Episode 263: Cosmos, Sommelier and Emerging Assets with Zaki Manian

Transcript

foreign [Music] welcome to zero knowledge I'm your host Anna Rose in this podcast we will be exploring the latest in zero knowledge research and the decentralized web as well as new paradigms that promise to change the way we interact and transact online [Music] I catch up with zakimanyan co-founder of occlusion and sommelier we do a massive recap of the history of Cosmos bringing us up to date since our last interview two years ago we covered the IBC launch osmosis as the Catalyst that really got it activated how the

ecosystem grew and accelerated up until the Luna crash and what the recovery and Prospects of Cosmos have looked like since we then discussed sommelier which offers managed ethereum defy strategies from a cosmos-based chain lastly we explored the concepts of emerging asset classes such as real world assets and how zkp's for privacy May finally find a product Market fit that could bring real marketed option now before we kick off I want to quickly let you know about the upcoming ZK Summit 9 event happening on April 4th in Lisbon join us for our ninth Edition with all the latest research and most cutting-edge implementations in the ZK space applications to attend are open I've added the link to this in the show notes

hope to see you there now Tanya will share a little bit about this week's sponsor [Music] Elio is a new layer 1 blockchain that achieves the programmability of ethereum the privacy of zcash and the scalability of a roll-up if you're interested in building private applications then check out Elio's programming language called Leo Leo enables non-cryptographers to harness the power of zkps to deploy to centralized exchanges hidden information games regulated stable coins and more visit developer.alio.org to learn more you can also participate in Elio's incentivized testnet 3 by downloading and running a snark OS node no sign up is necessary to participate for questions join their Discord at elio.org forward slash

Discord so thanks again Elio and now here's our episode [Music] so I want to welcome back Zaki to the show zaki's the co-founder of iclusion and sommelier he's aware of many hats and an advisor to many things hi Zaki it's great to be here I love this podcast and so it's always a pleasure to be on this you know it's funny so you've been on you've been on three times but your last time on was quite a while ago it was um let me just pull it March 31st 2021.

it's almost two years yeah that was a lifetime ago so many things have happened yeah weird as a starting point it would be really good to catch up with you that episode two years ago was all about the Stargate upgrade and this got me thinking actually and prepping this like what is the timeline of Cosmos maybe you can just like do a step by step like for example I forget if IBC had already launched or not yeah it's very fast okay so okay cool 2014 Jay Kwon comes up with tender mint as like an idea and it's basically the first person who's like I can reconcile the differences between like academic basically useless bft research and like this weird Satoshi Nakamoto Bitcoin

thing and basically Jay gets like all of the key points right so I started a company which will become relevant to the leader parts of our discussion called skew chain uh where we were going to do uh like supply chain assets on blockchains ooh when you started that company we raised a little money we were in an office with a project that later became dfinity so there used to be this mailing list called crypto economicon it was a Google group uh and it that was like back in the day where all the smart people like where a lot of the smart people who were kind of like a little bit less maximalist were all hanging out so we invited that mailing list to our office and so like vitalik came Vlad came Vlad at a friend from college named

Ethan Buckman just like a lot of people who would go on to be big parts of the crypto industry all all came to this conference so Jay and Ethan met each other I think honestly I think for vitalik I mean I remember talking to him after it he was like yeah I watched Jay's presentation it was probably the first because I really got him started the gig about proof of stake in a different way and you know so all of that happened so then Jay and Ethan start working on it that's 2015. 2016 they decide to do a public chain because they kept trying to find Enterprise users of blockchains and it at the time you know I was all IBM and everybody nobody wanted this like tiny little project by two nerds two weirdos

in the mission so they decided to do a public chain collectively we arrive at the cosmos architecture which was very uh inspired by both Jay's work on on-chain like clients and Mark Miller's work on like interoperable Sovereign systems so Michael are one of the founders of agoric uh so I didn't know him at the time but like I'd found his website and stuff and I was like really into it so okay that's 2016. so 2017 fundraiser raised 17 million dollars eat is like 40 dollars so everything goes up so like The Interchange Foundation basically gets funded 2017 2018 I joined the project full time we do game of stakes at the end of 2018 we start the

validator program companies like figment at bison Trails all get started in like the Cosmos validator program 2019 we launched the proof of stake Network on top of tender mint and the cosmos SDK we get early adoption by some projects that a leader turned out to be significant both binance adopts the cosmos stack for doing a BNB chain and Tara adopts Us For Better or Worse you know for better or worse so that's 2019 so at that point agoric had been founded and so I call it the agoric guys and I'm like the plan was always hey we're going to like Implement your ideas on top of tender mint well tendermint is live I told you

