Converging Cosmos & Ethereum: A Restaking & Shared Security Deep Dive | Sreeram & Zaki

Transcript

imagine you have 1,000 protocols Each of which want $1 million security you could have separate $1 million tools for each of these protocols or you aggregate all of them and have one single $1 billion pool that's restak into all these thousand protocols this second world is much better because to attack any one protocol the cost of attack has shifted from I need majority of 1 million to now I need a majority of 1 billion so suddenly like this is what we call the hardening of security right all right everyone we will be back to the program in just a moment but before we do I want to share something that blockor has been cooking up for these last couple of months March of this coming year in London blockworks is hosting D London the largest institutionally focused

conference in all of crypto Goldman JP Morgan 72 all in one room so you can know what the big money is doing so click the link at the bottom of this episode it'll take you right over to the homepage and use Bell 20 for 20% off I will see you in Sunny London Town in March all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode all right everyone welcome back

to another episode of B curve today I'm joined by my co-host miles O'Neil Ry um we are talking to zachi Manan of smellier and tram Kanan of Igan guys welcome to the program hey my pleas to be here it's awesome to be here we are we're excited guys this is going to be sort of a fun throwback actually to a couple of past seasons of bell curve one where we talked about um the Cosmos app chain thesis and then one on liquid steaking where we had a great episode with shiram on reaking which I would highly recommend everyone go back and listen to but uh today we're going to sort of build on the foundation that we laid in previous seasons and talk about this merging of the cosmos and the ethereum road map and underscore the

critical role that Igan lay is playing there through reaking but you know before we before we get to that um maybe Zaki or shiram I mean c could you kind of tee up uh for folks who might not have heard the past season like and it's probably in popular discourse now but how are the uh from a high level the road maps of Cosmos and ethereum kind of aligning here I can I dig into it with is so there have been like a couple of things so Cosmos originally started out as you know this general purpose staking platform anyone can spin up a purpose Stak blockchain we had this initial version of the staking module and you know there's like something like 80 something chains that are using it um and so that popped up lots of staking

tokens um ethereum starts out ethereum is the shared security platform um so you know the governance token like the tokenomics layers live directly on it they don't have provide their own security he provides the security uh so you know this is the two versions of this world right most Cosmos tokens are their own SEC emit their own security e most e tokens rely on ethereums where are we going how are these things converging so it's like a bunch of things happened along the way um uh sunny and Dave um came up with this idea of mesh security um probably two years ago I think at this point um and sunny and Dave like originated this idea of National

Security which is that Cosmos chains should buy security at the same time um sh R came up with uh Igan Weare and this idea of uh renting out security like being able to a Marketplace for for security from ethereum well obviously these things are remixes of similar ideas um and then since then we've had uh the release of platforms like EO um which is you know uh now a publicly launched project but it's the idea of mesh security where the origin mesh security is bought for Cosmos is bought from uh an igen Weare ABS um uh an igen Weare security from from from eth validators um and this is just like a

very exciting thing and you know now we can finally hybridize these security models and compose them together in a way that's exciting and I think leads to a lot of new innov in terms of just Market positioning yeah so so to sum up there it I think the the irony of uh Ethan Cosmos and why they're such a perfect fit today um is it's almost like we're converging on this idea of a shared security layer which supports this network of Highly interoperable chains some of which are app specific and some of which are are more General we just started from different points right Cosmos kind of started with that vision and they figured out in interoperability

and app chain or interoperability and app chains and ethereum and now they're kind of trying to figure out well how do I figure out uh things like data availability and shared security hence the the mesh security saki that you just mentioned ethereum started from the opposite point they built extremely secure block space and now they're sort of Midway through this journey of actually building out their own set of Roll-Ups which looks a lot like Cosmos so we kind of are converging on the same um same end stage just from different starting points and Zaki you were starting to get into this kind of like this match made in heaven of like the the role that reaking plays here so shiron maybe I could just um ask you to maybe underline again uh and just make uh clear for the audience like the role that reaking plays here and then we're

going to hop into sort of the value proposition uh both from the cosmos sort of demand AVS side of things why it might make sense for Cosmos chains to rent security from ethereum um and then vice versa yeah U so the underlying param of I Le is that you know people can stick there in in the ethereum platform and then simultaneously you know and when they're sing their eat in the ethereum platform they're making a promise that they're following the ethereum platform rules correctly and they restake or basically make additional promises with the same e that hey I will also validate these new protocols correctly and when they do that uh so I can provide semantics for actually expressing these conditions and

now anybody who wants to build these new networks can come and create these we call them s is actively validated services but think of them as chains or modules or like SAS services but they want to be decentralized so that's the uh that's the other side and Builders who want to launch new services but don't necessarily have their own token or don't want to use their own token at least not want to use their own token exclusively to secure the network can actually use this system to borrow security so that's the two sides so we can you know ding in a little bit granularly we have stakers people who stake we have node operators people who run computational infrastructure for the

sers those could be the same or different and then we have people who create these servs right and then people who consume the services that's the different sides of this Marketplace overall and maybe I think for the rest of the conversation that we now have kind of laid out how these two road maps are converging we've laid out how you know igen layer can maybe be the bridge between the two ecosystems um and through igen layer uh I would say E3 staking can help Cosmos chains and through igen layer Cosmos chains can actually help ethereum by providing services that couldn't be built on eth directly um so maybe just a start from

the side of Cosmos um and Zaki you're probably the perfect person to to speak to as somebody who has l launch the cosmos chain without igen layer uh as an option to bootstrap security um what is the value prop for you and maybe just to frame this imagine if you were starting Somalia today um and you had the choice of going the the normal uh bootstrapping route of a cosmos chain which is basically to convince enough people to buy your token and stake it to get up to a certain market cap that is economically secure um to the point where people are comfortable using your product um versus what you know you could have done uh if Iger was an option

