The Future of Inevitable Ethereum w/ Jack Melnick (Polygon Labs)

Transcript

[Music] thank you welcome back to the strangewater podcast thank you for tuning in today's guest is Jack Melnick who heads up business development for defy at polygon Jack and I met almost a year ago which is nearly three decades in off chain years during that time Jack has become one of the voices that I respect most for everything on chain but what sets Jack apart isn't just his deep knowledge of ethereum and its possibilities it's also his ability to connect the dots between seemingly disparate ideas and Trends and to pull

together the big picture what sets Jack apart is his ability to see the future whether you're a seasoned Degen or you're opening your first sex account you're sure to come away from this conversation with a fresh perspective and A Renewed sense of excitement for what the future holds before we begin please do not take it Financial advice from this or any other podcast ethereum and decentralized finance will change the world but you can easily lose all of your money in the process so without further Ado let's Dive In Jack thank you so much for joining us

yeah thanks so much for having me Rex it's great to be here thank you well um so Jack you and I have been uh we met just kind of in the depths of Discord and like really from a um like kind of research and just love of ethereum background and so I've actually never gotten the opportunity to hear this um would you share with both the audience and myself just like what's your background and how did you kind of end up in this space yeah I would love to so I think relative to a lot of the listeners of this podcast and definitely the community at large I have a little bit of a non-traditional background uh I studied philosophy in college uh out of college I went and worked in traditional Finance for a few years on the sell side at a bank called UBS spent a lot of time

working with um the buy size specifically like long short platform funds like Millennium like Citadel I learned that I really liked markets but I didn't like traditional financial markets with where they were at the time which was especially during covid which is where I did the the bulk of my my career um and beyond that too uh I I kind of realized that a lot from like a more philosophic perspective a lot of the meritocracy that was kind of promised in a lot of these Trad industries that are like yeah we're super entrepreneurial wasn't really there um and I was wanting something else and late 2019 my roommate at the time

introduced me into D5 kind of broadly I started to get into it slowly and then very very quickly in 2020 I think with the release of Olympus Dow actually and so I was uh an OG Omi um and you know while that was fun and it's a great way to you know move making five five k into 100K is as your first trading crypto is definitely a way to get you coming back like a sucker at the casino um by the way your 100K came from suckers like me I was just six months behind you yeah yeah and don't worry like I round tripped with the rest of them but um but but at the same time you know

like from a traditional Financial perspective from like a traditional modeling and fundamental analytics background I remember I had always heard that crypto had no fundamentals crypto had no fundamentals it's all just sentiment and I had an example in front of me although it was an insane study in like mechanism token design there were also like clear cash flows clear um dilution events like all that sort of stuff and that got me into starting to like shift my Trad find mindset onto all this D5 stuff and so I spent about a year writing anonymous honestly on Twitter didn't know about substack didn't know about medium didn't even like do Twitter threads because I wasn't really even that knowledgeable about the

space of the crypto Twitter space at the time literally it was just like throwing Google Drive links out into the abyss um and through a mutual friend uh ended up at a company called the Thai at the end of 2021 like had this decision to either stay in Trad Phi um and go to a big hedge fund or come to crypto and I said like [ __ ] it like I know this is what I want to do full time and Maple Leaf uh join a company called the Thai big Information Services and institutional data provider it was like a nice mix of being crypto native and also working with funds which is what I knew I was already decent at um and so had an opportunity to combine both of those things join when we were 15 people and by the time I left a year

and a half later it was around 85 so super cool to see that kind of crypto native startup growth got to lead a research team there which was a ton of fun and um for me as someone that like always loved being in D5 for the past few years has written anonymously for a handful of large D5 protocols and continues to be very involved both on the D5 side and now like especially on the Dow governance side it was something that I always knew that I wanted to do was getting more involved on the Builder side helping support people that are looking to get into the ecosystem and you know given my background helps people take technical ideas that I could never come up with and turn them into legit businesses that

find product Market fit on chain and help like legitimize what we're doing in this space every day and so polygon was a great opportunity to do that there's a lot of really cool stuff happening behind the scenes and so getting the opportunity to come in uh at the end of January was was a really really cool leap yeah well I mean you came in like at the right time um I mean this whole you know the ZK evm and like the energy that it's about to unlock is I can only imagine like knowing that it was coming was just like the most exciting thing ever and now that we're here um you know I think I think actually that's like kind of a good pivot point so I I encourage you to continue in your business development role as much as possible and bring up polygon as much as

possible but just like shifting to a more wide open scope um like it's one thing to say okay I was in uh traditional finance and was unhappy with the lies around meritocracy which you're totally correct about and um you know from for your own particular career you found this exciting thing and decided to join crypto but it's it's kind of like a whole different Beast to end up where you and I both ended up which is like believing that um the point of crypto maybe is ethereum and um from ethereum you know incredible things can flow that build on top of it but a theorem is kind of at least my home base and so

