DeFi By Design EP#26: What You Need To Know About Scaling Ethereum L2

Transcript

welcome to d5 by design where we talk all things blockchain and cryptocurrency while striving to educate empower and enrich what's going on guys real quick break for the d5 by design podcast sponsors and a defy slate sponsors who make this all possible first we have ave a money market protocol that allows you to borrow and lend and leverage your assets to earn interest uh right so if you want to deposit some stable coins in there currently you can get three four five six eight percent apys on stable coins which else any bank in the world uh as far as we're concerned you can deposit uh any uh ethereum based asset that is listed there borrow against it you can borrow stable coins you can borrow other assets like ether wi-fi

link even the ave token itself ave is the go-to protocol for any sort of borrowing lending check it out at app.com the next one we have is access auxis is a new crypto wallet auxis.com you can store all of your crypto there they have quite a few options uh they're integrating new dex features soon um and allow you to have a non-custodial way to store your crypto safely off of centralized exchanges and also just not in a meta mask or in your own ledger a bit of extra security there next we have mcdex mcdex is a decentralized perpetual swap protocol basically allowing you to trade on leverage uh on the ethereum chain right they're coming out with v3 very soon at that time you're listening this might already be out they are super

solid team um and they're pumping updates and allowing you to trade decentralized perpetual swaps on eth link and a few others all on ethereum all decentralized so that is mcdex next video ramify ramify is a decentralized stablecoin it's an algorithmic stablecoin that is pegged to the purchasing power of commodities and then basically it measures what value one dollar buys in terms of a commodity index each week and then it provides you with essentially a store value that allows you to continuously evade inflation while maintaining you know a stable aspect as if it was a dollar and that is the ramify protocol check them out on twitter finally we have diversify it is an l2 decentralized exchange they allow you to basically trade in a

gasless and feedless manner big volumes whatever quantities you need it's almost like a centralized exchange on ethereum but you are the custodian they do not hold your coins as a centralized exchange would you have full control full power so really it's almost like centralized exchange capabilities on a decentralized exchange and that is diversified all those sponsors make this possible i know it's a lot to take in but thank you very much for listening and let's get back to it welcome to episode 26 of the d5 by design podcast i'll tell you it's been a week or so since we've recorded a podcast might be a little bit rusty today but as energetic and excited about what's going on in d5 as ever i've been

listening to quite a few podcasts as of recent i really think this audio realm of content is going to keep growing um and specifically i've been listening to a lot of crypto podcasts and there's been just a lot of names on there mark cuban-esque names and topics that are being talked about nfts are on cnbc and honestly i would say we're out of phase of adoption froth and everything in between and honestly it's been absolutely awesome to see and so we are here today with andrew from sportx uh the absolute man up there in canada and sandeep from polygon which is formerly known as m-a-t-i-c or the matic protocol also of course robbie's here i'll shut

up now robbie what's going on and let's let these beautiful jets introduce themselves happy saint patty's day lads ah it's another beautiful day in florida um we're getting after it i'm kicking it um yeah super excited to talk to sandeep and andrew all about matic um formerly known as matic now polygon um l2 scaling and bringing more use cases to the ethereum blockchain i'm really super hyped to hop on and i'll go ahead and pass it off to these guys and let them introduce themselves cool yeah so my name is andrew i'm the project lead at sportx sportx is a sports focused prediction market focused on bringing uh scaling and

prediction market use case to the crypto world uh we're built on top of the matic blockchain or i guess i should call it polygon uh and our goal is to essentially become the world's first community-owned sports band exchange and i am sandeep i am one of the co-founders of polygon previously it was known as matic network and polygon is basically kind of a multi-chain ethereum protocol which essentially tries to convert ethereum into a multi-chain protocol and that those multi-chain protocols might include you know standalone chains or you know layered two secure chains and we'll talk uh more in detail that what exactly it means up for the new

vision of uh you know polygon and how it evolved from uh you know matic network to polygon right right and i think the the process of the rebrand and this l2 narrative and there's this really strong push in the community right now for this um you know i think honestly it can be it can be kind of confusing for people that are even uh you know a year or two in the community let alone you know three four um so i would love to talk deeply about kind of what layer two is what scaling is what's going on at matic you know all the types of applications um but i think first to create a foundation um you know we should talk about what scaling really even means for blockchains and for networks like what even is scaling

of a network right so we've got all these nodes right all these computers all these power users and users of effectively uh smart contracts which is just code um just code right and basically we're trying to optimize the user experience and the utility of this code and this blockchain for everybody right so let's talk about the scaling narrative and kind of what that means um on ethereum so um i guess yeah you see indeed have a shot at this you know what does scaling mean to you kind of you know what's like the base level of the why and the what uh for scaling a blockchain

yeah so so let's let's let's discuss it uh as you said right from the start especially let's take it you know let's start it from a layman's perspective right so why and why scaling like why do we even talk about scaling right so first understand why you know what is the need of scaling so think of it like this way like you know like imagine you are you today interact with let's say bank of america or like in a royal bank of scotland or whatever right and when you are doing a transaction and you're sending money from let's say bank of america when whatever you are interacting with you are actually interacting with the with the server of bank of america server means like you know the application where the application is hosted where you are actually interacting with that