or ier via ethos was an option um you know at the Inception of Somalia so I guess there's been a couple of pieces you know I I would take this back to the original Adam go to market um where we were waning a token uh we you know it was like me J Ethan Sunny Jack um this whole group of people coming together and you know building demand liquidity all of this stuff for a new asset that you know has you know um been consistently in the top 100 um but it was all it was an enormous amount of

work you know and you were you were you were writing this way so um the co-founder of CA Christie Shu who I work on with inclusion work on with on uh with on simier really questioned when we start we decided to do simier could we make could we do something like you know and like so many Cosmos chains they just defaulted to like basically trying to like rerun the ad on story right and I think for both Christy and myself it was like immediately clear it was like we cannot like it's not a long-term sustainable project like maybe like if we had done we just like opened up out of the gate with like inflationary token standard staking yes the token would

have done extremely well in 2020 uh uh in 2021 and 2022 um and if we had and then like the story had been and then like we continue that story The like our struggles in 23 would have been 22 and 23 would have been even worse so instead chrisy really like focused on let's say let's question the whole Orthodoxy so no like fix token Supply put a bunch of tokens in the community pool that could be used for paying staking rewards but don't you know come out with it and then for the entire bu Market we had no staking rewards on on um uh most of the investors were locked up uh it didn't uh it didn't make any sense uh why why

spend anything on security uh most of our security comes from ethereum anyways um uh the way it works and then we've all then we've also had this struggle which was who you buy security from is part of your franchise part part of how you distribute how do you how you build your brand and we wanted to build a brand for ethereum users um we we thought the best product for similer would be an ethereum product um and that's the product we built and Christie and I have grown that product from you know to 60 and chrisy I the whole team really have grown this product to 65 million uh TBL um in the bare Market fastest growing yield product in the bare Market um and you know testim it to

the whole techn but having the whole product then be like trying to like Cosmos people uh Cosmos stakers traing on osmosis it's like there's this whole dichotomy that doesn't make any sense uh it's a and it's a Hu there it's been a huge tax on I'd say the project in this and its success that like we had a token that was like being distributed to this like whole different audience huge struggle so these are like the things that were our pain points and then you know beginning in 23 there was a governance vote to to to allocate some of the community pool uh 10 million tokens uh to paying for security resulted in like you know roughly a 10% apy um and that was painful for us too

because we we there's a there's a finite life for this like there's only a finite number of tokens in the community pool um we need to grow fees to be able to like justify but then you also have to pay a pretty high premium to get people um to stake s um and it's been and so you know when ethos came out um and uh you know ethos was incubated at Poly chain which is one of our investors um we very close to the poly chain team um they were incubating this idea they were like what if we do something like this and we were like similer would love to be the like first user first announc because this like solves all of our problems or like not all of our problems but it's all like a a set of problems

with security that we've really struggled with which is how do we reduce the premium we're paying for people to walk up Capital to secure the network um and how do we have more like control and discretion over that how do we align more closely the people who are getting Som tokens with the users of the product and we are one of the biggest players in liquid staking liquidity through the protocol and it's weird that we're not uh Distributing the token to eat stakers uh and so there's this huge opportunity so it's been very very very very exciting to see all of these things coming to fruition and Christine and I are super excited about 2024 and and uh similia EOS integration

integration so just to sum that up most Cosmos chains today if not all basically uh launch with an emission schedule and an emissions rate that goes to stakers that they believe you know makes uh it attractive enough to stake to buy and then stake this asset up to a certain ratio a pretty arbitrary ratio rate up that's kind of 66% today nobody really knows where that number came from or what the right number is um and you know you are there's you know a capital A cost of capital right that they have to you know it's an opportunity cost they could be holding other assets um and now you have an opportunity basically to you know tap into uh a pool of capital that

is already earning yield right um and so it's really it's really the marginal cost to go secure another you know chain is is so much lower um and I guess how are you thinking through I guess what the economics and and what security levels are you're targeting at this point um because now I think it's really interesting we can kind of uh you know pay for security at cost right it becomes more of I would say a variable uh cost line item on the p&l rather than some you know fixed emissions rate that was set by governance at one point and then periodically like changed right and so I guess tactically how are you thinking about you know the the details of um and I guess the uh economics of of

of getting security through uh igir via ethos so I I just like want to make like one one of one of the things that I make I think is the most exciting so I guess for me when I first heard about iwe from shuram I thought I the supply side always made sense like why would eat stakers want to do this it's the demand side that Christy and I have really dug through on similia side that also makes it like so clear which is it is simply expensive to get people to hold and stake and walk up for 28 days an illiquid asset like you know there's like a couple of hundred, dollar of of

liquidity on the song token on dex's um you know and like we have tens of Millions ions of dollars of s locked up and staking and if somebody wants to exit it's like where did they exit to right and so you have to like really pay them to like be like hey um or they have to have like extremely high time preference which I think we're lucky to have some long-term holders in the ecosystem that are very high typ preference but um who are willing to hold for a long time um as liquidity develops but regardless this is just an expensive proposition um and the demand side is really driven by the fact that asking people to hold liquid assets and then earn illiquid assets incrementally is just so you know I imagine that like

for the same amount of emissions that like let's say are getting 25% of p uh currently staked we could and like that is you know 2030 million of of Economic Security um we could have we could double that Economic Security if we were allocating towards um IG wear and I think a lot of our stakers probably wouldn't un stake if even if we cut the emissions by like 25% and in that sense it doesn't you know you still have the ability to have a governance token that retains the you know Lon share of the economics you still have the ability if you're uh you know if there's activity happening directly on your chain to retain

economics through like me right um and then it's just a question of what whether you pay those re stakers in like real Revenue that is coming through your protocol or if you want to you know just redirect the emissions from the treasury or from the schedule to these sters the other thing that's not so similia has a real Revenue mechanism which is um uh fees from the vaults go back to the protocol there's about $100,000 of fees that were earned over the um uh course of 20123 uh it's been like sort of it grows one yearly with tvl um and and uh so we have this real Revenue model but if you actually are can be like explicit

