Ethereum's Institutional Future: Vision, Trade-offs, and Execution

Transcript

Joe, welcome. We are going straight on, so let me use time more. Two things quickly before we get to the substance. You co-founded Ethereum and then built ConsenSys, which is behind MetaMask, Linea, and Infura. And just 30 seconds on what connected those two decisions between co-founding Ethereum and ConsenSys. So why did I co-found Ethereum?

So the world was in a complicated state many years ago, 15 years ago, global financial crisis, et cetera, too much debt in the system. And I did a lot of research and I felt that things were potentially going to get worse financially in the world rather than better. Bitcoin emerged in the global financial crisis. Bitcoin, Satoshi Nakamoto essentially invented the profound construct of decentralized trust, and a lot of us felt that that was going to be potentially pivotal in helping form a better

world, but the Bitcoin technology was very narrow and it was virtually impossible to build something significant on the Bitcoin protocol. So we, several different initiatives were tried in 2011, 2012. And I was fortunate enough to meet Vitalik Buterin, the inventor of Ethereum, in early 2014, after a bunch of different projects had recognized that, hey, this powerful construct of decentralized trust should be applied to everything, not just a narrow version of money.

And so I was already very much a Bitcoiner in early 2011. And it just made so much sense that decentralized trust should be applied to everything we build in the global economy and society. And so I joined the Ethereum project. A few of us declared ourselves co-founders and we launched the network about a year and a half later. About six months before that, I started our company ConsenSys to essentially continue the vision and the mission of the Ethereum project.

Thank you. And this summer, from the Ethereum Foundation, three organizations have spun out. ETH Labs, Ethereum Institutional, and ETH Systems. You support all three of them. And I'm just curious, what are the differences between them and why you guys have decided to support them? So the Ethereum Foundation essentially took the approach in its previous administration of subtraction.

The idea that minimalism in the Ethereum Foundation, not trying to control the system, but trying to enable the entire ecosystem to flourish without over -reliance on the Ethereum Foundation, that was a healthy thing, and that worked well for a while. But a little while ago, the world got more complicated in both very positive and to some people concerning ways. So with the advent of, let's call it, AI enabling humanity to do things that seem magical and a pretty interesting roadmap for all of us over the next few years and decades,

with geopolitical complications, with even more debt in the system, Vitalik, Bastian, the executive director of the EF and leadership inside the EF, recognized that hey, there's some really important things that we have to keep building and we have to preserve. And so we need to narrow the focus of the Ethereum Foundation to the cypherpunk principles, the CROPS mandate, censorship resistance, open source, privacy, security, and these amazing initiatives that Tomasz Stańczyk, the previous executive director of the Ethereum Foundation, we recognize that they're very powerful.

How do we perpetuate them? How do we keep what was built while still focusing the Ethereum Foundation on the real backbone of what matters and set the North Star for the Ethereum ecosystem? And so the EF shrunk itself up, Tom Lee, BitMine, Joseph Chalom, SharpLink, I and many other contributors from the Ethereum ecosystem put some grant money together for ETH Labs, for Ethereum Institutional, put some funding together for ETH Systems and we called that the summer of Ethereum love because they all launched in the summer and totally transformed the sentiment in the Ethereum ecosystem,

both inside the Ethereum Foundation and across the Ethereum ecosystem. I can't really say that much, but the summer of Ethereum Love is going to continue into autumn. There are some projects that are in formation that may be announced soon that rhyme with the advent of these three other projects. So I won't talk about those, but ETH Labs is some of the best and brightest researchers and developers in the Ethereum ecosystem.

They will focus on Ethereum price going up. They will focus on all the different ways that they can foster adoption, grow usage amongst institutions, amongst retail. Ethereum Institutional is the front door, the help desk, the Sherpas that will guide in a neutral way that will guide your institution and lead you to whatever institution or provider in the Ethereum ecosystem that they think can help you.

ETH Systems is focused on privacy in institutional developments and so importantly they represent the decentralization of the stewardship of the Ethereum ecosystem, and that's the right way for a credibly neutral censorship-resistant platform to be governed or stewarded. Thank you. Many institutions, including in Korea and globally, they are showing very different movements recently. They are interested in tokenization, stablecoin, and settlements, AI agents.

So from the conversation we are doing now, what is the single biggest bottleneck for them to adopt Ethereum or blockchain stuff? The single biggest bottleneck for Korean institutions to get with the Ethereum program and benefit from what we've built. So it's a lot of things, and it's a little bit of a lot of things. So it's institutional readiness, it's regulatory certainty or the clearing of uncertainty, so permission from regulators.