website and only bank of america servers are processing that request right so i mean they might have some backups and all that but technically for all these things there is one entity which is processing whatever computation you are trying to do you are going to send money you are logging in you are doing tons of different kind of stuff right so one entity is handling your stuff with blockchains the core concept is that you are decentralizing the these this this execution of logic like trans currency transfer is also an execution of logic a stands to be is a plus x and b is you know uh you know b minus x so now you can already see that you know when we are with the blockchains what we are trying to do is we are decentralizing this

execution right so what when you are sending um sending money to let's say your your friend uh you are you were doing that competition only once in the bank of america server for example right but now when you are doing this transaction on bitcoin all the nodes who are running the bitcoin network they have to execute this computation right so let's assume there are 6 000 nodes in on on on bitcoin so all 6000 will be executing your logic right which previously was being executed in one particular server so that automatically means that uh you know here the computation would be definitely costly because where you were executing it one particular server now you are executing in six six thousand different different

servers so hence blockchains have a inherent problem with the amount of computations they can do right and with that when we say competition computation let's move to ethereum so ethereum has been built to you know so bitcoin blockchain only runs one kind of computation which is the currency competition like apes to be but what i just mentioned but ethereum is built as a turing complete uh computer meaning it can it can execute any arbitrary business logic so you know you can already imagine that if let's say many businesses wanted to run their applications on ethereum and then it is being executed on thousands and thousands of nodes there is definitely a you know there will be definitely a limit on the how many competitions that you can run

so that's precisely is the is the is the scaling uh you know issue and you know for the people who are more technically oriented you can also look at like uh you know scalability trilemma uh you know which was mentioned by vitalik you know which says that out of decentralization security and scaling you can choose only two right so ethereum actually is built as a completely decentralized uh you know blockchain so hence ethereum you know has chosen decentralization and security but then you know it compromises or trades off between the scalability so hence once the once we realize that okay there is a scalability issue on blockchain now how do you solve this solve it right

so now there are multiple kinds of efforts into that so either you can try to solve these scalability issues uh you know on the layer one that means on the ethereum itself and where you see all of these efforts going on like ethereum coming up with pos ethereum 2.0 efforts and all that all those efforts are are there to scale blockchain like the layer one blockchain that is ethereum blockchain little bit from its current position and then the other kind of and there are multiple other layer one protocols also who are trying to build competitive competing blockchains although we believe that ethereum ethereum's you know kind of network effects have reached a particular point where you know it's very very very hard for anybody else to compete for those network effects so second kind of thing scaling that

happens is the layer two scaling that means you do you know you you run these parallel or kind of over the top chain on top of ethereum various different chains which can run on top of ethereum and they can derive various aspects of their security uh you know which can be you know which can be a completely standalone chain which is just connected to ethereum using some bridges where the currencies can and you know assets like nft assets can flow through or they can be very very highly and tightly coupled uh layered to project layer to you know executions like zika roll-ups or optimistic roll-ups which actually commit or put all their data on ethereum so that's largely like the landscape like especially on the layer one so you know to summarize

blockchain is scalability and you have two different kinds of efforts layer one and layer two and yeah that was i mean i mean you just dropped a brain bomb on on all of our listeners that was a great way to frame the issue and um and you you took it right from square run right like the these are um centralized applications bank of america like you said gets down to the core of there's only one person executing logic and i think that is really what we have to keep in mind blockchain allows us to decentralize that approach it allows a collaborative effort to execute logic um and you know let's take the issue that you just framed very very well

and now start to apply some of the different narratives of solutions to that problem you mentioned layer two you know on top of ethereum and that gets back to the scalability trilemma that you mentioned you know we picture this triangle you can only have two of the three scalability decentralization and security like you said ethereum has chosen security and decentralization for their blockchain and then it's the job of these l2s to come in and scale that blockchain now not everyone agrees with that approach right there's different narratives that come in and different ways to solve that that issue and one of the other alternatives is proof of stake um you know let's open it up now to some

of the different l2 options that are being explored now in terms of um polygon roll-ups these different l2 narratives that are that are circulating around um and people are starting to implement and then also where ethereum is going itself as a as a layer one blockchain um and proof of stake thinking of it as like an investor it's an interesting way to look at it versus a user right so as you're saying there's different l2 options and there's also different l1 options right so when we say that l1 we are effectively we're referring to different chains like a multi-chain approach right so we saw and we're going to keep seeing

like alpha finance today on binance smart chain right we've got we've got i think sushi swap hopped on um ushi stop also went live on polygon also yeah on polygon uh and so yeah as an investor you see these and as a user um you know you also have a separate experience um from the narrative and from what you're actually getting so um i'm gonna toss this one out to andrew kind of what is your view on the l1 versus kind of l2 push when it comes to an investor's perspective or a user's perspective right or both right like what what are we looking for as investors to store our value and to appreciate but you know what are we looking for as

a user as far as composability and stuff goes yeah totally so i think from i can't really speak too much from other application developers but at least for sportx um the reason why we chose matic and like what we were looking for our scalability solution was um essentially something that was evm compatible uh because we were initially on ethereum and so we wanted to be able to go on uh on chain really fast um and one of the things we we looked at actually alternative uh layer one block chains like selena nier protocol a bunch of other projects cosmos as well and then we looked at the different kind of layer two solutions that were out there at the time um and from doing our due diligence we

kind of came to the realization that matic was the best one to go for um mainly because i would just say that they were kind of the first to like i guess beyond like one of the first things we looked at was they were just so ahead of the curve they're they've been in production for months now whereas uh things like optimism and other layer twos are still uh months away um and so and then on besides that um we we also just felt like uh they just had one of the best teams in the space so i think like from a developer's perspective you're really looking for you're kind of making a bet on both the protocol but also the team behind the protocol that you're going to be living on andrew