about how you target security then you actually can like kind of tick that item off your p&l and then whatever is remains can go back to theom stat right rather than this sort of wishy-washy hay thing today of okay we're just going to like shovel all of the revenue back into SEC into staking security some of it will go back some of will go to S steers some of it will go to the uh uh some of it will go to uh the like some of it will be for security some of it like everything is bucket it together and like you can do things then that why would be which would I think will be exciting and cool in the cosmos because very inspired by things you can do in

the E ecosystem when your token isn't also securing the network which is like hey like you know what if we like walk up for like like give you people a larger percent of Revenue if you walk up the token for 10 years right then you can like potentially take large Chumps of liquidity off the market doesn't work as well when you're like trying to Hy like select validators do governance emit rewards all into the same model couldn't agree Mart yeah I've noticed that when your token is also an L1 staking token you lose a lot of flexibility um you know it's it's kind of there's so much packed under the scope of governance there's so much packed you know in so many different

types of stakeholders in the network right um and so now it ends up you you more have like the p&l of of an ethereum dap right rather than a rather than an L1 um and yeah s anything you would want to add there that that may be a missed from the perspective of uh other avss yeah for sure I think you know examining why sh security makes sense maybe like I could spend five minutes explaining this the set of phenomena that actually make Shad security less expensive the first one is the power of pooling right imagine you have 1,000 protocols Each of which want $1 million security you could have separate $1

million pools for each of these protocols or you aggregate all of them and have one single $1 billion pool that's restak into all these thousand protocols this second world is much better because to attack any one protocol the cost of attack has shifted from I need majority of 1 million to now I need a majority of 1 billion so suddenly like this is what we call the hardening of security right security has a scale and you know when you're on small scale it's easier to attack when you're on larger scale it becomes more difficult to attack so there is it's kind of why like you know we have security at the level of nation states rather than at the level of cities I was just going to I was

literally going to make that exact same analogy because some of this something sometimes seems a little bit esoteric uh but I I think there like you could actually look in many different other like human organizations and see a very similar sort of need and design pattern form I was actually gonna us literally use the example of nation states and N perfect uh that's pool security so that already has some benefit but what you're losing in polling is attribution you could say oh I have my separate 1 million and but it's separate it's Unique it's for me like I know if if something goes wrong I can redistribute it I can do whatever set of things I want with it with this billion dollar pool you're kind of like mixing in everything so we bring in this new

feature we call attributable security which is I this $1 billion pools restak among protocols but maybe one of them is a bridge that's doing you know $30 million daily volume so it wants to say that if this bridge got attacked because of Ian layer validator malicious Behavior they can actually get a redistribution of more than 30 million so what this protocol can come and tell I can this I want 30 million of attributable security I have 1 billion of pool security but out of this when it's slashed you know if we had this problem when you have like a pool protocol when you're slashing who gets priority right instead you convert that into an economic problem where you say yeah whoever pays

for it and they get priority based on how much they've bought attributable security from so you can be like a smiliar world and it's doing like daily it's adding on like let's say a couple million dollars that you want say yeah you know and if there's an attack it's going to take me like a couple of days to detect so I'm going to have like $10 million of security specifically attribut and you have to pay the capital cost proportional to that rather than to this like entire like pool you're getting pool security while getting attributable security so that is it's a complex protocol function to make sure that the protocol is always solvent and is able to honor all the attributions because it

is possible that all the sers cude and attack all the protocols simultaneously even then the attribution should be honored so that's a very powerful new protocol perimeter we're building into ion lay it has both pool security and attributable security zaky do you want to say something and I have another two things to add all I will say is I think has like been iware is a really critical missing piece in sort of be look at the tools that are available to builders on ethereum right historically you've had okay I can pay ethereum for data availability I can pay ethereum can evaluate my validity and fraud troops um it can provide bridging contracts um

into what I what I've been building it can and then you can you can have arbitrary business logic embedded on it but what I can't buy from ethereum is a committee that is economically secure there's no Marketplace for right the validators are out there it like but like there's a there's a missing Marketplace there's a missing uh showing Point there's a missing place to buy and sell this um and so you know the other thing that you've seen is like we've seen these various abort efforts that have had existed where people have tried to glue Cosmos Tech onto ethereum and like the OG of that is polygon polygon had this like commit chain where they have a validator set that is like staked

in their native token but staking happens on ethereum then it like talks to a cosmos chain and it's like a giant R goldber machine right and like um and then like you know just you know so like that has existed but like no one looks at that and like I would no Builder is like I would love to inherit this Insanity like that every like would you know prob done included is like we would like to get rid of this as um but like you bring I with layer into the picture and it's like all these things that people tried to use Cosmos tech for like shutter and encrypted me pools Fair boox encrypted me pools fully homomorphic encryption MPC like there's a lot of Cosmos Tech that's like floating around ethereum today but like all there's no one place for you just go

and like here's your where you get your validator set um it's the hard part is of people always talk about securing a validators at is hard it's not hard like they're just like their businesses you them out you get at your valid hard part is coordination economics pricing all of that stuff like Market um and I think igen we is particularly exciting yeah that's I think a really interesting way of putting it basically building liquid markets for security right so you can just go buy like a valid set go buy a state amount coming back to these different features of Shar security so I've talked about pool security as a feature

attributable security as the feature and then the third one is economy of scale imagine so this is one of the manual models for what we expecting the demand site to be what people will be building is they're Building Services these are not themselves necessarily consumer applications but these are services that are used in consumer applications and you know if for example a an application wants to use many of these features like say I want to use an oracle I want to use a bridge I want to use a you know another like data availability service and all this stuff then if you had to take separate you know attributable security for each of this you may have to pay you know let's say your app again has $10

million daily volume so you go and say I'm going to get take $10 million insurance from the bridge I have take $10 million from the uh da and from each of these instead if somebody were to bundle all these things and then build like a single like system and said hey here is a bridge come like data availability come this come that like bundle then the economics of that would be much more favorable because you just need to buy one extra insurance from it so there is a benefit to bundling but we don't have anybody who knows all the things that need to get bundled because you know that's that's the thing scrypto is new and we don't know how to build the bestd

