How Osmosis Could Become Cosmos' DeFi Hub | Sunny Aggarwal

Transcript

that was you know this design that we came up with years ago and then at some point along the way that team about like the Hub development team abandoned it and moved towards this like very simplistic basic version of ICS which is all the Hub validators run all these other chains which is not really that's like it's not scalable at all right like you have to go through a governance proposal to add new chains you have to um like it's really a block size increase it's not a scalability solution all right everyone welcome back to another episode of zero X research brought to you by the atom accelerator if you're a developer looking for the new home in this industry the atom

economic zone welcomes you you'll hear more about the atom accelerator later in the show today is July 3rd and we have a great interview with sunny the founder of Osmosis a Cornerstone of the cosmos ecosystem uh we really dove into like honestly a great discussion around just Dex architecture as a whole it's really been a Hot Topic recently in this the entire industry and the cosmos in my opinion is kind of like you know whacked a lot of that Innovation you know you have you have Beauty swap kind of pioneering the V3 active amm curved really led the way on on this this passive amm structure and those are both occurring over in the the ethereum ecosystem but osmosis has really got

some very interesting developments under the hood uh and it's going to be an exciting few months for them so really great conversation on on why osmosis is building in the direction they're building but of course before we get to the interview we have a little intro segment at this time with Ren and Westy from the blockworks research team before we jump into our typical Hot Seat cool Throne we got a little governance update for you so it's a new segment we're trying out be sure to let us know if you're a fan but you know defy governance is such a happening area there's always seemingly some crazy thing going on and this week was no exception so curve Ave and bit Dao all have some interesting developments so we'll start with curve uh wrapped Bitcoin in ethereum are now live as listed in approved collaterals with the

game plan to lower interest rates by 40 percent on those assets um this kind of comes at a time when you know there's been a ton of demand or already over 50 million at CRV USD borrowed and the rep Bitcoin and just pure native East were recently listed but there hasn't been a huge demand for those two assets and it's really because the interest rates were set a little bit too high they're kind of more in line with what the liquid staking derivatives are and the the logic is you know these these assets carry less risk and to be more competitive with the rest of the market we're gonna have to drop those rates to a lower rate so excited to kind of see that kick through and that was just pushed uh yesterday on July 2nd so on July 9th that will be either approved

or denied over in Ave go is still green lit for non-chain vote I've said that a few times now it's pretty interesting so Ave companies which is the original founding uh company for the protocol of Ave has created the go contracts you know tested them gotten them audited and has them ready for delivery and then ACI uh is kind of like these uh this third party group that really manages the Ave forums and a lot of things that happen on the governance side for the Ave protocol and uh the most recent Forum post by Ave company said hey you know we're ready to go we're like fully on board you know now it's kind of your last time to make any comments um and that was a couple weeks ago now

and the ACI just six days ago left another comment on there saying you know this is this is greenlit from a technical and governance perspective there's no blockers left and it's been that way for a while at this point there's really no real reason for this vote not to get pushed on chain so you know I've been tracking the deployers and been paying attention to the Ave governance contract but still no luck so really excited to see go push live but you know kind of like sitting in this this limbo where we kind of are waiting for for Ave companies to pull the trigger and then lastly with bit Dow if you pay any attention to D5 governance bit Dow is always this this front runner and level of excitement um you know they're right now they're undergoing a migration from vital to mantle to kind of more organize

themselves around their core product uh which is mantle and ethereum roll-up that is an optimistic growth and interestingly they will be powered by eigen eigenlayers data availability service so eigen da and that's kind of like their core differentiator at this point and so to kind of get their uh their branding right they really want to Rally around this mantle idea rather than fit down and kind of also just kind of really instantiate that this is like a new product they're doing a one-to-one token swap from bit to MNT and the community is currently voting on a proposal that will burn 3 billion uh tokens of bit tokens that are sitting and being held by the Dow in response to

some Community current concerns around a super high fdv for an ethereum L2 so this would actually decrease their fdv by about one and a half billion dollars from 4.8 billion to 3.3 billion and so you know the meaning of an fdv has always been a an interesting concept and like it is fdv a meme has been such a burning question and you know there's reasons to think yes and reasons to think no uh but Wesley I'm curious on your thoughts here is fdv just a meme or is it really a metric that we can rely on yeah that's a good question I feel like people saying FTV is a mean was more like a bull run phenomenon when people are thinking sort of in the short term because obviously it's Supply that's