you mentioned kind of from the start you were evm compatible um could you kind of explore what that approach looked like you know kind of how you took what you did from an idea um into implementation with um you know starting out with solidity and and being on the evm uh which is ethereum virtual machine you know for our listeners and then you know kind of how that led you to matic um while you were also considering these different alternatives yeah totally that's a good question so for us um we were actually initially launched on the uh ethereum blockchain um and what happened kind of in the summer the defy summer like as we all know is that uh the ethereum network became

highly congested and gas costs kind of just went through the roof um and so for for applications like ours like prediction markets which typically have lower average transaction sizes um we our use case essentially got priced out by the increase in gas costs and so we were to use kind of sandeep's logic we were looking for something that was more on the scalability side and because prediction markets aren't don't rely as much on composability as other applications like lending protocols um it made sense for us to find a a solution that was entirely focused on scaling and for the users for sure without a doubt that choice was founded upon okay

we gotta get users to have an actual experience on our app or else we are effectively you know out yeah totally and sorry to answer your question robbie too um so evm compatible just meant that we could we didn't have to change our contracts as like that much at all um we could essentially just bridge them over automatic and i think that's one of the main reasons why so many applications so many ethereum applications are deploying on on on matic just because like for something like sushi swap it's actually it's quite easy for them to uh to deploy on matic uh very quickly whereas something like selena would require an entire rewrite right and that's the consideration that it seems like a lot of developers and i guess founders are

making um you know if you go and you choose to operate on solana or polkadot these other l1 and take the multi-chain approach you're losing the ethereum community and you know by staying with the evm and then searching for l2 options you're able to stay within the ethereum community and there doesn't take a lot of uh adjustment to the smart contracts in order to adjust for the scaling solution and and one more thing i want to add over there that you know especially for the uh and you know let's after like maybe this this thing we can spend some time on like what polygon is and and you know like uh and how is it different from uh the previously matte network but

specifically focusing about this uh you know matic chain where let's say sport x is currently deployed and using using the the network uh that is the what we call polygon pos and plasma network right so this network is a full has a full-blown evm and this evm has multiple applications now so the composability factor like for example sport x launched and you know their you know a quick swap for example which is the fourth of uni swap on and i think quick swap also has some good players over there where they have you know fair enough liquidity not not as great as like what you would have on here but you have uh you know fairly decent model liquidity so similarly there can be

multiple such applications where in future let's say uh sportex and other applications i wanted to integrate with they they have that full composibility so you have like essentially like a ethereum like a microcosm of ethereum running on top of here right so so that that also helps a bit on the composability side also now there is another narrative circling around here around each 2.0 and what is the effect that proof of stake is going to have on some of the existing l2 solutions does it render them kind of you know irrelevant now that ethereum 2.0 is staking gas costs are reduced um or are the l2s you know still

still holding value um and providing value to the ecosystem absolutely yeah that's a you know very common question that keeps that comes from uh many people who you know are not very deep into the scaling uh you know ecosystem uh and and you know fully understandable from the outside it might look like you know when each 2.0 comes in what happens to the layer two so there are two things for that one is recently even vitalik came up with the uh with the with the road map it says layer two centric it's 2.0 roadmap right so that means that the next leg according to this new vision each 2.0 is not going to be having these executable shards so by executable

shards means so originally the idea was that ethereum will have 64 shards and each shard will behave like the current ethereum chain right which where you can execute the code but then now the new vision of ethereum is that 2.0 these shards will be data data availability uh you know chains they will not have execution in themselves they will only store the data right and then using that data you can compute on on a on layer two using the ruler you know multiple other things so so that's that's the new vision for e 2.0 so if that that new vision automatically says that ethereum 2.0 is moving into a mode where where layer 2 solutions will

become more prominent right so it's actually reverse it's it makes layer 2 solutions more prominent the second part is yeah because you still need the execution layer and then ethereum 2.0 is providing the data layer good yeah yeah yeah so current ethereum you know ethereum 1.0 acts as both data and execution layer later you know in this new vision it will become a data layer and now let's assume that an ethereum is a very like that's the beauty and power of ethereum that it's a very decentralized network like you know multiple people are building uh their competing implementations of ethereum so if let's say this vision instead of this vision the sharded vision comes in

and the original vision where these 64 shards will be executable chains right you know like just like the layer one current ethereum chain is even if that happens imagine that right now like just just just think about the gas fees today we have right ideally we would not want to have uh let's say 100x or 100 like 500 dollar gas piece right so i mean in peak usage times we already are at least like 500 or 100 times more than a required like even 5 is a very heavy gas price like even five dollar is a you know fairly heavy uh transaction price to pay like you are not we generally pay on

our visa and all those in cents but i'm saying even if you see five dollar or two dollar was a decent enough cost when you are paying 200 the network is already at 100 like 100x demand right so imagine these 64 shards also came in they will provide 64x you know scalability i mean some people might debate that okay pos will be there and it will provide some let's say 2x you know uh kind of uh scalability on the from the current system so it can be 128 x let's assume 150 right but you can already see that we have not even started this whole journey where these where these nfts are just like artists are coming into blockchain and