we don't know how to build the best each of these different things instead what Idol does is just just allow stat security and free market building but there's a postf factor bundling that's happening because the same stakers are oping into all these things and they can underwrite like security across all of these simultaneously so this is a huge like transformation in the underlying security and economic structure of services built on top so this is a third property we call economy of scale in insurance so or economy of scale in attribution so you as you get more and more as a application consume many services just needs to pay 1X the premium rather than 5x the premium so

that creates more you know value in having a shared common gool Mike do you want to say something as I want to bring a fourth feature after that hit us with the fourth feature sham hit us yeah okay so the fourth feature is what we call elastic scaling of security which is buy as much security as you need rather than so imagine like let's say um Zaki wants to use uh e staking for Samar but doesn't want to use so what he could say is hey you know my deposits daily deposit range is between you know one million a year and 10 million a year so I'm going to go

provision for the worst case of the peak lo I go and buy 10 million worth of security just from each taking instead if you come to Ian L you could buy exactly the amount that you want because was you know there's a large pool waiting and each there are lots of services each service has different amounts of demand and you can kind of pull all of this and reduce variance so this is exactly the same phenomenon that cloud was based on for computing so Amazon's called elastic compute right this is elastic security so you you you can flu each one has a fluctuating amount of demand for how much security that they want and having a common layer basically means you can buffer these variations much better than

if you were to go in separate pools so these are all the properties which I think makes something like igen layer and a common shat security system much more powerful than building each of these in separate pools and hey here's a pool for X here's a pool for y here's a pool for Z so that's that's our basic Theses on why we think Shad security is much better I will say this is obviously better than the magical like somehow our market cap and our our market cap and our tvl and our like secured value are just somehow G to like keep moving together in like a kind of nice way and like it's these things

AR you know we're not going to end up with like you know a million dollars of tokens securing a billion dollars of value um uh like you know like the sort of Wishy Washi uh experience that we've had um uh and and you know it's like the cosmos Hub um is sort of grappling with this because it's like okay like Cosmos Hub now has its own early version of reaking called inter chain security where the cosmos sub atom validators are securing two other chains right now stri to Neutron and hopefully soon Noble um which is the usdc issuer um but like doesn't know how to how much to charge for this like how expensive should this

be like has no idea and then Adam holders are what and then it's like what should be the emission rate of atoms to Target security and uh you know inclusion uh you Christie is me Tony shella you know obviously we we talked a lot about how Christin I thought about this on the site um we're like okay we should put out we s test the waters with prop 848 on reducing the emission rate of atoms and see whether or not there's what what will happen it was very controversial it reduced the emission rates security seems to be unaffected um uh as one would anticipate um and I think you know the general thesis that we should emit the fewest number of tokens to Target the amount of security

that we need is is is a good answer um but like you know okay we we we reduced the maximum emissions from 20% a year to 10% a year okay cool is that the right number who knows um so this is a continuous process of discovery but like what enware is doing is bootstrapping this room completely completely different layer from a very wide range of stakeholders where there's a Marketplace and you're just like you can see like okay we em we emitted that much that many tokens how much security we get you go look at other comparables in the market if there are a bunch of of tokens that have similar liquidity to your token and you know they're emitting and they're getting more security um

then you can be like okay like well maybe we should do it and somebody can test the waters and go lower fewer things did they lose security can you can we can actually like learn from this in a way that we're like currently not I think from the demand side this is like obviously better and we haven't even talked about kind of the downside risk of staking of having your own staking token with the you know what some death spiral Dynamic with like there's a market event that c you know hits the price of your token and now all of a sudden your app is less secure to use like that that's probably not a great thing for most for most projects right um and pulled security makes a lot of sense um the bundling the economy the scale makes a lot of sense one thing I

want to double click on just from I guess the perspective of how you're setting up the marketplace um s RAM and how you'd be thinking about the I guess the the details of of your security setup Zaki is this idea of attributable security and elastic security um because from my seat with working with osmosis were thinking through some of the early mesh security Arrangements right now and I've always asked the question of okay should we be paying the same for you know 10% from xchain right of our security budget if we're going to pay you know 10% of our security budget to them you know we should probably pay more if that hasn't been restak anywhere else we should probably pay less if that

security could go away based off of a slashing event on some other chain right and in a perfect world I think you'd want your amount of attri attrib security to be basically tied to some sort of logic in your protocol that is say looking at tvl right so on a day-to-day basis Zaki if you know somalia's tvl moons you don't actually have to have some new governance proposal that you know goes in and says now we need to you know purchase more security right um so how do you like Envision you know will will service providers pop up to kind of intermediate and and make all this like very easy to interact and and I guess manage your

security um or are you actually building this like these features into the marketplace so maybe I'll I'll start with a little bit of comment there which is you know the the design around these markets just emerging so you know we don't have a lot of details on the attributable security Market at in public but the idea would be that you you should be able to set things which are semi-automatic where you say you know you cap your it may not be tvl it may be things like transaction limits for this week like you can have infinite T but just because now this is one of our realization is that the blockchain is not really protecting all the assets

it's only protecting the Assets in transit in Flight which are you know during this period of time so you don't really need to protect the entire but you know having some kind of like uh uh transaction limit tied to the uh the attributable security would be the kind of like a right mechanics but I think whether it is going to be so easy that the the services will directly do it with ier or there's going to be this Market I think it's lot more details are there to fill in the blanks between a technical protocol and actually like the real markets we love to hear Zaki thought on

this I think there's like a couple of things that I would I would put into this like um Christie had like asked the question it's like okay we're doing I like we do ethos how much do we pay for ethos um which I think is like essentially the question that miles is is is asking and one of the suggestions is like okay well we can we haven't one one uninteresting aspect of it is the similary chain currently does not know its TVA um and most chains like at the protocol level don't know their TV um uh because they don't actually ingest this information from anywhere they're like okay we have tokens but like we don't