I'd call you when it was dud well here it is come help us implement it so we design IBC together oh really I didn't know the agoric team was really involved in the IBC design yeah if you want to give you my best guess as to like why IBC works as well as it does is it's because my Mark and Dean have basically implemented all of their ideas and like Enterprise settings like two or three times before and we just implemented them on top of tenderment and public blockchains um and so we got to skip like a lot of we got to imbibe like two to three decades worth of like burnt fingers experience and this is like why IBC just like you opened the box and it just

worked instead of like having to like stumble around in the dark for several years right crazy wait so tell me say say this again design completion IBC is when 2019 is the design of IBC so 2020 J becomes increasingly unstable and difficult to work with um so the entire engineering team basically leaves um I leave work on occlusion Jack goes to Strangelove the Berlin engineering team splits off into a subsidiary of the ICF oh yeah that was 2020 spring and I remember this is right before the lockdown and everything but at that moment yeah this was right before a while Cosmos was looking oh yeah we

everybody thought we were dead it was like super not clear it was going to be okay yeah I don't know I thought I was not sure if we were if we were gonna lie like I was like but I feel like Chris goes and I like had like a blood pact we said if there's no money if there's nothing we will write we will write IBC ourselves if that's what it comes down to we will do we will do like we just like swore to each other that no matter what else happens we were going to ship IBC but there there was this odd thing that is like way down in the details and nobody really remembers it where the way we built IBC involved deeper changes with Cosmos SDK that had the unfortunate impact of breaking a lot

of our exchange Integrations and so that's what the Stargate episode was about it was about this massive process yeah but shipping IBC so then we ship IBC so like all of this stuff is done IBC everything is done in about late November 2020 but you can they're you know between crit the holidays and Chinese New Year there was just like no reason to launch this we could not launch this thing until March so we watch IBC on the cosmos Hub uh March we do the Stargate upgrade it's all a success at that point I'd already started working on sommelier but the honest answer is nobody had a plan for how to what to do after IBC launched yeah uh and so kind of IBC just kind of like sat around nobody really

did anything with it although people used it like what's crazy now is I mean think about like when we talked about thus that upgrade and that time two years ago I mean since then there's been all of these chains launched there's like exchanges that actually like the fact that they could have sort of this boom of air drops two years or like last year was because there was some way to move it around this ecosystem all over IBC but it's funny when I when I just said that though I just said like and since then it's been used a lot but you're shaking yeah so there's like this Gap there's March to July okay okay and then in July osmosis comes out uh yeah and

osmosis bootstraps IBC they bootstrap IBC uh you know the airdrop is a success uh they launch with this amazing sort of Skinner box user experience where you know you get your rewards you got to reinvest it like they bootstrap all these liquidity pools and like osmosis gets Off to the Races and then and osmosis suddenly you know it establishes this pattern right you can launch a chain you can incentivize a liquidity pool you can do air drops you could bootstrap liquidity and then by the end of 2021 the UST carry trade is like the dominant thing happening in Cosmos um where basically like most likes the

smarter people realize is that the best way to get into anchor was to buy items take them to osmosis swap to UST go to the Terra chain and deposit into anchor and in and out and so billions of dollars are now flowing over IBC and it's like insan like through osmosis you know and it's it's kind of crazy it sounds amazing when you say it by the way billions of dollars are flowing over IVC through osmosis yeah like I know we're thinking of the project but just if you take the words it's such a good branding anyway like just in terms of timing you're talking end of 2021 yeah we're going into 2022 yeah what happens to Cosmos so in 2022

for the first half of the Year everything is kind of going gangbusters kind of up only um things are going well lots of air drops lots of air drops lots of liquidity everything and then Terra collapses in May and uh you know that's a huge blow to the ecosystem you know cosmonauts lose many millions of dollars um from you know being in the osmosis liquidity pools and stuff like that you know you know many of us have like six figure plus losses uh you know it's hugely damaged into the ecosystem and everything on the other hand like the reality is is that like from a tech point of view Tara was always very was very distant you know

the thing the core Cosmos team was constantly trying to figure out a way to do is like get dough to actually like fund some technology development and like actually be more involved in building the platform but like none of that stuff actually like had happened at that point just just a question I wanna I actually want to ask you about that moment so when that happened was there an existential crisis in Cosmos was there like a moment because it because it was so closely tied it was running on the cosmos SDK it was it was a Zone a chain connected to IBC it was a Zone it was a chain it was the largest pools on osmosis it was the dominant stable coin in the IBC ecosystem it was like frankly a large percentage you know just a large

had a large impact in our user base there was also a lot of concerns about consensus takeover there was this whole very dramatic thing about where the validators of the terror chain kind of stepped in and took over the chain a century by freezing staking oh yeah yeah it was by far the most chaotic thing that has ever happened I've ever seen ever been a part of it was crazy and like to go to zero that fast had you ever seen anything like that yeah I mean but the thing okay so the thing is is like I was very well aware of the death viral risk of Terror okay right every time anyone had asked me about it I you know investing in Luna et cetera I would say things the same thing I would say like probably the best thing about Luna

is the mechanism is very simple um like the code you could read all of the code to like how does USD work in like an afternoon inclusion has actually written an implementation of the Oracle um at one point because for a while we were actually validators on Tara that we had dropped out of the validator set because we were uncomfortable is like the actual answer but we still had some Luna exposure but we had dropped out of the validator set because we were sort of uncomfortable with how things were going there but you know I would always tell people I'm like well there's this thing that'll happen right if if UST depegs which is uh you know you could print infinite Luna and it just destabilizes the whole system you know the system has a huge death spiral risk

and that totally was a thing but was there sort of the sense that it was like it could happen but it won't happen like why if that was so well known did people still continue to like it was for I guess the first half of the year or maybe even longer the stable coin of Cosmos in the largest non-dollar-back stable coin in the entire ecosystem right was it bigger than maker do you think yeah definitely bigger than die it's bigger than die oh it was huge at the peak you know it was like 30 billion dollars or something like that what I think about what UST was it was basically a fairly interesting and novel Financial structure it was like a form of Leverage introduced into a system that hadn't had never existed and would