various d5 products are being built we've not even started and we are ethereum is already experiencing 100x to 200x you know times more demand imagine when all of these people start getting in this demand is going to be higher so the point i'm trying to make here is even when e 2.0 comes in as a fully executable version and 64 shards come in the moment you have more supply of these let's say pps let's tell them let's uh you know call them tps transaction per second right the moment you have more supply of these uh tps your demand will go even higher than that so eventually again ethereum will you know kind of evolve into a settlement layer and then the you know the business activity can stay on layer two and layer two

that's the that's the core vision of polygon that on the layer two also like as i said that layer two also has a spectrum right so you start from the right like you know let's let's think of the left extreme and left extreme as standalone like let's say where somebody is running their own chain and they only have a bridge it is run by their own validators and and you know things like that and then on the right extreme you can imagine uh that you know you have fully full blown uh you know tightly coupled layer two chains just like optimistic roll ups and zeke rollers because optimistic roll up and secrets essentially submit their data and the proof of their states on ethereum so they are very tightly coupled on ethereum so these are the two extreme

ends of the spectrum right so but the core vision of polygon is that you know it's not like all the people will either need the left extreme all the solutions or all the applications will need either the left extreme or the right extreme everyone has their own requirement that's why we built polygon that on top of ethereum there will be various different kinds of use cases there will be various different kinds of uh you know businesses who would have their own scalability needs and hence you need to provide the spectrum of you know a solution instead of one particular solution yeah and and to just provide some clarity around um what you mentioned about shards right and this is this is really a core aspect of youth 2.0

is splitting the blockchain into these shards and you mentioned there's gonna be 64 of them at least to start unless that number changes and then you know it's about building bridges between these shards to allow transactions to flow between shards and you know ultimately at the most efficient route possible between sharjo or inter shard um in inter as well as intra shards so within one um and you know that that leads its or lends itself to these different bridges that can act as though the l2 right between those shards and you can pick the most efficient route that minimizes gas fees overall and people can pick which shard

they they uh transact on um and it's interesting right because at that point what's the need for sowana what's the need for polka dot you know why why do we take the multi-chain approach when ethereum ready has the community and has a what seems like a viable plan for scalability yep absolutely absolutely absolutely and then that's why that's exactly what i was saying that you know the network effects that ethereum already has uh you know in terms of the developers not because what andrew is saying is a very very you know kind of uh is actually the ground reality where you know the most most of the developers like i am also a blog i've been a blockchain programmer

only now i'm you know into this you know marketing and you know other kind of things uh business development but when i joined blockchain industry my first blockchain is uh you know ethereum blockchain and that is true for like i i would say 99 of developers they start blockchain by using ethereum blockchain right it has become like so you know only present that it is kind of your first ever blockchain right so and then nobody wants to you know kind of i mean it's already you know it's not that easy the learning curve is not that easy once you get into that you don't really you don't want to explore more you want to build applications as a developer you want to build applications so that kind of network effect adds uh gives ethereum a big advantage over

anybody any other kind of layer one solution and hence like you know having like what what i was saying that polygons break you know vision of having these evm compatible chains around ethereum where the developers get the instant scalability they deploy their application on maybe ethereum they immediately see that okay there's a there's a more scalability requirement they choose their uh you know layer two of choice and then you know focus on the application building ideally the developers should not be focused on you know you know how to scale the interrupt right they need to be focused on you know building good user experiences and that's what that's what is our goal to make it so easy for the developers that they can you know simply focus on their users and

making their users feel better right i saw it sweet the other day i had that the the that the list of the most scarce things in crypto were one developers two developers three developers and 99 uh like just cash or vc funds or something and it's just funny to see um you know and i mean it's really true it's it's there's enough of us talking about stuff there does need to be uh you know in a much more higher level amount and just of amount of knowledge as well excuse me uh with regards to bringing people in and having them um code and learn the language of programming and

i'm not sure that that there's anything else out there other than the number go up uh that will bring the majority of people who want to learn this stuff in which is i mean kind of what we're seeing right now uh in in the bull market with these nfts and all sorts of stuff um you know it's been a bit of a stressor for the ethereum community here in the last few weeks and months there's been a talk of l2 for quite a while now but really what seems to push innovation and the topic to the forefront of twitter of the community of forms is just as we've as we've mentioned and as everybody knows the absurd gas prices um so i'm kind of wondering what you

both think is the next thing if you will to cause a serious uh amount of abrupt innovation right so we saw serious gas price increase lack of user experience people complaining and now the community has boom there's the the focus is l2 and scaling i'm curious what you guys think it is the next obstacle or the next important on the priority list uh as a community growing as a whole yeah i can i can answer that just uh just as like being on the front lines of the application side um i would say honestly the biggest thing at this point is just education um so there's a huge education gap uh

for people using like especially like layer two applications uh so things built on polygon uh just because there's a that extra level of complexity uh but yeah i would just really say um uh there's a there's a there's a massive education gap and i think that's part of the reason why something like nba topshop has done so well uh because they've kind of hidden the complexity of the crypto blockchain side away um so i think it's probably i guess what i would try to say is it the biggest obstacle is kind of this education gap and complexity and and maybe the solution is just better user experiences um and and better wallets and i think that's what we're gonna start to see is andy mentioned probably the most

prominent thing in people's eyes is the number go up right that gets people's attention i mean i mean people notice when the when the price is going up but then it's about capturing that attention and getting those people to engage and to me you know education is at the forefront of that and it pertains specifically to developers um you know andy and i met and that was pretty much what we were talking about in this blockchain club is like prices what we can do with it how we're trading that kind of thing but now it's it's taken that next level it's about implementing a curriculum into high schools colleges these different coding boot camps and giving these people an opportunity