When you entered the space and then the next two or three years in which you've like you know the space moves so fast but like built a very prominent career what um why why what do you see in ethereum and like what keeps you like so closely tied to the core backbone protocol yeah no I I totally see it um I'm agreed 100 with what you said like I'm ethereum to my core first and foremost it's like if I could be any more physically long ethereum right now I would be but my dad would be even more concerned than he already is and so I I had to call it um but I think coming from the background that we kind of come from we analyze things very differently

and there's this like big bifurcation in the industry that I've noticed generally and it's really realized I think most prominently um on ethereum and on ethereum scaling right now and that's this split again this is the philosopher in me coming out and I apologize for all of my tech listeners but like the split between the metaphysician the the person that operates on first principles and the pragmatists right who operates based on like what can we do right now what makes sense how can we sustain it and you kind of see it in terms of how chains are structured right the and it's hard to argue against either one of them because both of them are are so uncertain right it's just two different camps two different sets of opinions completely both valid for the time being

I would say the metaphysicians are the Solana types right who are building something that is clearly super legit in a ton of ways that has a ton of really smart people behind it that's battling against issues that they think are going to be facing like not just blockchain but Humanity for like the next hundred years right like how do we solve those problems that's for me given My Philosophy background like an impossible way to start and from a a traditional like metaphorical perspective right that's the equivalent of building a huge Tower with giant foundational blocks at the bottom that's awesome that makes for a very very strong structure when it's solid but remove one of the core blocks that

you had as a tenant everything's messed up right the entire thing is coming down on the other hand there's like if uh this other side of of a more pragmatic approaches where I really see ethereum and that's this idea of hey I'm taking a platform that works really well that's running as a sustainable business and I want to get into that later with you because I think that's a really important Point that's running as a legit sustainable business on chain in a bear Market that has the ability to scale in a variety of different ways that has a the ability to scale cryptographically that's really well decentralized that doesn't have buy-in from like too many large stakeholder groups right that ticks off like so many of these core tenants for us on the

blockchain side and on the D5 side that it feels foolish for me to abandon that in the hope of like going into a a one in 100 moonshot project even if the upside of that like down the line is theoretically better my belief is that over time you end up in a really similar place but with a much steadier State because you know where you are at any given point in time and so that's ethereum for me it's this it's this product that has been built that's elegant and sophisticated but also has like you know some patches on it that have just been like nailed over and you know they're going to get fixed eventually and it might take a year and a half later than you thought but they will eventually get handled right like the merge did happen withdrawals did go live and none of them was like this

terrifying end of existence event that they thought and if anything people's conviction is just getting strengthened and strength and the bear cases are clearing and clearing and for me from an investment perspective like this is the most excited I've ever been about any individual investment ever made in my entire life right and so I'm so bullish on this as a product given that you know I also work full-time supporting scaling it yeah yeah I think yeah let's we'll get to um like the fact that ethereum is a business and that is unique and special within Crypt dough and it's totally normal outside of crypto and there's something incredible in that but before we get there I think the thing that's just so

so important for people to understand when they're thinking like okay ethereum versus other chains or whatever is like look man I agree with you that there's obviously other technology to be made and like Solana is like the most interesting case because like I can sit here and have a credible discussion with you on you know delegated proof of history and like blah blah blah all the things that they're doing but then FTX happens right and and you look behind the curtain and you realize like I don't even know if anyone cared about the tech I don't know if any of this is real like this all might just be Financial manipulation and I don't know I mean I just I think the the people that look at blockchain and say like okay like ethereum's kind

of cool but we just needed to go faster like we need faster faster faster it's like you're missing the point of what we're doing here if you need fast Computing go to Amazon right go to Google like they just will let you create fake tokens and trade them through an API like it doesn't matter that's totally fine the the thing that's special about blockchain is that we all believe rightfully or wrongfully in this like decentralized credibly neutral space where like no one person can can ruin it or whatever and and just like to look at this like this this thing that we all agree is a neutral space and to think like it's just not fast enough we should start over like come come work at my

neutral space is like oh my God you don't get why we like this and so I don't know I mean I think I think there's space for Solana I think there's space for Avalanche I think there's space for Phantom but like when I when I see all these things I just think you're gonna learn what polygon learned from day one which is like you're gonna end up as a scaling solution and not an independent chain yeah and I think there's two kind of underlying things to unpack there the first is I actually disagree with a little bit with your take um and maybe it wasn't like your hardcore stomach belief but I I've had like a few people that have successfully over the years really convinced me that there is a

a real use case behind Solana like genuinely it's differentiated it's Unique like they're they're trying to solve for something that is just different than than what ethereum is trying to solve for the entire time and I think a lot of the like PVP and back and forth head-to-head comparison that naturally goes on between two tangential businesses highlights that and like really you know throws them side by side given that a lot of the core use cases are the same right now but I think over time you can end up in a point where there are like Different Strokes for different folks right and some businesses may need that kind of solution um where it's all based on a single chain and maybe that that the things that they have solved for also get