could never have existed with a kind of without blockchains and without probably without the cosmos SDK it would be a it would be relatively hard to build a kind of leveraged a form of Leverage like this but then you know the people who were really drawn into that ecosystem right were people who were really good at leverage and momentum jump Galaxy all of those things I continue to talk to those teams on a regular basis I talked to those teams on a regular basis there I talked to them about the d-peg risk on our also on a regular basis and you know it seemed like it seemed like there was enough financial Firepower to sustain the system at that level and like sort of the General Vision of Luna was like use

this extreme form of Leverage to like this form of Leverage that was built into the system to grow really fast get big and then sort of buy your way back to solvency almost like become too big to fail become too big to fail and then buy your way back to solvency yeah because I guess like there was sort of almost a dependency on like people buying back or like and you sort of saw that in the exact moment of the fall where there was talk of like trying to get some backstops some big groups to come in and kind of like keep the pain because it happened at smaller scales um yeah at smaller scales people had stepped in uh in previous times when the peg had been tested I don't think the

full story of like what happened is known still right now um it I think it's going to be really interesting as you kind of like as like the Alameda and Genesis bankruptcy filings kind of get worked through uh how much information about the fall of Terra but like these actors were like very without a doubt you know and it's like publicly right right like the the UST for Bitcoin trade that set up the stability fund for was a was the counterparty was Genesis right wow and so you know that's public knowledge um and I think it's going to be really interesting to see like well how much of the financial history of this period of

time uh comes down I mean this sounds like a book like the things happening behind the scenes to cause Luna which was our obviously like built badly and had that vulnerability but then to see the Cascade and all of the ways that people tried to sort of Escape it and it just sort of bulldozing over every one involved in a way wow I would say that like a lot of the people were heavily invested in Luna knew what it was I don't the question of whether or not was built badly is like represents like an interesting question because it's really more about what do you think is an ethical level of risk in a product right like the code was there anyone

could read it I do not think that there's that like ultimately this is a story that is primarily about fraud I think this it's ultimately a story around like the code was there the people who backed it were super familiar with how it worked the d-peg risk was well understood in terms of like what it like what would happen and the question is is this was this a product that exposes too many people to too much risk of loss to like ethically build the product which is an interesting question like and like a question that like I have feelings about I work on stable coins all the time I build stuff on top of stable coins on sommelier I work on the agoric stablecoin IST I think a lot

about what is the ethical level of risk if you build a decentralized stable coin of any kind there is some amount of risk and the question is like what is the ethical level of risk to expose people to and I think that is a more interesting and more nuanced question that I think has largely been lost in the whole I also think I do think at the time like when you say that I mean one of the faults of the Luna ecosystem I think you can pin on them is like the marketing around how it worked and how safe it was and like it wasn't that they were going hey this is very high risk but could have great reward that wasn't the marketing and a lot of people who couldn't read the code like yes the code is there but

like they wouldn't understand what that they're not looking into the code were kind of taken in there's a weird thing though about the culpability there because the people who were most aggressively marketing it as safe as far as I can tell were the exchanges themselves I think it's hard exactly to find something from T like I mean because everybody's looking like like that would be that would be your like Smoking Gun fraud claim right there they said it was safe they didn't disclose how it worked or its risks everything and so far I mean and from what I've seen I think I haven't seen anything where somebody is actually able to like pin tfl down on that work where do you find the misleading stuff is is

on the exchanges on the docs around that where it's like oh this is a stable coin blah blah blah blah it's always going to be redeemable for a dollar blah blah blah blah right I think the Luna story has a lot of nuance to it there's definitely a lot to be learned from it so anyways that was a collapse of Luna biggest story of Cosmos in 2022 the contagion spread far larger than anyone would have really imagined I wonder actually don't you feel like after that like Drop though Cosmos as an ecosystem it continued to be affected by the General market but like that was its shock and it then sort of leveled out it almost whereas other ecosystems just tumbled one after another month to month

it feels like um it was a very strange experience in general for me because one of the things though that happened is it was like Terra collapsed and I remember just kind of like you know I was like in a hotel room with for a conference in Croatia kind of like in the validator chat like trying to help people out and just like you know kind of it's shell-shocked by the scale of the collapse and then I like was like went down and like floated in the ocean for a while and was like I wonder if Cosmos is going to come back from this is it all over um like this is pretty bad and then like bizarrely the phone was ringing off the hook I think the other thing that has to be recognized though as a true statement

of Cosmos is Cosmos has not come back yet is what is a thing I would very much say about the truth of Cosmos is we have not come back from the Luna situation we have there's a lot of green shoots there's a lot of things that potentially might represent a true restoration of momentum but the actual reality of Cosmos right now is liquidity sucks Dex volume is a pale shadow of what it once was um developer numbers are pretty good there's a lot of people building but we have not hit a product Market fit moment but I would say the thing I'm most excited about is dydx chain other that