you know when they are first approaching um how you know learning how to code it's not oh well i want to you know i want to write this program to make things more efficient you know for for whatever the reason people are now coming into coding with the idea of well i want to learn how to code so that i can build on ethereum it's not you know i know how to code let me go find what what to do with it it's i want to build on ethereum let me learn how to code and that's going to hopefully you know be ingrained into people's minds is um a path forward and and really progress the education gap well i think for young people it's a it's a bit of a

a brain twister to um work for a protocol if you will there's a there's a current gap in the idea of hierarchical company setups um that has been revealed by the way tokenized protocols have been created and and it's a really interesting one to think about the fact that we're all on this call right now um we are all working on separate things we have completely separate lives and we all all across the world but effectively we're all working for the same protocol we're all working to see ethereum growing honestly on a greater scale crypto even even other l ones grow right and so um that kind of shift in mindset is crucial um i think

yeah i think it takes decentralization um and kind of pointing it back to what sandeep said earlier where um decentralization almost breeds collaboration rather than centralization which more breeds competition and you know i'm a firm believer in um the whole is greater than the sum of its parts and um i think the the decentralization nature of the internet and with blockchain in particular is revolutionizing that concept and and just pushing it harder than ever i want to talk about the valuation

of uh polygon um and kind of how we got there um with regards to other crypto assets or with or with regards to just tokens on the market so um where we're at with the current crypto market especially in d5 is uh we're we're starting to have people try to create these uh kind of models uh for what's going on on the token right so you've got the tvl right um you know you've got the amount of holders you you know you've got the revenue you've got all these things and then you have nfts which are just if so and so buys and said it's valuable then it's valuable and the value is in the narrative it's in the community um so i i'm curious uh briefly on the kind of the rebrand of uh of matic

to polygon and then where we can look for uh the value metrics of polygon um and then i'd like to also get into kind of what you guys both think about this uh this maturity of the market if you will let's also explain our audience that you know what exactly why why polygon from matic network so when we were working with paul you know matic network we started like two and a half years back uh you know we were a part of uh the plasma research group which was led by vitalik and joseph and at that point in time we were a part of the plasma implementation group if we build uh the the layer 2 only as a payment mechanism nobody is

going to use it especially with the utxos and all that and that exactly what happened so you know two years back we started building you know started with a vision to build plasma uh with with evm uh you know compatibility and you know and we we kind of delivered our solution which is now which is a hybrid pos and plasma solution where you can choose between whether you want to build on plasma which is fully secured by ethereum or you can you want to build on top of pos which is secured by the matic validators which are fairly uh you know uh decent size in number so that was the that was the original goal that to build one kind of solution and then eventually

uh you know during our course of interacting with a lot of applications we realized that you know there is no one solution fits all and you know we and then also like you know you must have seen that ethereum community move from narrative to narrative right so from plasma from state channel to plasma to side chain to optimistic roll-ups zika roll-ups you know star wars so all of these cool things keep coming up so we wanted to kind of uh you know create a long-lasting platform which offers most of these solutions is not dependent on one particular approach and not like because right now again in the layer two we don't believe that right now is the time to kind of only go deep or bet all in on one particular approach we

nobody really knows that which approach is really going to you know succeed eventually so hence we created this uh you know the vision of polygon because our we stand very highly committed to ethereum you know ecosystem so we wanted to build this multi-chain ethereum ecosystem which provides various flavors of these scalability on top of ethereum so and then out of those our first two solutions which is like polygon uh polygon pos and the you know a polygon plasma which is the hybrid pos plasma chain is already getting a lot of adoption i think you know we were just discussing that today also a few big protocols like ocean protocol launched on polygon and then you know bounty block and all that and every day you keep hearing

bigger things coming on this on especially on the nft side i think we are we are by far the leading uh solution in terms of like on which third party applications are building like for example flow is there but then the their primary application is being built by them only right so like the nba top shot and all that so for third party developers we remain the the leading you know kind of solution and you know you must have really uh recently seen uh jack uh the ceo of twitter uh tokenizing his first ever tweet and then you must have seen elon musk uh tokenizing uh you know some this nft this song like troll song about nft right

all of them are on uh polygon the hosted those and ft's are hosted on polygonally so so with on the nft and gaming side yo yo yo real quick real quick sandy uh let's dive into that real quick so we are seeing nfts on polygon yeah right now scent is one of them trend is one of them and there are like multiple such solutions like you know nft is on the gaming side of thing like all the bigger games like i would i can i can tell you that if you go to ten different uh you know uh like large scale games uh you will like the blockchain games you will realize that five or six of them would already be building on polygon or you know the next four would be in the

exploration phase or something like that right so nft and gaming is like kind of the you know a huge amount of adoption is coming and now we are seeing a lot of d5 projects are also uh coming on on our pla on our platform and an alpha leak like you know one of the top d5 platforms or d5 kind of protocols is also uh you know soon is going to launch uh on on on polygon so uh so you know like this this this chain is you know evolving into a kind of a microcosm of like you know kind of these uh composable applications together which are which are running at a much faster low-cost transaction and you know it's very interesting and apart from