solved for by ethereum down the line and it doesn't matter um actually can you I mean I don't want to make you give someone else's point but can you like try to just like sum up that thought so I think the first thing I would say is you should get Logan uh just drumsky on this podcast he is like he he's the he works at a fund called frictionless they're super involved in the Salama ecosystem and he was the guy that originally kind of pilled me on what was going on there were a few things in particular he mentioned that I thought were really interesting uh and stuck out to me at the time it's like still stick out to me now the first and probably less like certainly less important one is the setup that the

actual chain in the ability to handle stuff like um parallel processing and execution and settlement makes for legitimately different issues and lack of issues around stuff like Mev searching sandwiching all that sort of stuff where a lot of that is just less of a factor because of their execution model the second thing that is ultimately way more interesting and this kind of speaks to like the core differentiated tennis that I'm talking to are his point to me was ultimately that like at the end of the day what's going to limit throughput on blockchains and he

broke it down not from like a TPS perspective or anything like that but from like a data propagation and throughput perspective in something like megabytes per second right and what's going to limit current blockchain systems is literally physical limitations like from physics stuff like the speed of light um the ability for these machines to actually process data in fast enough ways and his point is that as we've kind of seen and I think that this is like very accurate in a lot of ways upgrading stuff like ethereum is possible but it's very very slow and very very difficult and so the further you get away from the original intent of what was built the

harder it gets to make a necessary improvements to get it to what you need to be his point was first of all like if we have something that in a vacuum might be strictly better and this is hotly debated right like why wouldn't we switch to it that's like the counter factual side and then his second point was specifically around stuff like Hardware he goes okay think about what happens on the hardware side you have this Moore's Law situation where every six years your your processing power is doubling or sometimes even less than six years versus think about how long it takes to make significant upgrades to ethereum's core protocol if you have the ability to scale throughput that quickly by just changing your Hardware uh from a blockchain perspective as that

gets better over time why wouldn't you take that route versus trying to make like very very difficult additions to the core protocol to scale throughput a different way yeah I I think this probably isn't like the debate we want to have now but uh I'm not the right person to have it I'm not going to do it justice like because I think like the bottom line is like I mean if you're ever talking about the hardware that's running a blockchain you've lost decentralization it's over right because you now have to manage that and like make sure that these peop the people that are running your nodes are getting this latest state-of-the-art stuff to run the like and then again you're there's interesting stuff there like don't get me wrong there's definitely

like an interesting model where every major bank is running one of these nodes and they can afford to like make sure it's running and it's trustless between the banks or whatever but um anyway let's move on to uh let's move back to ethereum and like the the one thing that's like super super interesting um about ethereum it sets it apart from every other blockchain is that it's like sustainable it it it people pay more to use it than the protocol itself spends to keep itself alive and like that I I think there's like infinite things that we want to go on that uh Jack right before we spoke you mentioned that like this has been your like hobby horse for the last

couple months so um before I just like kind of go in whatever Direction like what when you um are talking about ethereum as a business like what are the most important things for most exciting things for you most important things you feel like everyone needs to know yeah yeah so this is uh before I start I want to say that I'm kind of strictly talking right now about layer one to layer one comparisons I think the layer two business model remains like really uncertain so I don't even want to open that can of worms right now um yeah let's be real we don't even have layer twos yet we have like a bunch of permission Chained and uh so like yeah we're out here working um oh yeah I think like if you take the strictest definition of a layer two there probably are no true layer twos

right now but there are a bunch of people that are progressively getting really close um and so on the layer one perspective this is actually my biggest issue with every chain that's not eth and I I don't because of my seat like I really don't want to like throw elbows at anyone so I'm not going to I'm kind of just going to like speak about the different models generally and the things that I think are are tough about them um from a financial perspective so and I think like interestingly both of these are driven by these underlying points too of the pragmatic versus the metaphysical mindset where like the metaphysical mindset is concerned with the tech as the end in itself right like

what we want to do is create insane Tech without necessarily putting as much thought into like how is this a business or how does this accrue value to people and keep it incentivized long term like we already have one of those that's Bitcoin um and then and then there's like the pragmatist who I view as ethereum is like yeah like we need to run an actual business like even if it doesn't meet the laws of physics right now and so you think about it right like just to set our Baseline the ethereum being profitable means that net issuance in terms of staking yields um minus all the burned stuff time can do a better job of explaining the technical side of that if we need to minus all the burn stuff

um from gas fees is is negative over time right and so there's the classic ultrasound.moneychart just for my ref we'll see what the number is because I know that Gray's been really high the past week but I know yeah so isn't that exciting that like higway like adds this whole layer of like all right it's the best um and so yeah right and so if we're talking since merge and and not even since merge functioning right so merge hop so since merge has been 217 days September 14th from September 14th to January 21st net issuance was completely flat from January 21st to today so right around three months we've seen a hundred

thousand dollars of net if burned right and so from a profitability perspective you can think about eth as being 0.1 like profitable a year right now which doesn't seem like much because it's not but relative to every single other company in the industry it's extremely profitable and specifically I think relative to the value that it also has as a token in and of itself aside from this whole idea of like well I guess it's it's more than point one percent it's like point one percent plus staking rate right because that's like your your cost are like your yield opportunity on it too yeah I mean there's like a lot of cool ways to look at it but my favorite way is that every burned eth is like