you know I'm very excited about song but the thing that were the things that we're doing with dydx the things we're doing with Benin usdc natively to Cosmos and like what's generally happening in like the modular Celestia roll-up ecosystem represent to me like a bunch of things that are very going to be exciting for 2023 there's a number of of kind of dark horses like Kanto and baruchain and stuff like that so Cosmos continues to stay weird interesting stuff continues to happen to be really satisfied we need to get we need to truly move Beyond what happened with Luna in 2023 um I think we have about this year to do it and if if it doesn't happen in this

year I think we have a have a like I think most likely what will happen is the app chain thesis will have been right but the cosmo stack will not be the dominant app chain stack what will be though what could be you know there's so many other players in the app chain thesis world the optimism stack which both like optimism like they call it the op stack um is becoming a thing uh starkware is is building their own sort of app like starkware arbitrum optimism all have app all have app chain sdks essentially um that are much less mature than the cosmos SDK our OG pure polka dot is also

starting you know is finally the pieces are starting to fall together so I think that there's a lot of stuff great stuff going on in Cosmos there's a lot of momentum you know I'm on this thing called the technical Advisory Board which is we're we're trying to contribute or a new strategic Focus for Cosmos and we've dodged some bullets like we had this really bad vulnerability called dragonberry in October that like was never exploited and all got patched my role in this whole story right is and like my honest take on Cosmos is the app chain thesis is starting to make more and more sense to more and more people the you know it's it's great to be right eight years later um there is a lot of stuff there's a lot more things being built but there is

this need for like really a strategic Focus this year um and I think things are pretty well aligned to come together like all a lot of the pieces are in place um and I'm excited I'm I'm bullish I'm I'm working really hard and it's it's it's kind of great to see all of these pieces coming together but uh we're not there yet we haven't recovered from Tara yet and we won't until and unless some of these pieces really hit can you tell us a little bit about like kind of atom 2.0 because I know that was an attempt to actually do that right this was this was a Manifesto or something Adam 2.0 was a Manifesto one of the things that

happened with the whole terror story right is Adam really got displaced So Adam is this token that was launched it was the first uh it was it was like one of the first change launched with Cosmos SDK but like B and B chain atom and Iris all launched like roughly at the same time it was also one of the first proof of stake generally like I think tezos was maybe out before but because this was before us yeah like because this was probably the only really legit proof of stake chain to launch before us uh but now but like tezos eventually is now running a variant of tendermint so you know oh funny like all paths lead to the cosmos SDK I guess I'll I'll Pat's lead to Cosmos right uh

so the uh the question that like comes down to it is uh I'm sure Arthur's gonna yell at me about this too the but like yes it's true it's true you know uh Teslas is running a variant of tender mint today so like Adam is this token it was launched for a variety of reasons like we never really had a strong story about what Adam was for in the cosmos ecosystem um it was just like hey you participate in the fundraiser you got this token you run this network hopefully you guys will figure out what to do with it yeah and maybe just to note this for for listeners like IBC and transfers over IBC while part of sort of the cosmos effort none of that is funded there's no

like fee associated with that's an atom atom as itself still just lives in the hub although I mean it is one of the main trading partners I think over on osmosis too right like there is it's pool it's used I mean it's amazing to me that you know you have axolar which is a cosmos SDK chain that enables this bridging and it Bridges between ethereum all of the almost every L2 Avalanche polka dot Collective flow through osmosis on axillar is equal to the amount of flow between atom and axel and osmosis oh wow so like what Atom 2.0 was really about trying to create this idea around is what we call the atom economic zone

um which is a subset of Cosmos where Adam is used for security we're liquid staked atom is a major store of value and the unfortunate like so like the main thing that happened with atom 2.0 is you like J sort of resurfaced after having kind of been pretty inactive in the cosmos community and right after Cosmo verse and the announcement of atom 2.0 he led this like sort of veto campaign in Cosmos governance against the attitude now at the end of the day like the atom 2.0 proposal was just a signaling proposal in if it had passed nothing would have happened if it had

been failed nothing would have happened so like the whole story of it was nothing happened I think what it what it definitely did do is it framed the problem which I think had maybe been ignored a little bit like I felt like it really brought that to the Forefront that like what is this asset really for and what's how do you actually make sure that it it still has you know some purpose Beyond just living within the Hub yeah and so you know I think Adam was a little bit tabular Rossa it was like this Blank Slate that like various influencers and other people could like input be like oh Adam will be this and tell a story Adam will be that and tell a story and I'm

I'm glad we did this I think in the long run it was the it's going to have been the right thing to do which is to basically go out and say like look Cosmos can succeed without Adam if atom holders are just happy with this world that they are in because yes you know Adam ended up being an important part of like the anchor carry trade yes it is currently a big part of the osmosis trading sort of ecosystem um but it seems like only a matter of time before that reality is is eliminated native usdc was announced at the same time at the same event as atom 2.0 I think it's like without a doubt it is only a matter of time before like the

current role of Adam in the ecosystem uh is displaced and if that happens you know again the network could succeed the Technologies can succeed IVC can succeed but what it was basically a bunch of people who decided you know we are going to frame the problem of and like propose a solution but the thing that it has has sort of created is this there does there is like sort of a sense of Warring camps right now in Cosmos I would say most of the people who worked on atom 2.0 have have shifted their attention elsewhere but there are but like so one thing that then happened is