know anything about like what what is happening on on the system it would be possible for similer to know its tvl and it would be possible for similer to know how much security we bought from igen layer because our all of you know our network does run some infrastructure for interacting with ethereum uh by directional Bridge we could suck up in that information and and you know that can become a a priority now I think there's I think probably the honest answer is early days EOS Igan ler the answer will just be fixed token commitments for like the first year because it's just like easiest to reason about it's like but you know I

wonder we've only exper I've only been seen part participated in been in in any way exposed to one large scale death spiral of Wasing to in my life which is the collapse of Tera um um and you know most of Luna's TBL was Luna and uh uh us um which were coupled together in this death spiral um but there was 90 million of foreign assets on terara as it was collapsing and one wonders how all of that would have played out in a world where Tera was buying security from uh abs

uh I suspect we will not we will eventually have to find out wait isn't the irony that they were sort of trying to do that in a primitive way isn't what they were doing with the this is what they were doing with the Luna Foundation guard right they were buying Bitcoin ostensibly for Far Far uh you know um regulating the collateral debt spiral of the stable coin but not for security so it is a funny anecdote I haven't shared with anybody two weeks before the episode happened I was on a call with dwang basically running this scenario by him and said hey you know you have this collateral de spiral that you're trying

to hedge by like getting BTC but you also have a protocol that spiral which is your platform becomes less rigid if you know things go down and as the platform becomes less rigid assets fly out and if assets fly out your platform becomes more more unusable maybe the token speculated down even more um that of course do didn't take it seriously uh but that is the you know Zaki this was actually with David Shay we were actually trying to get Babylon which was which is essentially something like Ian but using BTC as collateral and that's that's always made sense to me even for like established

projects like even like an OS or something like that just a safety buffer essentially um for some part of your security budget um of an uncorrelated and much more liquid asset but yeah I do think that the demand side makes like a million times more sense from a bootstrapping standpoint but just wanted to add that as well yeah I would also just add you know another real world example is this is the same reason why uh other countries hold foreign exchange reserves like treasuries or something like that right it's like they have their own currency their own bonds Etc but they hold us treasuries because it's this kind of separate um this kind of separate thing which is treasuries are just staked US dollars right they

are 100% H yeah they they absolutely are um all right let's uh I I want to move on to because I I feel like we've been we've done a really good job of fleshing out the value proposition from the demand sort of AVS side and maybe to just sum up you know reaking offers a very powerful tool to augment how you purchase security be that more granular in exploring different models um Etc and I I think there was a really important Point Zaki you made a lot of really great points um and I I would even recommend folks rewind and sort of listen to the play byplay of uh sort of the the simier part of this because just very that's really great insight to hear from your perspective Zaki about why it would have been great for igen ler to exist when you were starting the

protocol but I think um lowering the just making it easier for people to sort of uh like from a capital efficiency standpoint to pledge their their uh existing sort of collateral somewhere else is like a massive point that we'll return to but I want to move on to the ethereum side of things and almost take a look at the supply side of the market so to speak and why reaking makes sense a from suppliers of eth security but B why it also actually stands to benefit e the protocol and why there are avss that currently can't be built today on ethereum that can be built under a reaking paradigm and one thing um maybe less of a of a question but more just something to to respond to that kind of a trend that I think you're starting to

see play out and why I just think reaking is completely inevitable from the supply side of things is this is something miles and I explored in the liquid staking season but it feels like eth staking yields are coming under pressure uh from two sort of separate forces um one of those forces is just that liquid staking is as successful as it has been and so it's much easy like a lot of the friction in staking has been decreased so you get more people that are staking so obviously same amount of rewards spread over more stakers is less rewards per Staker and then the other thing that is maybe a little less obvious is sort of the execution layer rewards of me so all of the apps on ethereum like we just did a whole season on Dex is like they are single-mindedly focused on recapturing that me at the

app layer and actually I think there's a lot of good evidence out there that the it's not actually good for eth ethereum the network to have a lot of that uh me redistributed to proposers there's a lot of timing game stuff that's kind of destabilizing consensus currently so I think all the incentives point to low fewer execution layer rewards fewer um consensus layer rewards which basically just means people are still going to want that extra yield and so they're going to opt into raking Tron does that feel about accurate in terms of those those Trends yeah absolutely yeah um okay so there's a the demand basically for I think why it's kind of a a slam dunk and I know Ian L just uh announced that they were

expanding their caps you can kind of see the early inflows as as evidence of that fact so there's going to be plenty of Demand on the the E staking side of things to opt into earning additional yield but I want to explore the ways that this is actually beneficial to ethereum as a protocol and some of the like AVS structures that uh couldn't otherwise exist um today so maybe uh shrew um can you kind can you kind of give us a sense of you know if we were to have a bunch of Cosmos chains that were opting into being avss to secure uh to do various things on ethereum like why does how does reaking sort of enable that and how is that good for ethereum yeah um you can think of like many different categories uh or meta categories inside

which these kinds of abss fall and I would saying this is being like completely emergent rather than like something we planned and you know uh even through this very short lifespan that we had for the project been you know our thesis has been open Innovation which is one we enable Builders to do cool things things they'll figure out all kinds of crazy things this will been the cosmos thesis you're just taking that and like bringing it now into this fully composable ecosystem with aligned incentives because lot of these Builders and and participants also hold so what categories are we seeing number one rollups so when you when you talk about

securing through you know some aspect of ethereum security rollups are the natural thing that come into mind and lot of people ask me initially oh you know is restating competing with rups and my answer is no actually completely augments all the feature that you don't get simply by making proofs about execution correctness there lots of things that you can add on to the roll of ecosystem using Ang so that would be a first category things like sequencing I want to do like Fast sequencing for my um rollup and when you're talking about sequencing there may be no one size fits all for all kinds of different projects some projects may want me aare sequencing right like me auctions based sequencing threshold encryption based

sequencing I think Zaki was alluding to some of these things being built in the cosmos like skip for example has these general purpose me modulation Services which Go in different you can customize it different ways and these can be services that run on igl that basically can be consumed by the you know rollups and you know if you're a rollup you're branding yourself on ethereum security and if you say hey I'm doing sequencing using this token and that using that token and so on it just like sounds little off to the brand which is that hey I'm borrowing ethereum security here is a slightly different way in which you're also borrowing ethereum security that's number one sequencing data availability we are building data availability other parants are building