kind of like a dividend to every etholder and so like what is ethereum doing with its profits it's like making it more scarce which is taking the same amount of value with a smaller pie and it's you know it's like a tax efficient way to give profits yeah and you know you can probably even think about a reality down the line where as ethereum hits like a steady state on on staking rate right like let's say that we hit that that staking rate of two percent or one and a half percent at which point you know participation declines but on-chain activity is still high enough that net issuance is negative you could potentially see a reality where they up the base staking rate uh to try and get

close to operating completely net flat from the balance sheet perspective and improve the the security of the Chain by incentivizing more people to stake effectively right that's like totally a thing that could happen down the line well I think like so if we were willing to get into like actual underlying you know no no no this is perfect because I think once you start talking about down the line like we get really really interesting stuff right and and I think in this particular conversation what has me worked up in this moment is so like one of like the core upgrades that ethereum will get is single slot finality and um so yeah for someone that doesn't know what that is yes yeah not me of course

your friend you may have heard finalization like you're the uh ethereum transactions are only finalized like after two epochs and like the reason that that happens is basically there's too many validators to sign every block and so what ethereum does is split up the validator set into 32 groups and then each group only does you know one block and then every 32 um slots or blocks the entire ballot is validator set has signed and so when if you do that two times it means every validator has signed at least two times and like that's our whole scheme but like the problem with that is is

like we have 12 or yeah we have 20-ish minutes where we like aren't really sure if even though ethereum says that our transaction has happened like if it might roll back and in order to like really do you know government level or you know like UBS level trades and like have that kind of certainty like ethereum really needs to support single slot finality which says if ethereum accepts the transaction it's done forever it can't be undone and so in order to get that unless like we start like really like getting close to the levels of physics the problem that we have is that like it's not possible for every validator to sign each block

and so like what is already being talked about in like some of like the dark but like Giga brain corners of ethereum is like what are we going to do about the validator cap and like I don't know like how does that change every all of our economics of D5 what does it do from a security and decentralization perspective having a bunch of eth concentrated in the same validator pools well it actually like so there's like a trillion different ways you can implement this um yeah like one of it you can you can basically like do first in first out so that it's just like as there's these validator slots available and like you know you can do

um it was around the the end of the ohm season but do you remember there's a lot of talk about the harbinger tax first it came from vitalik and then uh the redacted it's just like spoke about it endlessly around when that was happening on the ridactus yeah yeah so um vitalik brought that up to discuss like the problem with a validator like the the inherent technology driven validator cap and so like it just draws in all these questions like okay like is there going to be this like intense competition for validator slots or this are they going to be like such compelling other places to place your eth like maybe you know in lending or in

like these new things that it balances out and like it just opens up this whole new design space that um they're like we're not even talking about yet that's interesting so it almost like I wonder over time like how healthy that is to be honest for the ecosystem it kind of depends I think where and this is me speaking from a D5 perspective not at all from a tech perspective purely because the removal of staked Eve is affected or the root the removal of like free agency to enter in ice at staked East is actually I think a core

part of what makes defy work because it is genuinely the only true risk-free rate in crypto as far as I'm concerned it's the only successful business that's offering bonds right and so from my perspective like removing that opportunity no longer allows the market free expression of what the Baseline interest rate of crypto should be and actually weirds weirdly moves us towards a Fed model where the ethereum like core team or whichever developers are effectively deciding on the validator cap are in effect setting a Baseline rate for crypto that can't be like moved

below because the number of stakeable eth is effectively capped yeah I mean this is all like a system design problem and so like I'm sure people are actually working on this or people that are looking to profit from it can like pick apart exactly like how you need to design or or what a vulnerable design looks like but um I I do think it is like one of those things that um like really makes me like excited about ethereum but also just like only ethereum and like I I'm a huge believer of what everyone's building on top of it and like I encourage everyone to continue to deploy smart contracts and try and change the world and

whatever but I just when I understand where ethereum is in the road map you know I feel like we're we're building the the Eiffel Tower on quicksand you know because like everything is still changing so fast and uh I don't know I mean a guy a polygon can tell that better than it than anyone it's uh it's simultaneously like incredibly wild talking about you know 5 10 15 year road maps with ethereum because on the one hand like that sort of vision is what makes it really incredibly a part of and like gives you some comfort knowing that they know what the core issues that they have to address are over time and they're actively working on it at the same time having worked in in the space for a few

years now you really get a sense of what a long time five years is in this space so yeah and so it's like can you imagine in five years from now looking back like look back at like 2017 2018 like some of the layer one projects that were coming out around them it's like it's hard to look back and say like yeah we had a good understanding of what our core needs were um back then and so it makes me nervous at the same time to look and say like yeah the 5 10 15 year action plan that we laid out five years ago is still still the same way we should function but then there's like this caveat where because I am always optimistic that the