um the cosmos Hub has always had a very small community pool relative to the other chain other Cosmos chains most many Cosmos chains have you know 10 20 30 of the token Supply in this governance controlled Treasury and the atom treasury was you know for it's a 3.5 billion dollar chain and at the time it ended you know typically as a treasury around like 10 or 15 million dollars right so like not enough money to actually like really do anything yeah and so one thing that did happen is a governance proposal was passed to redirect more emissions to the community pool um and now there are some governance proposals out about like setting up grants program programs and how to spend

them there's a lot of discussion around Adam economic zone and it continues and it remains to be seen the atom token can overcome its problems or whether or not you know another thing in Cosmos displaces it but I think like the best outcome obviously it would be some effective piece of the atom economic zone thesis gets realized um Adam it becomes like a more effective means of carrying the message of Cosmos out in the community and like Adam can be like a sort of foundational asset that like bootstraps all of our other ecosystem players injective and secret and igoric and all of these other things to success cool well this is a great

recap that has been that's been the drama of my life for the last uh two years since I was last on you know a few a bill you know a collapse of a 40 billion dollar ecosystem a few billion dollar abilities mitigated you know it's just another day in my life we're just chilling let's talk now about the project that you co-founded sommelier and how that's going because the last episode you were on was all about the Stargate upgrade the one before that was all about sommelier you've changed a lot I think that you've that project has pivoted quite a bit as well so yeah well so in many ways similier is is a system by which we offer actively managed D5 strategies and

what we do is we do this through a combination of a cosmos chain and ethereum smart contracts would you say it was inspired by yearn was it like when you talk about strategies and vaults is it similar okay so like as we kind of pivot this conversation we're talking like kind of reference the first episode of the year which was you know you to ruin Kobe Guillermo talking about the sort of different kinds of asset classes and all the stuff so we are definitely you know we definitely stand under shoulders of giants like urine but one of the things that urine has never been able to figure out how to do is to have a truly MX strategy I.E a strategy that adapts to market conditions because

the thing that happens with all Financial strategies and D5 strategies in general is they work and then markets change and then they don't produce good returns anymore with the design of sommelier that I came up with my co-founders with is we basically use the cosmos chain as like a coordination and governance layer to basically say hey like you can have an actively managed strategy but there's actually a mechanism by which someone else can step in if that strategist like disappears the vision of this was always to like really enable complex defy applications but so we launched the first sommelier

strategy right after Tara blew up so oh man that was annoying we've had a tough time with strategies right like uh we want so it was a stable coin yield product on top of Ave so that was the first thing then we launched these portfolio management strategies later in the year but then uh FTX blew up uh and the markets were down only so today we are recording this on January 26th so January 25th um we launched our for uh a new stable coin yield strategy which I much honestly hopefully nothing else will explode um it's like how if tarun's in Mexico something crashes for you it's familiar

it's about to release the strategy hopefully not this time but yeah I mean it's actually been good if you actually look at the data for sommelier so you know tvls have been not what we've been hoping for to be like very straightforward you know there's about two million dollars being managed by similier it doesn't really it's not super great but if you look at our strategies our eth Bitcoin strategies are you know up by like 20 30 now like we have like all our portfolio management strategies starting to be really profitable um this new yield strategy that we just launched is the first strategy that composes are they lending compound winning and uniswap univ3 lping into a single Vault

um where the uh we're the first people to do that and like what are you know numerical analysis and uh totally validated by the first day in production is is like more than 50 of the available stablecoin yield on ethereum is optimizing your univ E3 positions and no one else is doing that in a decentralized setting and that's built on top of a technology that has taken us almost a year to build which hats off to crispy mangoes and Kevin Kennis from our smart contract team for like dreaming all of this into existence what similia is built on is one is we built this governance layer on top of Cosmos which right allows for off-chain strategists to a proprietary Alpha to communicate

with the decentralized network and get decentralized execution of these trades but we also have built like essentially like a full-blown fund accounting platform essentially in an ethereum smart contract so you can enter and withdrawals we do nav computations like net asset value computations we like figure out the asset and now with this latest platform that the new uh yield product is built up we can combine any D5 protocols on ethereum into that nav calculation system it's honestly super exciting I'm I really believe that we call it real yield USD is the most state-of-the-art yield protocol on ethereum and so I'm super excited about

it about a half a million dollars came in over in the last 24 hours people don't really know about it but I'm really hoping we're gonna be able to like really Flex some numbers my like tiny preview of flexing that number was that we like our uni V3 fees on the first day were so large that like if you annualized them over the year it would have been an eight percent yield it's real cool I think we're I'm excited about being able to flex this stuff it's really exciting and like this kind of Loops back to the cosmos thing which is Cosmos was really driven in 2022 by airdrops hyperinflationary staking rewards like lots of just like money printing like everywhere you go every just like money printing everywhere and

that's another like big problem in Cosmos that we have to get past so you know similier is a fixed Supply token there's only 500 million we're launching uh non-inflationary staking rewards uh soon why am I coping for like it's like a week or two you out yeah so we're going to be powering our staking rewards but both fees from like things like real yield USD and then we're also going to be pulling from the community pool but we're not printing tokens out of thin air there's 500 million some and that's how much some there is just to kind of like recap though when when I had first heard about it I always thought of it as very Cosmos native it's like built on the cosmos SDK and the causeless ecosystem tradable within like IBC and