that we are already like today in our community call we uh kind of again give one more alpha leak that you know we are going to launch our polygon sdk which will act as a substrate like uh you know engine uh wherein you can actually uh you know you can actually run create your your own change let's just like on polka dot but then you can act those chains can be connected directly into ethereum so you can have standalone chains connected into ethereum yeah so that android also going right so we expect we already are seeing quite a lot of interest from projects to do that right and on that note the clear thesis um for the product of l2 is faster better just overall a a cleaner experience right and the

thesis for the application layer on ethereum is okay if we build on ethereum we build ave and uniswap and sushi swap and compound and alpha and all these on the main chain then eth has this application layer which gives the asset the token a level of significance in terms of store value right you've got all these applications on top of it that therefore the underlying uh the underlying blockchain has that much value on top of it so is it fair to say that some of the value that is uh quote unquote held on the main chain is going to be transferred over to uh to uh the matic i suppose the protocol and

i guess we're talking token here i'm trying to think valuation wise i know that you probably can't chill the coin i'm not i'm i'm not asking but what i'm asking is is it fair to to look at quick swap and say okay 100 million in value locked okay therefore quick swap is built on top of matic so therefore matic as the protocol layer which has the applications on top is absorbing the value uh and the and the effectively the revenue that is created uh into the protocol as like that kind of uh as the same way eth does for the uh applications on the main layer yeah yeah you can you can totally say that and it's like

you know like like for quick swap for example if you and and see how it works in tandem with zero so let's say you wanted to do a hundred thousand dollars or maybe a million dollar trade you would probably be better off doing that trade on ethereum right and then if you wanted to like for retail but who's doing like you know hundred dollar two hundred five hundred dollar trades they they are doing it on on the on quick swipe on a platform like quick swap such as that why it is happening because you know for these people swapping on unisop was completely like you know ridiculous like it was too costly but then they can do the same activity on on on quick swap so uh you so it works in tandem with

with ethereum that you know getting a lot of these like for example these nfts uh like or are they recent like today only they tweeted that you know they had till the since the time they have launched they have had i think 27 000 transaction or 267 000 transactions and out of them uh you know they would have if those transactions had happened on ethereum it would have costed the users around 14 million dollars but it's you know they they hardly paid few dollars in uh you know on all those transactions so yeah because it's a it's a retail-centric community centric project so so if you are building a very like big large institutional vendor you know

players kind of product or your large institutional investors they can stay on ethereum but these will or these retail can use the layer two and that's how it works in tandem for example nft again a lot of people are minting these thousand like for example this tokenized tweet which you know even mark cuban actually tokenize a particular tweet office uh they uh have around 200 000 tweets tokenized today if that was done on uh you know ethereum again like that would have it's like there's there's commerce that happens in manhattan that doesn't need to happen in indiana in the corn fields and there's commerce that happens in the corn fields that don't need to happen in the metropolitan areas and it's a it really is kind of that scale that you

mentioned earlier on this on the ends of the spectrum um you know and and uh it it brings the light the value of the magic protocol the token and everything that is um you know i'm curious what you what you kind of think um about the token metrics of today kind of getting towards the market maturity concept um you know we're seeing in d5 we have tokens that are actually doing things we have workable tokens we have workable projects we have protocols that have certain amount of value locked um you know and then there's also people that will just tell you that it's all speculation and that these metrics don't mean much it is just a narrative

driven market right and there's people that live and die by doing analytics um you know i take it there's probably a happy medium here for our investors that are listening um but i'm curious to how you think about what a protocol is worth what it's valued what the token could be valued at speaking on a broad scale here you can use examples if you like but i'm curious how you frame your your outlook on protocol evaluations and token valuations um when it comes to your analysis yeah yeah so i mean we can let's start from the traditional markets on that so in traditional markets any asset you have it has two like you know two factors which are contributing to

its uh you know current let's say stock price right so one is the fundamental analysis that how much is the revenue the bid and you know like profit before taxes and you know what not like all those kind of mechanisms and you and you have like analysts who create a base and then on top of that there is always a speculative value that okay like today tesla is this but tomorrow it can become this right so you know there is the users attribute and speculative value on top of it and it is very very very normal to have it of course in in in stock markets also like many people would say to you that even tesla today uh if you think about the fundamental value versus the speculative value maybe the speculative part of the part of the speculative percentage

contributing to the net price of tesla stock today uh would be higher than or maybe much higher than the uh the fundamental part right because there is a there is a hope that this this will come back definitely that percentage of speculation versus the fundamental price is much much bigger than uh you know foundational uh like you know for the for the traditional stocks but uh you know but the the reason behind that is because you know we are very very early in this in this market so definitely in these early markets you have a large amount of speculative angle into it now coming back to the uh so coming back to the polygons price or any pos networks price let's understand the

fundamental side of thing and then we can discuss about the speculative part of it and which in total in addition you know comes to the current price of any particular asset so the fundamental side of any proof-of-stake engine is very simple it's basically about it's basically about the demand of the of your token that you know demand for your token uh you know in order to become a validator like very simple answer is this that imagine this that this polygon network uh you know started generating 100 or 10 million dollars a year for the gas piece right and when i say 10 million dollars i don't mean that individual transactions will become costly but because the the the scalability is like 7200 transactions per second is the

capability of the chain which means like essentially uh you know probably around 400 x of uh of of ethereum so ethereum engine so you know even then the gas fees the if the chain becomes fully clogged the gas fees can still remain uh somewhere between 100 to 1 1 by 200 of ethereum and still like you know the larger number of transactions can come in so imagine that the the chain became fully you know occupied and then change started generating let's say uh you know 10 million dollars in in in gas fees every year now right now in order to get those 10 million dollars uh