going to hit the market at some point in the future sure you should be thinking about it when it comes from like a valuation standpoint but at the same time I think it's a good point that FTV like not all ftvs are created equal because like you said in this bit scenario and I can think of synthetics as a good other alternative if you have your token you need a token in your Treasury and there are sort of ideas circulating uh to burn uh your token all of a sudden the FDB um doesn't matter as much whereas that do maybe held by investors or things along those lines where you know that's applied cannot get burned and it's going to come unlocked at some point in the future obviously should be counted but at the same time they're also uh cryptocurrencies that have sort of

inflation or that's not part of the fdv it's not part of the value that's currently circulating or or rather not circling but exists and rather has emissions in the future and so there are ways in which sort of FTV doesn't really exist but also kind of does exist so so it's definitely a more nuanced subject I think one thing I will add there is that you saw a lot of D5 tokens or D5 protocols to be more accurate have really high emissions during the blue run and then throughout the past year they realize that all those emissions aren't doing any good for the protocol so for example ribbon has decreased their emissions by 50 marinade has GPS Dimensions by 75 and theoretically like that total Supply

still exists but your emissions have been greatly reduced right so at that point do you still think about the fdps like the full FDB or maybe like the FDB should be compressed a little because that emissions that originally existed probably isn't going to hit the market anytime soon but then also for example with what happened with beta you know these things can change at a whim which is why it's so important to keep track of all of these component updates and use a great product such as scuff Hub to do so uh the Shameless plug well done red we'd love to hear that um but yeah no I think Westy hit the nail on the head there I think the the reality is not all fdvs are created equal and as much as we want to draw parallels from protocol a to

protocol B the reality is it's just too hard to do that in almost every situation so you know like tradfy has ebitda earnings before interest in uh taxes and the that's really interesting because it's like this one number you can compare you know very much so compare between companies in the same sector and even still to some extent uh any two given companies and kind of determine that profitability metric and you know that's something we're really still chasing not only on the token level but uh even on like a revenue like a profitability an income statement level so uh it's just funny to see you know we still have so much work to do in in so many different directions but that's why it's exciting uh let's uh let's kick things over to the hot seat cool through and maybe ran all throughout to you first who you got

this week yeah sure I got a sushi on the hot seat this week so azuki was a really popular NFC collection during the pre-run they raised about I think 40 million during their first collection um last week they announced and raised for a new collection called Elementals so they sold 20 000 nfts in total for this collection 10 000 of these entities were airdropped to people that attended the in-person Las Vegas event and then the other 10 000 were sold via Dutch auction to azuki owners during a 10 minute resale and then two beans are all those three another 10 minute finisher will they entirely sold out they raised 20 000 leaves roughly 38 million dollars

but then afterwards people realized that these NLT Sports is hyped up as they were meant to be for a few reasons first of all there were nfts in this new collection that basically looked exactly the same as the previous collection which obviously is normal for an nft uh and then for example there were other people that were annoyed at azuki holders got a head start versus other holders and so the tldr said the community is mad they're fuming right and that that was shown in the four or five so four five sub azuki went down by 50 over the weekend and azuki Dao which is made up by a bunch of old yazuki holders basically found a lawsuit saying

hey we want to call that 20 000 effect and it should be used for something else it shouldn't go to the TV so that use at least be used for Community Development as it was obviously yazuki had to sort of tackle this PR disaster in the fact that for some people the nft supply doubled overnight right and it's fair that serve price of the energy goes down by 50 and so they're doing a few things they're creating an anime series they're gonna update some of the background artwork fight you know it just seems like very low effort attempt by NFC collection to raise more cash yeah I definitely agree without take and what I think is interesting and like you said the artwork was basically exactly the same as the original collection so

you can see why the floor price of the zukis themselves dropped because it basically diluted the supply by double um but at the same time this was sort of like a catalyst for the entire nft market and the entire nft Community to just capitulate like floor prices if you scroll on blur or just all down like 30 in the past couple days as a result of this and I'm not sure why this specifically caused that maybe people are starting to realize maybe their their jpegs don't have as much intrinsic value as they thought they did um but I think yeah it's been a super interesting event as a whole and I wonder is this a good time let's say you're bullish on azuki's or maybe a similar nft is this the point where you sort of get back in the market is a lot