data availability some not using reaking different ecosystems but some using resta the third one is um inside rups you can think of uh bridging right like rollups take you know if you're an optimis rollup take seven days to settle but I want to move assets across even faster so if I want to move like 100,000 each from one roll up to the other if I got enough you know Economic Security certifying that you can actually move this across you can have very rigid accurate systems which you know which are built on Bridges which are as secure as ethereum itself because it is metering the amount of the volume and making making sure you have enough

collateral to actually like build highly lied systems so bridging is another category and then another category that we seeing there is um watch Towers I want to know it's an optimistic rollup I want to make sure that there's a neutral Network watching over like what set of activities are happening and then raising fault proofs or fault alerts like that's another category you're see there and then finality Lance I want to get to finality really fast and so that I can use use it either for bridging or to give confirmation to users but now it comes with an economic certificate behind it rather than just a promise from the sequencer so that's all of these I would say are categories inside

rollup services and one of the really cool things it does to Ether the asset is ether the asset has aced some kind of monetary premium as the native denomination of like nfts and other assets inside the ecosystem now now that value is denominated in each the backing collateral to make all these like you know transfers being eat is actually the right you know match because if if you're backing using USD and like you're transacting lead you need to account for volatility mismatch when you're getting attributable security so that actually promotes like the E ecosystem so this is the rollup Services category but the other categories are for example things like

co-processors co-processors are like you know rollups but without any state like you're sitting inside ethereum and you want to run a computation the computation comes back with an answer you could use ZK to do it but ZK is very expensive if you can't run AI or whatever like general purpose linic or anything like that with ZK so in a cost efficient manner so if you have enough economic collateral certifying to the correctness of these co-processing Services you can go ahead and take a cryptoeconomic stand then keep moving on right you could imagine D5 becoming much more intelligent when you're doing liquidity provision into a pool like there's this AI algorithm or something that automatically adjusts prices it adjusts your trading strategy instead of

just like having XY equal K but all of this is done in a rigid way that you're guaranteed your money is safe like that's cryptoeconomic Co processes another category that I think we are seeing on I zachi mentions how The cryptographic Primitives like multi-party computation secret sharing uh trusted EX execution environments um fully over morphic encryption all these really interesting things also starting to get built in in on these would be you know to take a kind of like a great Cosmos example something like panra would be like a really interesting service which if if it's on the ethum ecosystem can utilize

and leverage a lot of the um uh liquidity in in this market for for the users who don't know like pan this shielded uh uh amm where like if you're doing liquidity provision your particular position is not leaked only the aggregate position is Le so it's is a really cool technology uh other categories you're seeing are you know L1 layer one ethereum meev modulation like I want to do like some set of services on uh you know uh ethereum L1 like me for example selling block uh block auctions but only partial block auctions or I want to do some even driven actions

I say that when this liquidation happens the block proposer has to include it otherwise they'll get slashed uh or the Justin breake proposed this idea called based sequencing which is this idea that if you are um if you're a rollup and you're using ethereum uh for ordering transactions one of the things you you lose is pre-c confirmations you don't get an instant confirmation the sequencer but if if your block proposal is restated on AG it can make a promise saying that hey I will include your transaction otherwise I'll get slash so that's called he calls it I think based pre-confirmation so there's all these different categories which just like emergent and we're excited to see like what what more will come there so it's

super helpful for running us through the different categories and if you haven't seen uh the blog post I think it's it's called the the ideas for building the next 15 unicorns um which does a great job at laying out I guess all the different verticals of avss or what you expect to see and and maybe just to pull it back to to why Cosmos is sort of relevant um I think across a lot of the categories that you just listed um you know these are services that have a specialized committee right of actors um they come to cons they do a job uh and they come to consensus on a result and then they send that result back to an app or back to ethereum in some way

right and Cosmos chains are a toolkit for building I would say you know uh some service that performs logic right and at the execution layer um and then come has a consensus engine built in that is you know basically connected to the application layer so they make actually a very good form for a lot of these um types of services and you know I think Zaki we we I would still maybe like have a a split of categorization here between these Cosmos avss that provide services to daps and wallets and applications versus maybe like um a form of you know Pepsi or pseudo Pepsi um by actually having proposer commitments um

you know at at the L1 level um and you zachi we were talking about this is maybe an equivalent of like opt-in vote extensions right um and so I guess what does it take uh what will it take um or I guess how do you see the sequencing of this playing out between before you know we get to a critical mass where the majority of proposers are also opting into all these additional commitments I guess so I think a couple of lines are interesting to be drawn one is the line between abss that require a consensus and abss that don't so not all committee functionality requires a consensus um and I think one thing

that's like kind of a you know so like we have this middleware that is Cosmos the cosmos staff for building uh systems that require a consensus great cool um and there's like a huge Universe of of applications that we talked about there's also going to be a huge Universe of applications where sort of this pepc kind of thing da Etc can be done without a consensus less middleware exists there and like I Builders will build um and hopefully like standardized tool kits um in the but I will also say it's like um you know I think as developers are learning it's it's probably it's always

it's actually you know the leap from oh we built a bunch of one-offs for doing this we built a bunch of oneoff l1s we built a bunch of oneup things to we have like a good wide we adopted send cool kit also the tool kit Builder tend to be um the least appreciated types of uh workers in the crypto ecosystem but like huge value creators right um uh the like uh Marco Bez the banard builders team who built the cosmos SDK have just done amazing work and like we're going to need a lot of those games um in the future so great so that's like one component of of of the of the Delta between these two systems I think the

other component is um as we kind of go into um like more and more proposers opting into these various Services um you could have I I I do imagine a world where the like likely outcome is going to be I'm not very I'm very much a home not a big homaker minimalist I'm like I like I think hom saking is is has never really made a lot of economic sense to me um and so in a world of most validators most Bo proposers being industrial scale um which is true today and I would think likely to be true in the future most validators will also be taking reasonable decisions about uh