ethereum team is the pragmatic team I think that there's this reality where like they also recognize that obviously and are working to update that roadmap like you said and deal with incremental issues that are coming up that could very much still like change this Baseline conversation that we're having in a couple years I think at the end of the day like my my read of the ethereum roadmap and not you know not like going on ethereum.org but like reading through eips and like listening to these people talk about it is like everyone understands that this is not like a relevant technology we have to continue build like the entire roadmap is not about taking over the world or whatever

it's like get it to a point where it's actually usable and like can reach into the real world and affect real people's lives and um you know it's just it's like it's incredible that we have this opportunity to like build and and claim land and speculate before then but um it's like when Amazon was profitable selling books you know like I don't know if they were or not I'm just saying but it is an equivalent right it's like yeah I'm not saying we get there I would love if we got there I fully believe we're going to get there but it's like really this is what you're kind of betting on right is like this thing that does one thing right now but has the potential to do like an infinite number of things across

an infinite number of Industries that's like really what we're looking at right now yeah well look like every single time I buy ethereum my I view it as um if he does a lot of things but like most importantly I view it as like this is just the derivative that derives value from open source like this is what all open source has been leading up to and like we created this like property layer so that we can have open source and Val in just you know so I I hear you that the the road is long and crypto is uh very erratic but um you know I just like at the end of the day if you believe in like the power of the internet to bring

developers together to like solve problems like ethereum provides a call option on that yeah no 100 and it provides a call option with much more limited Downs or much more readily understandable downside than a lot of other you know projects that are effectively call options on that in the space and a much more Diversified one as well right yeah well that that is what's so exciting about the ethereum like whole thing that in the place that we're at is what EIP 1559 allows is that every we all benefit from every single thing that's built on it and um you know I I just like it's so cool like the more you think about it the more you

realize like ethereum has created this like self-incentivizing layer to just like get people to build stupid stuff on it even though like it's not really relevant because it's not ready yet and like can you just imagine the amount of like Developers building on AWS before it even worked like that would be crazy yeah yeah no I totally agree and I think it kind of like leans into some of the stuff that we were briefly mentioning earlier that didn't really get to talk about is like how hard it is to actually do this at any sort of scale like if you think about what happens on an app chain model or a um you know like Traditional High throughput uh layer one those are fundamentally right like on a

high throughput layer one your your mechanism design is such that like you want to always have like high validator participation to make sure like transactions are always getting processed and also simultaneously like have high Hardware requirements and uh extremely low transaction fees right and so that combination makes for an environment where like your cost of operation is higher than another chain uh a lot of the time and simultaneously you have to have captured significant scale already to ever get to a profitable business model right like that's not a business model that scales from zero to infinity and that's what makes it really hard it only scales from like 80 to Infinity you know what I mean you have to be most of the way there

already the same thing is kind of true of the app chain model which is like there's there's two different things that they're simultaneously trying to do one is more interesting than the other but both kind of have the same underlying core issue which is that if I am taking a a product that lives on my main chain and moving them onto an app chain what I am doing is taking a business that if it is growing is paying me increasing ARR in gas fees on my main chain and moving them to a business model where they pay me a flat fee for validation of the side chain and on top of that because all these tokens are that are running these

these other l1s are still highly inflationary and not profitable it's likely to be like decreasing ARR for your largest Partners that's like bad business uh and the on the other hand if you have this the business model like oh I'm doing onboarding of you know applications that don't even exist on my main chain whatever it is like huge business opportunities that's somewhat more interesting again same issue though where like your unit economics are still based on like validators for the chain and the only way to really make the unit Economics work is by scaling it up to about literally like 5 000 plus of app chains which is so far beyond the realm of of whereing

need is right now relative to the amount of block space that's available yeah no I mean I'm I'm a huge believer in the app chain Paradigm but like I think that we'll get to like the real way this works but you're totally right like it doesn't make sense to just take a protocol and say like uh like we're gonna make it independent because like again you're just you have to ask yourself why wouldn't you just deploy that on AWS at that point and like yeah we can have a conversation about like but there are some cool Solutions being worked on the app chain side from like a liquidity composability perspective and like you know there are there are ways that you can tap tap into some of the liquidity that already exists some of

the platforming that already exists some of the tooling that already exists yeah a project that you may be referring to like is like tampering with some very dangerous like parts of consensus and so I think that like I I I would love to see documentation been asking for it for a long time but I think that like the second you start um exposing like your core security to like the whims of the market like you you're in trouble right and so um anyway I think like the interesting thing about app chains right is sorry uh yeah I think how we're gonna get to app chains is like let's I'll pick an example but there's infinite out there

right like frax is my favorite one where like their whole idea like okay we started with a stable coin okay we have curved and that's great and then we realize like we need more places for people to use our stable coin so they built Frack swap right and then they built fraxland and now they have this whole like validation stack through uh fraxied and so like um the the boys of the flywheel like D5 Dave loves to call it like the defy Trinity right and so using that frame it's just like once you realize that you can build this integrated like full service protocol where you can get anything you would want out of D5 it totally makes sense to me to take all