It is the availability and the maturity of the technology. And all of these things are just about at the right level at the right time in order to enable institutions that have lack of understanding to gain understanding or lack of conviction to get comfortable with the technology. With the regulatory infrastructure, a lot of countries around the world prefer to go slowly, to move prudently, to not try to front-run the United States of America because essentially the United States of America, what they do in terms of regulatory statements or constructs and what they do in terms of driving the technology,

that tends to prevail. Ethereum is a global technology. It's built very broadly across the world, not by Americans, but the Americans do tend to set the tone in terms of regulatory infrastructure. Fortunately, and this may sound a little bit irreverent, but fortunately, the legislators failed to pass the CLARITY Act. And I was pretty happy about that because the CLARITY Act was a political construct.

What has been happening behind the scenes with Paul Atkins at the SEC, Michael Selig at the CFTC, is they've had armies of lawyers and researchers and just really thoughtful builder types, putting together construct after construct, no action letters, etc. And they're going to roll out a regulatory infrastructure that looks and feels like everything that all the good actors in the Ethereum ecosystem who are working with lawyers wanted to see the ecosystem to have as regulatory clarity,

but also just embracing the important fundamental constructs that decentralization provides. And so with respect to all the different primitives, whether it's AMMs or liquidity providers or stablecoins or capital raising, all of these things look like they're going to move in a direction regulatorily via rulemaking by the agencies that we will be absolutely delighted with, and yes, we certainly want it locked in via legislation, but there's gonna be so much capital piling in to this new regulated infrastructure that, just like Uber, once Uber is adopted by the

population, you're not going to be able to take that away from the citizenry. Great. You are one of the architects of Ethereum ecosystem, I believe. So let me just dig into more your structural visions. Which parts of institutional transactions should ultimately settle on public Ethereum? And which part should be staying in private or permissioned chain? Well, thank you for that question. So I don't want to tell institutions what kinds of transactions they should put on private chains or public chains, either Ethereum Layer 2s or Ethereum Layer 1.

What I do want to share is that it's going to be your choice, and you'll be able to make that choice secure in the idea that whether you do something on a private chain, you will soon have technology that will make it part of the extended metropolitan Ethereum ecosystem. And what I mean by that is that we at ConsenSys and a few other groups in the ecosystem have pioneered a technology called synchronous composability. So synchronous composability makes use of real-time proving and aggregated

zero-knowledge proofs, and essentially you can think of, say, three different chains, three different sovereign chains. Chain A, which may be Ethereum Layer 1, Chain B, which may be Linea Mainnet, Chain C, which might be a private permissioned execution client chain. So ConsenSys has an execution client called Besu, which is part of the Ethereum ecosystem, but about 35 different pretty significant private permissioned networks are built on that Ethereum technology.

So if three different groups on these three different networks want to get together via on-chain agreements or off-chain agreements, they can identify how they want to coordinate across the three different networks with different transactions. They can run those transactions in simulation on the three different networks. They can zero-knowledge prove all of those transactions. They can send that to a coordinator and validator network. Let's call that the second one, the Linea network, and they can create a shared atomic context where simultaneously all these three networks' transactions happen.

They are validated at the validator network so that they are essentially operating properly with one another. And one can only describe it as magic happens, because zero-knowledge proofs seem like magic. The state on each one of these chains is magically transformed, tokens can be moved between these chains. The zero-knowledge proofs enable the right things and only the right things to happen, and without the use of bridges, third-party bridges, which can introduce vulnerabilities, the states will change on these three different networks, and that may even involve the unification of previously

fragmented liquidity pools across the three different chains. So essentially, we've achieved the holy grail of composability in the Ethereum ecosystem across private chains, layer twos, and mainnet. And so all these institutions can do whatever they want, and they can rest assured that they're going to be able to operate and issue tokens on their own network, although it's better to issue valuable tokens on Ethereum layer 1 because we know that's going to be permanent.

They can add applications to their network, they can invite partners and users onto their network, and they can be assured that just like the internet and the web, they are using the exact same technology for their private activities, for their collaborative partner activities, and for their public activities. Yes, so thank you. 15 minutes is too short, but I'm honored to hear the Ethereum co-founder's perspectives regarding institutionalization. Thank you so much.

Thank you, Joe. Joseph Lubin, and CEO Youbin Kang, thank you.