IBC enabled the token but all of these strategies live on ethereum right or like or it seems like you're pointing at ethereum more then the next chains that we're going to launch on are like all other EVMS so arbitrary February sometime in February will be on arbitrum and Avalanche as well I would say that like the biggest reason for this is and like all of these things are related right it's like Cosmos defy has been very immature relative to the evm and Solana D5 ecosystems um like Cosmos D5 has basically meant dexes right that's what what it's meant we've had a lot of dexes and we we have more dexes coming and we have a lot of decks is it just

like years like it launched long after ethereum launched and ethereum just needed x amount of years to start getting the sort of confidence where more you know more money could be put into it by larger players like is that possibly why it feels immature there are a couple of missing pieces one missing piece is the liquidity piece lack of on-ramps lack of easy way to get funds in and out of Cosmos and that's definitely a challenge well you take the example of sommelier so we do these uh nav calculations when people are adding funds by being on single chain and even when we do arbitromend osmosis or arbitrum and Avalanche we're gonna we're

still gonna be single chain on those two it's just going to be we're gonna have products we're gonna have sellers on multiple chains but each seller will be self-contained because you can do all of the nav computations atomically on ethereum as people add funds and remove funds right so you can do all that accounting it all happens atomically in a smart contract when you build these things in a sort of multi-chain world uh whether it's Cosmos or anything else now you're introducing like these cues because you can't instant atomically calculate nav because you're so you're like you would like to add money okay at like this time we will like finish our nav calculations and then give you your LP shares because

based on our nav computations and like the same thing will be true when you exit so why why is sommelier so focused on ethereum D5 two things one is I really really truly believe that active management is like decentralized active management and on-chain asset managers are like a key primitive that we have to get right because right now the D5 version of be your own bank is like really legit be your own bank I.E like be the back office be the front office be a bank like you know do everything yourself and nobody will this is not oh sustainable strategy right you know sitting there and hand optimizing

your tick ranges on univ3 is just like not a thing that like anyone should be doing this is like you need a professional but how do we do that without centralization right so that's the problem similarly and like The Primitives that we see in ethereum are showing up all over Cosmos now we're starting to see money markets we're starting to see liquid sticking concentrated liquidity is coming to osmosis like all of these pieces are coming and you know I believe that if we can find product Market fit on ethereum like I'm starting to you know get excited about the idea but the ux that we have focused on building and types of sommelier which is this like instantaneously put your

liquidity instantaneously take your liquidity out you know the instant you put your money in its earning yield when you go into your real yield USD it's like the same transaction you're like funds are already in Ave like earning yield uh and like it might get allocated into a tick on unev3 or it might get allocated somewhere else uh but you know like this experience whereas like in the multi-chain world you are definitely entering in this world where there are like I put my money into a thing I I might not get my like what LP share for hours I want to take my money out of the thing I'm not going to get my money for hours and so that world is a very very different world than the world that we

built for the sommelier user experience on on ebms I think that world is the world that the cosmos world is inevitable I don't think that we're gonna you know this idea that like all of D5 is going to live on one chain and like liquidity isn't gonna move around and all this stuff seems pretty unlikely at this point um so you know we're all gonna have to build this stuff but like I want to show the power of active management I want to show what it can do it's going to be a lot easier to convince people to put money into these things once the once the single chain uh primitive that we have you know there there are people like Quasar who are basically building sommelier type strategies for for Cosmos today

um it's going to be like interesting to see how that goes do you see yourself switching over though like do you imagine that you would also include if there is like compel I mean obviously if there are compelling cases you probably would but like would you even try to like instigate compelling cases over in Cosmos do you still want to yeah yeah we do okay um we think a lot about it but it's like it's still there's still a lot of pieces right if we wanted to we could launch a thing on top of Osmosis for instance like later in the year once like concentrated liquidity and all are are sort of implemented that looks a lot like the kinds of sellers that we're running on ethereum but it wouldn't be multi-chain so it's like It's tricky to like figure out exactly how we want to

do it the other thing that's like absolutely true is just like the cosmos it matures it matures slowly and unexpectedly like similier we had to build our own Bridge because there wasn't any Bridge we could use but there are multiple protocols that are building bridging products for Cosmos that would have allowed similier to exist without building our own bridge but you didn't have it at the time so you had to kind of build and now it's catching up it's two years later and this stuff is still in testnet so you know it honestly takes some time for these and by maybe these things move more slowly because of just sort of how uncoordinated uh Cosmos can be um but yeah these pieces are coming together but like I said like how to get

the Q like user experience right and stuff like that are still big challenges I want to shift a little bit to another topic that I wanted to cover in this episode and that's kind of revisiting you sort of mentioned that episode the first episode of the year in that episode we talked about these like asset types and tarun had this really nice like kind of history and and year by year on what kind of asset types were important and the funny thing is after that episode came out like for me at least literally the day after everyone around me was like real world asset and I had not actually been in conversations before that moment hearing about it um and we we for we didn't mention it it

was sort of like missing from that part of our conversation um you and I have chatted since then and you mentioned it and then I was like oh man like I think we need to bring it up on the show so maybe we should Define this for folks when we hear people talking about this what is it is it the same thing we saw in 2017 okay so just to like sort of summarize a little bit about like what I remember from the first episode of the year was tarun was making this point where he was like every kind of sort of bear Market era of crypto always gets defined by like so like first there was Bitcoin then there was the alt the Bitcoin Fork era then there was the erc20 era in the 2017 Ico boom then there was like the