of that bundle it up move it off chain so that instead of like letting Arbiter like Mev Bots take all your Arbitrage like letting that get extracted out of the system you now control it but then you can just settle back down to ethereum to maintain the um like the the crypto Economic Security so you look does that make sense to you I think so I hate it but it does make it does kind of make sense well that's interesting yeah go ahead because like for me like this is I read on like what polygon is doing with the um like the ZK node and stuff and like what I would love to see like if it's not Sam because I mean fine but like maker or Ave like anyone that

is starting to build these integrated Services should be looking at gnosis chain and sorry it should be looking at cow swap to say like this is the experience that we should provide our users but in the background we like can actually like build the systems and like the technology and like capture the Mev that we want and still maintain like the um L1 settlement like the whole the whole point of roll-ups so so I guess in this example though is where is the liquidity is living on the the roll-up chain on the app chain effectively and or off chain like where do you envisit envision all of the like participation

happening effectively because I think it's interesting if it's like on an if the liquidity still lives on chain somewhere I'm like pretty interested in that and if the off-chain functionality is more of like a hybrid Dex model like what we were talking about from Cosmos like I think something like that's actually really really cool um where you know you still have some core liquidity on chain you have the ability for validators to claim Mev on order books which gives them gives a chance for like economics attached to the Token without any direct fee pass through like there was some cool stuff being built there moving it all off chain starts to get into this weird place of like what are we doing here then so I number one if

you were to build directly in the model of cow swap like yeah I'm pretty sure the way that that works is it's just like their execution engine that is off chain and then like all the liquidity States on chain and so like that's the model you're talking about yeah but like yeah the you're more philosophical and therefore like interesting question about like if you start to um like build these like build these integrated services so that like from an economic standpoint it makes sense to like move computation and that like siphons off liquidity I mean I guess like to me that doesn't break down the point of what we're doing at all like for me the point of what we're

doing isn't even really about D5 it's about like trustless settlement like it is about like the fact that we all like believe that if I do something on ethereum it's not being undone like I don't care if like um Jamie Diamond is involved I don't care if Barack Obama and so like in this Paradigm it's like let's say that frax is able to like really lock in like using locks so that they know it's not going anywhere like 10 billion dollars right and they're like you know what like this is enough liquidity that we can actually just like move this into its own roll up and if we ever need to project liquidity like into like on chain to like facilitate a huge

trade or whatever like we can just do that from the roll-up but like in general we want to house the liquidity option like that doesn't break down what we're doing at all to me yeah no I I think I agree with that that's like infected but I still count that as on chain um right like the liquidity is still living somewhere on chain you're effectively just using like you're what you're talking about is effectively like using synthetics right where the back end for the synthetics just lives on another chain yeah yeah I mean that's definitely like a way to look at it but what's so cool about again I'm just like gonna do your business development for you but like what's so cool about polygon on the same day that they open up the like beta for all of us to go farm thematic airdrop or

whatever um that like they also also open source it so like literally Sam because I mean today could like say okay this is a general purpose ZK evm let me check out all the general purpose part let me just make it Frac specific and then like these these all open source app chains or Roll-Ups right and they're they're all like interoperable because they're using the same provers like everything and so like I don't know man like this yeah yeah no I I like don't get me wrong I didn't mean to sound pessimistic at all about what we're doing on the scaling side because that's literally what I spend all day supporting and I am extremely excited about it I'm also just someone at this point who believes so strongly I'm like a crypto Maxie right

I'm a blockchain maxi I'm a I want to make sure that we're not just doing it for the sake of doing it but we're doing it like the right way right we're we have a mission that we're working towards we understand what it is and like we're all kind of getting there together and for me like yeah scaling absolutely is one of the most exciting things that happened like I remember getting involved in D5 summer paying a hundred dollars to clear transactions right like mind-boggling numbers and now like having the opportunity to come in and you know even something as new as ZK ebn which is still operating at like huge multiples of what its end game gas cost is going to be because it's you know it

it batches transactions and sends them to approver and so the the larger the transaction batches are the lowest the lower unit economics get and so for us like even in these early days you're still paying like fractions of what you were back then and whether it's POS or arbitrome or optimism as well like you feel the difference on a daily basis from a user experience perspective and the other nice thing as well is that because you have some of this abstraction layer when I'm talking to a lot of these really interesting people that are solving like stepping away from the world of like DJ and crypto for a second as much as I love to spend all my time there like I talk to people on a daily basis who are building really cool [ __ ] that like has

the potential to change the world right in various use cases using this underlying Tech and in a way where they're using it because we're finally at the point where you can abstract away a lot of the [ __ ] crypto native stuff that you don't necessarily want everyone to have to deal with um and I'm talking about stuff that's like as cool as connecting like huge huge non-profit organizations globally to like small hold uh sharecrop like farmers in India who are looking to get loans on a seasonal basis like connecting Originators to loan officers tracking it all on chain on a farmer by farmer basis all of that like none of the you know loan senders know that this