imagine that a normal validator considers 10 return yearly return as a good return okay so then uh you know then you can imagine that people would be willing to stick for a rational market people will be willing to stake hundred million dollar uh in the network so that they can earn 10 million which is a 10 return uh based on the their their their stakes so that means that 100 million worth of tokens will be staked in the in the in the chain right and then assuming that uh you know like generally for for a proof of stake network fifty percent amount fifty percent staking is the general uh is acceptable amount that it should be that amount should be staked

you can double that to 200 million as the fundamental value of a particular pos network so that's the that that's what contributes to the fundamental value of a network now the speculative part is how big this can become right so for example with polygon people know that now they you have this one chain which is getting insanely popular with hundreds and hundreds of applications building on top of it then you know we are going to launch multiple other solutions like zika roll-ups optimistic roll-ups these stand-alone chains with polygon sdk and you know multiple different data availability layers and all that so all of that then starts contributing to this to its fundamental value multiple different chains which will have different uh tokenic rule uh value approval mechanisms and then you know because these solutions

will also be large in numbers so the possibility of them like for example standalone chains we are already working with few large enterprises to offer some kind of solutions on that so automatically you can see that both the fundamental value and as well as the speculative value that how big it can be uh you know gets gets added so hence so we start with with the demand for people wanting to effectively stake and validate the network to basically make the network more secure how many people are willing to say okay not only do i want to own this token i want to stake it and basically and on the next level it could be locking it up the earn the get gas piece that's the fundamental you want to earn

the gas piece that's why you want to okay right yes yes to earn the fees from the protocol correct so there is an incentive if let's say 10 is a reasonable return and uh the network is generating 10 million dollar in gas fees then people would be willing to stay 100 million dollars and and you know assuming that 50 percent of the stake is a good amount of you know mature kind of state then that means that the total network will be valued at 200 million in such a scenario that's what i wanted right cindy sorry to cut in real quick i'm i'm kind of curious what your vision because i remember when we were initially talking about uh moving sportx to matic i'm curious what you think of like compound chain and this whole idea of app-specific chains um and how that kind of fits into

this aggregation uh like polygons aggregation of layer twos and valuation thesis like like how do you value compound chain you know as well if it's on its own chain but yeah please yeah yeah yeah so i think like you know in blockchains the composability is a very very important factor right so we like many times when we have discussed about these app chains and even when the even the best of the uh kind of uh architectures which which which which can have multi-chain architectures like each app has it has their own kind of uh chain uh it's it's it's like first the interaction between two

applications and such chains will always be asynchronous and once it is asynchronous uh you know nobody really fully understands that you know how you know how composable this will be what are the kind of limitations what will be the limitations in such uh kind of scenarios and all that so we believe our thesis is that we believe that there will be there will be two kinds of application like largely one will be the kind of applications which would want to be on a more composable chain uh like what we have on you know polygon pos more composable and scalable chain like this and then there will be more like you know solutions let's say from enterprises who would

want let's say if reddit wanted to launch their own uh let's say this thing i would i would think that they should have their own chain where they they're pointing this this like you know kind of reward system point system is you know running on that particular chain and then those chains are then bridged with the other chains where they can people can bring those assets and securely bring those assets and trade against if they wanted to but then they would not want to be dependent on the large load of some other application imagine one good day like you have super bowl event and sport x is having you know 100 000 transactions in a single day and then reddit is is down due to that right so you know that's the problem with the composability also that you know you get affected because it's a shared

shared hosting basically it's a shared hosting so uh i mean right now there are no like no perfect composability solutions multi-chain composibility solutions although uh dfinity recently came up with uh with a good uh you know cryptographic breakthrough although like you know in cryptography you have to test things for multiple years before they become less risky and you can fully rely on them but again like there might be such solutions today there are for interchange communications there are not that many solutions so for us uh andrew like we believe that we will have we will keep supporting two different kinds of chains one would be this polygon pos chain which will

or you know like what we call like shared chains where multiple applications can live together and then apart from that offering uh you know something like polygon sdk with various different kind of you know uh privacy features and what not wherein uh you know the enterprises can pick and choose according to their their solutions and then of course layer 2 chains where you know some of the teams or maybe these current pos chains can be layered to secured and all that but then again for example layer 2 when we say optimistic roll ups optimistic load since they are going to commit all the data into ethereum they are still going to be costly so of course your you know your gas fees might not be four hundred dollars five hundred dollars but it will still be five dollars ten dollars kind of gas piece

right maybe um you know something in few in a few dollars kind of guest piece so i mean the application will will be choosing that whether they want to be on a you know optimistic roll-up where the gas fees will still be higher but then some of the teams can choose that okay i'm fine with people paying two three five dollars in gas fees or they want to be in a in a chain where the gas piece is in a few you know in some sense uh kind of a situation coming back to this like once we once we believe that you know these different kind of chains will exist some of them share chains some of them independent the intercommunication between chains become very becomes very important so the intercommunication can be two three different kinds of intercommunication one is a simple bridging communication like uh android you might

already i think your team is also exploring connex network also right the next network which is a you know interchange like fast exit kind of scenario or connectivity where assets can move in between so that's the like you know that's the that's the first kind of connection the second kind of connection is ibc like inter blockchain communication kind of connections where you know on a slightly more protocol level the uh you know the the the interchange communication is happening and that is something that uh you know uh is currently uh ongoing as an ongoing effort from our side and we are going to disclose uh more details on that front uh in some time but yeah like currently we are already live with