risk reward on and especially where the risk is is you know using pieces of software that are well wide adopted and familiar people will be like hey like why why wouldn't we bring our customers the uh additional incremental yeld I think that makes sense I mean there are like Cosmos chains in the wild today that basically satisfy like what we're talking about right now just don't have reaking you know involved and could argue SM a is is one of them right for managing positions um uh in in E defi You could argue deflow right which is a orderflow auction chain uh that wallets can tap into as one of them um but yeah maybe s how do you expect to see over

time I I guess maybe going back to that like that's the the larger category here which is actually having you know proposers opting into additional commitments um you know potentially out of protocol and then you know basically being held to those commitments back on ethereum yeah I think that is going to be a longer road because um from to to make proposal commitments interesting and useful we need a large fraction of itan proposals right so if you have $1 billion of security that's a lot of security for a lot of applications but it's only you know 2.5% of right so there is a kind of big

number that is needed before we can actually start you know making interesting proposal commitments where there is like 30% of proposals 50% of proposals have opted into these kinds of uh statements so that that's just that it is it is a longer Horizon than like the short and thing to do um in terms of what can be done in protocol versus what can be done out of protocol which is the whole argument of Pepsi I think that is making it totally permissionless programmable which is kind of I layer view it's going to be very difficult to make it at the ethereum L1 level there are two fundamental reasons for it one is metering the cost is not at all

trivial imagine I create like an event driven action where I say that if this event happens then you should do this uh and if you don't follow it then you will get slashed now you know but monitoring this event may require like some amount of compute Cycles how do I know how much is needed how do I know how how much pricing what is the gas pricing for all these things because I'm doing stuff in not only when I'm actually doing the action but all the time because that's what an even driven action is so all that makes it very difficult and we need a lot of experimentation before we can converge on on how what those good things are and number two protecting against slashing errors is going to be very difficult at the ethereum L1 like

somebody opts in and goes into like everybody opts into like a Pepsi Service and then that has a fault that's just going to be catastrophic for ethereum ethereum cannot say Hey you know you need this and that like social committee or whatever other things that we can do as a kind of Auto protocol layer so those are the reasons why I think building an auto protocol is more interesting um in terms of I think that you're right that there is a line between things that are modulating ethereum L1 actions and things that all the other things that I laid out don't actually modulate ethereum L1 actions and Zaki also made another like interesting dichotomy which is things that require full consensus versus

things that don't right imagine for example you can have a bridging service which says there's no fixed committee you just have like some amount of ID layer resters Maybe maybe you know for some L2 to L2 bridging they they put in like 10 million for some other L2 to L2 bridging they put in like 50 million you don't need to even have like a fixed size Corum it can be just open participation so you can build like very interesting systems which not only require fix it which don't even require fix it go up size you know like approv verification service I just have proof streamed and everybody just verifies the proof and it shows a signature saying that the proof has been verified and that signature can be posted on now like triggering a bunch of actions

so these are things that don't need uh in protocol consensus what we figured out is even data availability actually doesn't really need like to have a consensus etherum already like we we built a data availability ler which is kind of like a purely adjacent to ethereum like it doesn't have an existence on its own at all it it you get the ethereum blockchain which is providing consensus and ordering to the rollup is just a committee that is attesting to to its correctness because from the point of view of ethereum any other system is also just a committee because ethereum cannot do data sampling or any other kind of thing it's just a contract that's checking that some group has signed off on something and so we

figed this doesn't need consensus so we designed a system which doesn't have consensus and unblocks a bunch of ballings but in general I think what we're seeing is more leverage and power to builders tool Builders like the binary builders that Zaki pointed out which is the predominant reason why we built igen L more power to them because dap Builders like if you're a smart contract Builder you could go there are thousands of smart contract companies you could go start your own like new smart contract application but when you were building infrastructure Services there were very few places where you could boot strap and be productive on your own the goal of Ang is to change the the economics of that so you you can go try out your new

thing see what's useful and what we envision is the emergence of new abss which are there to serve other avss it's kind of like what we're seeing already in Cosmos there are zones whose job is to service other zones like you know a liquid stick zone or like a you know usdc issuance zone or you know these kinds of interesting things I think we starting to see something similar where avss exist to service other avss right and Ethos is one of those right um that that will be like the intermediary that that you'll be able to you know basically um consume steak natively through mesh security which is the you know easy to use Cosmos standard

but it's obviously coming from from mean layer and I guess is it fair to draw the lines as um you know avss that need consensus versus don't need consensus and as well as avss that you know maybe um today would benefit from uh cryptoeconomic security versus pure you know verification via proofs um and maybe that line kind of shifts at some point as the cost of verification comes down but today it's it's still pretty expensive right to rely fully on proof basis absolutely but I I think I just want to add one thing here a lot of people have a model where they think that ZK is going to come and solve everything it cannot solve everything several things have to be Pur economic like for example how do you ensure that

there's sensorship resistance like how do you slash or like can you give a ZK proof that there's sensorship resistance no same thing with RoR like let's say I'm drawing a chain I can give you proof that my chain is valid but I cannot give you a ZK proof that there is no other valid chain maybe I signed another chain and sent it to somebody else right so reor is another thing that you cannot certify purely on a like a ZK validity basis so add to it that you know we talking about systems like you know chat gbt which is costing like a couple of cents per each word that it is doing inference on and you know ZK is 1 million x more expensive than simply executing something and just

the economics just like makes no sense in the short term so in the short term there is the economic reason for using cryptoeconomic Security in the long run there's simply like a bunch of things that are not susceptible to um you know valid proved they need necessarily some aspect of decentralization some aspect of Economic Security so I I want to um you know start to to kind of land the plane here on what this might ultimately end up looking like for Cosmos and the ethereum ecosystems moving forward so it feels like again we're kind of on this Collision Course in between Cosmos and ethereum um reaking plays a massive role in that where the thing that ethereum