isn't happening on chain necessarily just happens to be like the back end infrastructure to a dude I was talking about talking to today who's literally um basically putting up like white hat hacking bounces on chain not in like a code for arena style but on like a FBI's most wanted list like he's partnered with a bunch of ngos he used to be like a hacker for a major government organization and he's like yeah like we're gonna do this all unchain completely decentralized anyone can submit information leading to a bounty and like right it all just happens to live on a chain and so some of these random kind of edge use cases that are finally able to actually get realized now that this stuff has become more usable are gonna help over the long

term also legitimize a lot of what we're doing to the people where you know trading e-coins that have vaporware for Value like doesn't make sense too yeah no I I I couldn't agree with you more and I I call it like the Lord's work where when people are building like real projects that have real utility in the world that happen to include crypto and you know I think like Goldfinch is one of them which does basically what you describe which takes like in crypto money and puts it into the real world I think Reserve protocol is amazing which like does some like you know whatever D5 stuff but like turns out like hundreds of thousands of people in Latin America are actually like using it to protect

their savings against inflation and I think that like you're totally right we're we've just we're starting to reach a point where the technology is like mature and performant and like good enough that you can start to have conversations about functionality and like why you'd want to build this and not come in with okay so in 10 years like it could look like this and if you want to like have your little like crypto buzzwords and like we could do this integration but like No One's Gonna use it because it sucks I'm like and so you know we're just we're like we're in a different era now and it's um it's super exciting and awesome but um you know I guess this is a good moment to Pivot a little bit because it's also

an incredibly scary time at least as an American right and I guess um there's just like a lot of activity um definitely since sandbagment read but really seems like in the last couple weeks um and so I a lot of things to be said there's some like reasons for hope there's a lot of reasons to be like incredibly afraid but what is your holistic feeling about um crypto and and like most specifically about ethereum in the United States and then like a little bit larger what it's like to be like an entrepreneur or a builder in the United States um how are you processing everything that's happening

um yeah so first of all like very fortunate too and this is gonna be one of the few times I like objectively show polygon on this podcast too because I'm trying to keep it low-key um we're very fortunate to have like a couple really really strong policy people that are working to help like go into DC and educate uh I literally think our our chief of policy and uh president of polygon Labs Ryan Wyatt we're both uh in DC either today or yesterday I think it was today um talking to a bunch of senior people on Capitol Hill and to that end you know I think the part of what really screwed [ __ ] up honestly for us was the fact that the vast majority of people that were providing opinion to Regulators

were in one of two camps either like I don't want to like throw too many elbows but like algorand types who are very very focused on blockchain like as an academic use case versus um how it's actually being used today or for Sam bankman free types who obviously had like somewhat more problematic underlying agendas and in a large part that was because of the dearth of sophisticated people that understood blockchain but it could also bring it down to a level where a regulator could get really comfortable with it and I think even relative to a year ago the number of those people in the space like when I would talk to large stratified institutions a year ago it would be like

what is e-staking and then by the time I was leaving the tie or I guess like two years ago and by the time I was leaving the tie like six months ago the conversations were much more in the Weeds on D5 In The Weeds on other other like major technical topics and so the base level of understanding I think has increased significantly which my hope is that like that begins to propagate out into like more levels of comfort among these like senior stakeholders um the second kind of thing that you're asking is like what is my take on it broadly I don't really have one that's actually informed like I hate talking out of my ass and and like I can't pretend to know what like the cftc is gonna decide to do with that or like

who's gonna decide between the cftc and SEC at the end of the day and like what's going to be label Securities and what's not I think like what's really obvious to me is kind of two things so the SEC one is going to like continue to to shoot for targets that they know they're gonna win right like they're they're very very careful in what they're selecting they don't want to set bad precedent and so that's like why we're seeing this roll out in the way that it has the second thing that I'm kind of broadly hoping for and this is really a hope there's like no guarantee here is that the US is cognizant enough of how important this is that they're going to be err on the side of caution for not screwing it up because I genuinely think we're at the

point in the tech where the US going gung-ho on it would be really [ __ ] bad don't get me wrong but at the same time I have enough comfort that there are enough legitimate Financial economies globally um out of Asia a few in Europe right a decent number in South America that are willing to support this to help like ensure that there's always going to be spaces for people to keep building and so then on the Builder's side like yeah it's a little weird sometimes for sure I'm extremely cognizant that I'm always paying my taxes correctly um because they they know I work in crypto um and on top of that like you have to definitely be

very very careful even internally right like our company is kind of very Global but at the same time we're extremely cognizant of like U.S regulators and everything we do and trying to make sure that we're always airing on the side of caution which can be really really tricky oftentimes given the lack of clarity and so you're dodging between tripwires that like may or may not be there yeah I I like spot on couldn't agree with you more on everything I okay I do think that it's um a lot of people like to just like call um what's gonna happen especially like in regards to the SEC or like whatever stable coin bills or like and look like

the reality is is that even if we were making these decisions based on like logic or technology or Finance like our decision-making process is broken it and it has nothing to do with like the facts on the ground it has everything to do with like things that have nothing to do with crypto right and so I I think that part of me of course is like really terrified at like what could happen and like what it would mean for my personal life and then part of me is a little bit so look like I like you I I imagine a world where the US does something really bad and like I will go to Singapore like I will go to Dubai and um I'll be back in the US in 10 years because

