationary rewards, the loss of hosted blockchains could erode these revenue streams.

Third, the ecosystem's reliance on staking APR as a primary incentive may prove unsustainable. Proposal #996's inflation redirection to stakers has stabilized APR at 16.34%, but this model depends on continued participation. If smaller delegators continue to exit, the network may face liquidity challenges.

Conclusion: A Pivotal Moment for Cosmos

Cosmos' decline in 2025 highlights the fragility of multi-chain ecosystems in a competitive landscape. While its IBC protocol and modular framework remain innovative, the ecosystem's struggles with value capture, decentralization, and project retention pose significant risks. For Cosmos to remain relevant, it must address these challenges by simplifying development, enhancing user experience, and fostering stronger economic incentives. The broader blockchain industry, meanwhile, must grapple with the implications of capital flight and the growing dominance of Ethereum and Solana in DeFi and Web3.

As the crypto market evolves, the sustainability of multi-chain networks will hinge on their ability to balance technical innovation with real-world utility and economic resilience.