the connex network on multiple uh you know this thing so this asset swapping between multiple exchanges will multiple chains will already be available and eventually we will also bring in the intel chain communication like ibc on this polygon network on top of the video yeah that i mean it's super cool how how your you're equating the the layer two demand and um the analytical approach that we use to measure that demand right and that's what we're pointing to as a fundamental price or or the components of a fundamental price and then we have this other world where it's the speculative nature and it's the speculative price and it's made up of those almost imaginary components where

they're more just possibilities that that could happen and those are also um you know a part of what builds a evaluation um even though those aspects aren't realized quite yet and as you were flushing out um you know that thesis i kept thinking about the efficient market hypothesis and how you know there's there's a huge information gap which we talked about earlier and and we talked about the education gap that's happening in crypto and it almost seems to me that the gap between um the current price or the current valuation which is made up of both those two components the fundamental and the speculative

um is or can be equated to that information gap that we see in the market where um there's you know a separation on what people agree as the future of this protocol or the the future valuation that this protocol could bring to a community and how that gap is translated into a value between the fundamental and the speculative price and kind of as we see education continuing to grow more people are educated um more people have that information and it's not um such a steep learning curve then we start to see a more efficient

market that you know market is going to mature like andy said and ultimately we reach a price that is more indicative of a fundamental value of what that blockchain or those projects can actually bring to a community yeah i think just to cut in real quick i think one other thing is um a lot of these applications now are actually generating significant revenues at least for like looking at some of the d5 projects and there's actually a great site called tokenternal.com that tracks price to sales ratios for these different projects um and like a lot of these projects actually look cheap on a price to sales ratio when you compare them to kind of like more mature uh old economy technology stocks um and so from that angle uh obviously some

projects are trading purely on the speculation part but other projects are actually trading on real solid fundamentals um real value yeah like actual like there's a there is a foundation for such and i wonder if if uh if protocol creators and owners i suppose you know all the developers the team uh and sandeep i'd love for you to chime in here if you think about kind of the efficient market hypothesis based on what what robbie's saying you know when it comes to uh these choices about chains when it comes to what andrew's saying about okay how many tokens do we uh want to emit and you know price and what

what's the revenue and and all kind of things you know do you do you think about this kind of uh way to create value uh and speculation when it comes to uh your protocol and you know specifically with the chains and the composability as well curious like like like what you view as uh efficient like is that how you kind of make your choices is based off okay what's going to be efficient what is you know what is the best for uh the community uh you know in a speculative manner like oh let's get sushi up on polygon and make some noise and then also like okay how do we get our users to you know actually have a great experience and make this market more efficient

right because there is a sort of a uh um i think it's like a common there's like a tragedy of the commons if you will when it comes to creating kind of uh um protocols and and tokens and such and i'm kind of rambling here but the question the question remains is efficient market hypothesis you know how do you think of that when you're creating uh and making choices um when it comes to like understanding price of sales ratio or choices with new with new chains or new releases um yeah so i think like from our side from day zero we have been very like laser focused on adoption and uh you know although having bigger protocols like sushi

and some big names you know definitely gives you some you know crazy this thing and all that but then if you go to our twitter handle you will see that okay like every few days there is some big protocol launching but in between there are hundreds and hundreds like 100 not hundreds but tens and tens of these smaller protocols are also launching so uh you know smaller applications launching and all that so what we believe essentially from our side is to simply uh kind of focus on building or getting the adoption on getting the adoption on our platform and all of these things will take care so i mean if you if you were following polygons price and andrew can you know also vouch for that so for a long long time

our valuation was hardly like two million dollars like even today like people are saying that okay even this price like it has a lot of room to go grow and all that but if you see we were like at 2 2.5 cents um you know for quite some time and all of this adoption stuff was happening in the in the in the in the you know kind of this thing people like you know amazing teams like sport x poly market and all that building on uh polygon and all that and eventually what happens is that you know the rationality comes into the market so i would not say that our choices are directly affected by this definitely having bigger brands gets like that signaling uh you know to the to the to the other developers but

for us like it's not about getting the signal to the investors to buy because we believe we feel that investors will come if the adoption comes investors will come uh but are when we are chasing the bigger kind of when we chase bigger the bigger kind of accounts the the purpose is to uh kind of signal to the other developers uh that okay these big applications are moving on to polygon so maybe it's a good choice let me also explore right so and then you know speculative things automatically come if you are doing in this market specifically like i mean i think you guys would also know that like a huge number of application projects are like you know kind of a gray or scanning kind of area right so

i mean if you are doing good work in this community and consistently doing it you know eventually the market uh the speculative parts of things catch up uh the project that's right i mean that's all part of the uh the efficient market hypothesis at the end of the day it's uh and i kind of wish that we saw it a little earlier you know i still feel like there's a lot of garbage going on i mean the nfts are great and all but you know there's still a lot of projects in the top 50 that are like like what are we doing here but you know we'll we'll leave that one for a different episode um this was an absolute pleasure i have learned quite a bit um and i think we spoke on some stimulating topics uh thank you guys so much for coming out

yeah yeah this was awesome super interesting i i felt like i learned a lot thanks thanks a lot andy and robert uh for for setting it up and having me here yes sir thanks for listening to the d5i design podcast until next time d5 slate team you