alt L1 staking coin era kind of around like Cosmos polka dot Teslas all launching then there was like uniswap LP shares nfts get introduced somewhere in there nfts which hang around like are around even in 2017 suddenly find their moment um and so two things that are kind of true right is like every time an asset class takes off in the crypto ecosystem there's something that ran like looks a lot like it that existed before that didn't take off um I think is like one thing so like erc20 has had their pre-existing things called colored coins which no one was interested in erc20 takes off and then like erc20 blows up

um so that has been a pattern but there's also there's this like you know it's just like everybody like says this time is different and groans right like the groan is heard throughout the Universe reverberates because you know I started trying to put real world Assets in blockchain in 2014. and I tried real hard at it for three years this is going back to your story right this is the beginning of the story what was the name of the project skew chain around okay still around still in business hasn't hasn't died um actually has like high profile customers like apple and stuff like that who use parts of its stack but uh let's first talk about what we mean by real

world assets so yeah one there's there's a form of real world asset that has had enormous success which is dollar backed stable points so tether and usdc and the the paxos family of stable coins busd are all in the real world asset family and like collectively you know represent you know probably like the third largest asset encrypted right so when we say real world assets it's like well they exist they're a thing they're a thing they're hugely valuable useful have achieved enormous product Market fit but basically you kind of have crypto native assets crypto native assets are assets that have no reference to the real world

and their value is just what people are willing to buy and sell then you have real world assets which have different properties where they are redeemable for instance in some way for assets that exist off chain and there is like an implicit there's a contract that exists between the holder of that asset and some off-chain entity that is sort of represented by the on-chain asset so if you hold usdc it's you have a contractual relationship with center and circle and you are able to like redeem that usdc or like you are able to potentially trade to someone who can redeem with that same thing is true with tether would you add things like the Supply Chain management projects into

the real world asset class by the way I stumble on this one real world assets ah there said it yeah I don't and again it's again we like we continue to be as a blockchain terror as a community terrible at naming our thing um you know our wa our now we're calling them rwas uh which like you know is just going to be endlessly confusing too um what I would describe it is crypto native assets are counterpartyless assets they're assets were your owner only counterparty is the decentralized blockchain system so you're both like settling and trading sometimes and like lending and borrowing

and defy which like makes the the intermediary native to the blockchain but then your only counterparty is the blockchain itself nfts have definitely blurred this line already um because like you know you you get a board ape and you get invited to parties and stuff like that like there's get experiences their experiences and contractual rights and and stuff like that that get wrapped up in it already yeah and rwas are a more explicit form of that where the where the thing that you have formatted and are trading on a blockchain there is a defined there's a counterparty that is off chain that your thing you are trading on a blockchain represents a right to that's real world assets and like supply chain off chain

lending debt protocols so so one thing that is cool and like the best argument for it this time is different is previous generations of real world asset products all all we're basically living in like highly self-contained sandboxed ecosystems like skew chain did the first cross-border trade on a blockchain there was like real estate where there would be like you'd have tokenized portion of a house I remember that being like an earlier one but all of the stuff tended to exist in like very minuscule pilot projects or highly sandboxed environments like not in DVI interacting with like the all of the

stuff that's happened in smart contracts could build strategies around it all of this stuff you couldn't really get return on it could you it like you were still sort of hoping that you the price would go up or or the return was really only from that real like the rwa right so it would have been from in the real estate case it would have been like the rent or the increase in price of the actual physical real estate so it the yield didn't look very exciting in a way yeah maker has this like large treasury of billions of dollars of usdc and Gemini USD like stable coins basically uh because of the way that of the way the parity stability module works and you actually have get like real world

debt agreements where they they are you know loaning money out of the PSM to go out and uh interact with off-chain counterparties like actual Banks you know so Society General has taken like I think a nine million dollar loan out of the PSM um and facilitated that like you so you have that there's another protocol called ondo Finance which is making a representation of Treasury bonds available on chain so they can be held in smart contracts Etc you have maple you know they just announced a supply chain Finance play centrifuge has about 150 million dollars of real world assets um in their ecosystem so you know it's like actual money is moving at actual

smart contracts are being used it's happening on actual public chains and so that's the argument for that this time is different it's a very common thing that everyone's saying right it's like when treasuries were one two percent right and you know defy yields were eight ten twelve twenty percent everyone's like why do you need real world assets like all we want is crypto native now you are having like similier is throwing like an enormous amount of advanced technology at ethereum we think we can get four to six percent um which is like one percent better at best we think about one percent better

than like holding a treasury ETF right um which are which are like 3.5 percent right now if you're crypto native it's like not bad but it's like oh okay I could see why someone might might wanna in this interest rate environment somebody like built an ETF on top of Treasury bonds that like you could participate in in on chain so you like kind of like a hybrid of like what similier is and like a traditional exchange traded fund like that would be a kind of thing you could build with our Tech with the similier tech and Hondo or the similiatek and maple like you could build essentially like ETFs type things or like hedge fund type things but are