originally optimized for which was sort of this shared security layer meshes really well with what Cosmos has been optimizing for which is this sort of design framework for interoperable app chains and there are advantages from both sides from the cosmos uh sort of EVS uh solo chain side and from the ethereum side all right everyone we will be back to the program in just a moment but before we do I want to share something that blockworth has been cooking up for these last couple of months March of this coming year in London blockworks is hosting Das London the largest institutionally focused conference in all of crypto we are gathering 1 12200 of the world's largest asset manager so think trafy macro funds Crypton native funds big allocators and financial institutions so Banks payment processors Etc all in one spot it's very

rare to get the likes of Goldman JP Morgan 72 whatever all in one room so you can know what the big money is doing we're diving into the themes that they care about so we're talking about the intersection of macro and crypto where we are in the cycle real world assets so everything from stable coins to unchain treasuries to tokenized assets it's going to be a blast but the other reason you really want to go it's London baby center of the world at one point you got Pub culture you got fish and chips great beer it's going to be a blast so because you're such great listeners to bell curve there's a code bell2 that's going to get you 20% off so click the link at the bottom of this episode it'll take you right over to the homepage you'll see all of our speakers and use Bell 20

for 20% off ticket prices are going up soon make sure you go use that code I will see you in Sunny London Town in March so I guess what I'm wondering is what is what is what are these two e systems look like in 5 to 10 years because today although there's plenty of overlap in between the ecosystems and product they definitely do feel like distinct and separate communities um do you think that ultimately ends up continuing out over the next five years are we moving towards a world where they sort of merge and where eth is kind of the uh shelling Point shared security thing that we all rally around and reaking is used to um secure Cosmos chains and then they kind of become one

thing or like what can we do what are the different um what are the different scenarios and uh if if that that last scenario ends up playing out you know what does this mean for uh Adam the asset and the The Hub so I have a relatively strong set of views here which is that the thing we're discussing doesn't just affect eth and Adam but basically all large cap cryptocurrencies um that the future of all large cap crypto currencies is they all start to look more and more like each other um that they have a staking component that people stake for yield that people um that there is a reaking piece um and um you're going and so like

I think eth cardano near salana Adam Kia all of these things end up sort of converging in this direction and so what does that mean well there's a couple things I I do think like who your security provider is as part of your franchise um and you know so McDonald's and Burger King are not that dissimilar from each other they both sell Burgers but they are distinct things Some people prefer one Some people prefer another you put a b like franchisees decide putting a burger will decide to buy a Burger King franchise or like you could go further like the difference between a shake shack and McDonald's and a Burger King um these things all sell Burgers they're all

reasonably good um but they all they CER to different markets and like the franchise is very different or you can even talk about this as like if you want to really go down to it it's like sports teams like you know the the uh Lakers and the Knicks are not that dissimilar from each other they're just tall men running around uh throwing around the ball um but the franchises are really powerful um and so I do think that like sort of my estimation for the next 10 years is going to be that like you have that like more and more things in common between large cap cryptocurrencies a ification of who is in the like large cap set um like what the top 50 what the

top 100 look like um and then like you're still going to have distinct communities and we're basically run we're we're speed running through this world we're with a version of you know interchain security igen layer all of the stuff uh coming coming coming out now it's sort of setting up the next sort of what the future of cryptocurrency looks sorry you respond Shan yeah uh if you would let me take take it like one level more meta I don't want to take one as is another asset I I just want to kind of like bring some context on what I'm excited about for the next 10 years

it if you look like look at what we're doing you know when for example inside our team like our goal is to be the coordination engine for open Innovation so that's the goal so when when you think about this essentially you know technology has accelerated free markets quite a bit right so you you you see like you know new technologies come in like AI for example people talk about things like AI alignment and I think the proximal view of what is AI alignment is AI is just going to accelerate markets like whatever is well incentivized by the market AI is going to accelerate them more whatever is like dis aligned with human interest in the market is just also going to get

accelerated at the same in the same way so we have this layer of like markets or innovation and then there is an underlying layer of coordination which is usually like you know in Big Country let's say constitutional democracy for example and we've had technology massively accelerate the free market Innovation layer technology has barely touched the coordination layer and our fundamental view is we are building new mechanisms for coordination which are self- enforcing self- verifiable rather than coordinated via like some committee so that's that's the vision and in in this actually like we we've made like as a

community as a cryto community a massive amount of progress in the last you know 10 years right so people know I was doing the calculation on ethereum statea bandwidth it was like you know tens of kilobytes per second and I was first disappointed then I thought about it and I'm like no actually that's not that bad you know we were as Society barly able to coordinate on a couple of bits of information every five years whether this guy is the president or that lady is the president like that's the level at which we were able to coordinate from that we're massively enhancing coordination bandwith and all these different approaches people trying this on ethereum on atam on you know Celestial on on some other thing is just accelerating us to build much better

coordination systems for open Innovation so I'm actually quite excited about all of these efforts same I think that's um I I totally agree um that uh it's it's it all feels very positive some and Zaki I thought that was a really interesting sort of vision for the large cap assets converging on each other and you know ultimately not being something that's uh specifically the property of ethereum U but maybe other L1 assets get uh re hypothecated for security as well and that actually sort of aligns with the this this idea of these layer one assets as Commodities um that are sort of based

around block space there's a certain yeah you can see that making sense ultimately um and hopefully it's a it's a big positive sum outlock or Jesus positive sum uh outcome um as we can see by kind of this example of um reaking improving both both Cosmos and ethereum so um Zaki and tri this feels like a pretty good place to to leave it guys uh folks will will absolutely know you've been on Bel curve in the past um we just talked about quite a bit about what the two of you are working on but if people want to find out more info about either smellier or Igan L what's the best way to do it ATS Finance on Twitter sry for us the best way would also be Twitter at ID uh there is a good bit of

discussion on our forum we have new blog posts coming up but all of them are linked prior to awesome and as always miles my fa's co-host thanks for doing this with me buddy this was a really this was really fun guys um yeah have to do it again [Music] soon