man I'm not worried I'm chilling yeah Israel's very crypto friendly yeah man like there's I I do believe that ethereum is inevitable and I do think that like we could get um displaced for a while but like you know but it'll be to the much to the Chagrin of the United States and to like the American people but I uh so you know like I'm always Mo I'm always comfortable with like the worst case scenario and and in in these times it's just like really hard to pick apart like what I actually need to be worried about like for example man is ether security or a commodity who cares I mean there's just like underlying issues with actually registering

something like eth with the SEC yeah like who who even registered who who's it Incorporated under like who's issuing it yeah there's no centralized body to actually do any of that um and that's why and so for like this yeah sorry I don't mean to cut you off no no I I I totally get your point but and you know again this is me like the [ __ ] stoic pragmatist the most annoying person to be around it's like yeah dude like plan for the worst expect you know like plan for the worst and then set your expectations somewhere like hopefully realistic a little shallow of the mark and uh you'll always be ready and then like there's nothing at this point that we can do aside from continuing to uh build out legitimate [ __ ] you know like in my in my eyes like

what what are my controllables in this situation like I'm not a policy maker I can't get in there with Gary I can educate myself until I vomit about it none of that's gonna help anything um what's gonna help is like knowing what the the kind of outcomes are generally and then knowing that I can get in there and try and help build as much legitimate product as possible over the next couple of years and show them right rather than tell them that like what we're doing is cool and so that's like totally my mindset you just spoke like Words directly from the heavens like I think that like that couldn't be more spot on and I think that um it's a great place to wrap this up because like look when I hear non-crypto people talk about crypto

um and I hear that like isn't that just a scam like I can't believe like you would put your career in there like all this stuff like I don't know man like they've got a point and like yes like if you bother to stick around and learn about the history of ethereum and then the road map of ethereum to learn this special moment in history that we're in like you realize like it's not not all a scam but it kind of is like mostly a scam like whether that's the SPF style scam or the Goblin Town style scam or like the seafood like pick one right Pepe token style scam Pepe token like I I just I think that like the message that like

we all like need to take away is like first of all we just need to get this regulation stuff out of our heads unless it's our job to work in regulation and then we need to take all of that energy and focus it on building legitimate [ __ ] and like you want to be in like the D5 d-gen world where you're basically issuing security so you can dump on like people like that's one world and like fine but like for those of you who and we love it here you know it's fun yeah but like if you really care about like the inevitability of ethereum like that's the mission statement build legitimate [ __ ] so 100 right and like I I love being a d5g gen I spend a lot of time on it I also spend a ton of time working with people trying to build that

really legitimate use cases to help them figure out specifically right like how can we build our really thoughtful technological Stacks that can start to rival and replace some of what we're seeing in the real world like what are the low-hanging fruits for for replacement how can we then build thoughtful D5 base Stacks to replace them so we're not just making fed chain and um if you start getting to the point where this stuff's getting integrated in real business across legitimate industries that were right for disruption then all of a sudden like these companies like if bad regulation starts coming in are also going to be on our side right and it's not just going to be the crypto natives it's going to be the crypto natives plus all the dudes who have business in Latin America and then they're like no like this is

important to us right and all of a sudden it becomes more and more meaningful every day yeah exactly I mean look like I don't care how bad the law is that comes down if like by that time I've been able to go back to like my old company Anheuser-Busch and convince them that in order to do all their International transfers they should just use usdc instead of this like [ __ ] wiring process we don't have to do any lobbying when that bill comes down Anheuser-Busch will be there you know or exactly like we just need to build legitimate [ __ ] that companies want to use yeah that's all I'm here to do man yeah and also past the hours of 6 30 p.m yeah yeah that's the night job yeah exactly yeah all right man well thank you so

much I really appreciate the time um anything you want to shout out or uh Twitter like anything like that sure if you guys want you can follow me on Twitter at Jack Melnick with an underscore at the end uh you know I work at polygon you should check it out we're doing some cool things on ZK evm uh really excited to start rolling some of the protocols out next month and uh for us as a defy native as someone who's trying to fulfill a lot of these things around scaling and thoughtful growth that we've been uh chatting about all episode ZK was a chance to come into a chain that was brand new day one and say like what would I build you know like if I had the chance to build my own chain what would I put on it and do that and

so it's been really cool it's been you know a little bit slow to start and I think that's actually for good reason where we are being really tactical it's open source of course anyone can deploy by all means go launch your [ __ ] coins on it at the same time though too we're trying to make sure that every single building block uh you know a Dev could ever need not just from an evm equivalence perspective but even from like a a second and third order protocol perspective everything you could ever once going to be there and actually make like a really really thoughtful community and partnership driven D5 experience and so that's my show for today go check out ckbn all right Jack thank you so much I really appreciate the time oh thanks for having me on Rex it's a pleasure as always man

thank you