like very crypto native but like have these off-chain counterparties this is the kind of technology that we're like trying to enable this is the zero knowledge podcast um and one of the questions that one of the things that has been out there is like what are the use cases of ZK and the thing that I would observe about TK is like this is sickness property of ZK how has been like super successful and super dominant and has you know facilitated trillions of dollars of Trades and stuff like this right maybe it's been super impactful as well like the amount of people who touch that part of it is much much bigger than say the Privacy part yeah the Privacy part doesn't get touched and I think like one

thing I just like probably would be a good thing to discuss is so like there's some possibility that this real world asset thing might scale now um and I think for the reasons that we have because like you could have things like on-chain asset managers and stuff like that which makes on-chain assets in general more interesting but one question that really I think is a plausible scenario is that like ZK and the like privacy properties of ZK suddenly find their like moment of like actual relevance and impact in the presence of real world assets why is that do you think things that you need a lot more when you're dealing with

real world assets is you are representing a contractual right and you need to like kind of know your transaction know your counterparty um you kind of need to be able to bring a little bit more to the to the interaction with your counterparty where you're like I can prove more things about me so you know if real world assets are going to start to scale the other thing that you care about with the real world asset is you care about some of the properties of that real world asset so you're like you know if I'm like buying a portion of the house like what are the houses that like what does this represent if I'm buying an invoice like who are the parties of this invoice and stuff like this and you start to get deep into business stuff then like this is business you got deep into this

business stuff yeah but like you want to represent some of these things on chain and you don't want to disclose all of the details of your business like this is always a objection at skew chain right if the system operated at scale why would I want to put like all of like how much I'm paying my suppliers on chain right and different counter parties are going to want a different level of diligence and all the stuff and you do have a garbage in garbage outpro which is like ZK is never going to solve your problem of like is the thing I'm making a ZK proof is the underlying data fraudulent um which has been a tricky problem to solve but it doesn't strike me as impossible that we might be able to end up in an

ecosystem where there are places that attest and like agree on the sound you know counterparties agree on like large amounts of data that are they're like this amount of data like we all agree that this matches our internal systems which is like what's happening on skew chain systems today and then when you trade this asset on chain it comes with like a zero knowledge proof it's like here's the executive summary yeah and like here's the zero knowledge proofs with the rwas that you're hearing about do they tend to be kind of like the nft model where they are one-to-one and they're non-fungible or are they like fungible like you have a percentage of

something that's owned as a whole so the maple pools as I understand them are sort of fungible systems um they are fungible systems that you have that like you have tradable rights to and like you have like a credit delegate who's kind of managing the pool but everybody is it is a collective Endeavor like ondo Finance like treasury bonds are at least like for the kind of Treasury bud are fungible with each other so that's that like you have classes of assets you've yet to see I think like really like a financialized real world asset nft thing really take off yet but it seems like a thing that could happen at any moment those pieces

of the puzzle are I think are coming together and like the ZK tooling is definitely getting to the point now where like I want to attach proofs to an nft I want to instead of some counterparty permissioning me into the pool there's some list of people and if they give me a zero knowledge proof I can like enter and like start trading against these counterparties like that world is kind of a thing that is the pieces are there yeah I'd say it's still in this fun experimental phase in a lot of ways where there's no it doesn't seem like businesses have been built around them I mean businesses have been built to build those tools but you're not getting like they're not necessarily yet being incorporated into like true

business practice I think that is represents probably the the like Frontier that likes it just like seems like it's a honestly about to break down and like I don't know when I decided that public change and crypto native assets were where I wanted to focus in 2017. it wasn't because I believed that the real world asset thesis that I'd start out with was wrong I believed it was wrong I just realized that the public chain technology had to mature a whole bunch and then it would be compelling that it like starting with real world assets was not the right place to start immediately after the FTX meltdown I was very surprised to hear

like smart people start telling me real world assets and I was like and my initial reaction was grown I can't believe we're doing this again like I don't want to this I remember how much it sucked um but then I'm like keep talking to people keep having conversations that go places uh people keep showing you get real world transactions actual legal structures uh actual money moving and I start seeing how all the pieces will fit together and I'm like wait we have the pieces now like we have scalable fast interoperable public blockchains we have D5 Primitives that are actually battle tested we have you know on-chain Asset Management Primitives we have custody we have all

of the things to actually make this work and like you know the speculative fervor has died down so you know people are like well we have to build things that are actually useful um and that that may have uh that we we might be in the we might be in the uh we might be at the cusp of something transformative I remember you know the first time Iran and Ellie presented zero cash at my like tiny little Meetup in Mountain View I that was kind of what I was thinking when I saw that I was like okay like you know we are trying to build this supply chain blockchain thing people have like enormous concerns about revealing all of their data on chain they don't that makes them very nervous

but like these people have shown me this like magic math that lets you have both you know soundness of information of like computation and privacy um and it seems like we could do it but now it's all you know you have programming languages for it and all of this stuff is coming together so maybe this time is different maybe that's a good point to wrap on I feel like your story has come sort of full circle with it so yeah thanks yeah I was not expecting to tell the story of my the last two years of my life on this podcast it was incredibly uh enjoyable it all does fit together right yeah it's quite a narrative I like that thank you so

much for sharing this with us and I want to say a big thank you to the podcast team Tanya Henrik Rachel Adam and to our listeners thanks for listening