of these holders are capitulating or maybe are you waiting sort of for like a newer round of nfts and sort of the next Bull rock bull market that don't have sort of like a clean slate um so yeah I'm wondering what you guys think well the fact that I think we'd all probably agree that this is a sign nfts are truly dying is is probably makes it a great great time to to go along if if that's uh if that's what you're into and of course not Financial advice but um you know for me it's like like what did what it is Yuki holders really expect out of this like when you have an nft that just airdrops you more nfts this is like the inevitable death circle like what else are what is the team supposed to do like okay would you really be happy if the

artwork looked better or if it was like a you know a different looking a different style picture like would you really not be sitting here complaining I know in some ways it's like the reality is you're just slowly becoming to the realization that you know this pfp nfts are probably dead nfts as art are are definitely not dead you know the goose the art blocks uh those will continue to be a thing and very much so like royalty art and high-end art luxury art that is definitely a thing and putting it on chain makes it a little bit more interesting um nfts as a technology is absolutely not dead where it scratched the surface on what that will be you know I always use the example of The Interchange scheduler that the cosmos ecosystem was going to implement and the idea of

tokenizing block space using nfts makes a ton of sense every block is non-fungible with the other pluck and like having the rights to order the transactions in that block is a very interesting use case of nfds but for me it's like like what are what are we doing here I I do something that's kind of I don't know if it's a hot take or not but I really don't think we're going to see the same like Congregation of attention around pfp nfts in the next cycle I'm sure there will be something else but I just don't think it'll be nfts and you know I'm happy for the service they played and the role that they played in the last Bull Run bringing people on chain and kind of being that first you know reason for regular old Joe's to to come watch in

and interact with the blockchain but um yeah just can't see a world where those are like you know really you know as important as they they are made out to be I just thought it's kind of funny that we're talking about is FTV and meeting doing the bit down discussion just now and we're like you know but that can just decrease the bit STP by what three billion uh overnight joy governanceville and asuki kind of did the same thing you know like they just say okay I'm just gonna double up my energy collection has not become a meme and that reflected in the market prices so I just thought of the interesting Dynamics routine sort of like Thunderbolt tokens and what I'm going to be non-punchable tokens it's also just wild to me that that team

just like you know printed 38 million dollars at a thin air off this like that is you know props to them like they're just doing what they were asked to do and uh yeah I don't know I guess this kind of got away from the original idea of like you know what should happen with the 38 million dollars because I don't have a take on this that should be clawed back or just kind of fair game yeah it's a little bit scummy to sort of not reveal that the art is exactly the same but at the same time I guess a holder you have no I guess obligation to to buy these new nfts for most of the people like 10 000 of the 20 000 was air dropped to people at their events so it's free to them and so overall like I think yeah like they're entitled to that

money but at the same time they do so at like the result of their reputation being damaged so I don't think they're going to be able to raise as much if not even close to that much money in the future and so I just think that's sort of where they lose out I don't I don't think I I feel like there's a pretty fair legal case if someone really wanted to pursue it that what they were offering was a new collection and you could just go to a code of law and say hey like these many images of the new collection are exactly the same as these many images of the old collection you know like all of your marketing materials say that this is going to be like a new collection God forbid they say like new artwork a new background new colors uh

in their sort of like teaser for this new Elemental collection and so I feel like there is actually partially a case out there because there's a lot of time where for example like some of those product marketing they put like slightly misdeeding statements and those do hold up in a quarter file you know someone goes hey your product promise I would do this but it didn't and that's like a pretty big industry around that actually yeah that's a fair point there Ren uh Wesley who do you got on the outside or cool drone this week yeah it's definitely not a zero X research episode without putting coinbase in the the cool Throne so I had to do it this week had to do it I had to do it I dude definitely gonna have a smile on his face watching this back

um yeah they could have easily been in the hot seat though after the news last Friday that said that the ETF applications of reasons such as the one from BlackRock were deemed inefficient by the SEC and so at the time it caused the price of coin and BTC to dump the hours following but some people were able to catch that the reason that they were deemed inefficient was because the applications just didn't specify the crypto Marketplace that they were using because they would need to also enter under the surveillance sharing agreement um that the the SEC was looking for and so like clockwork almost all the ETF applications of reasons such as Fidelity Wisdom Tree vanic Galaxy and Arc I think

were all of them all listed coinbase immediately as their selected exchange and so obviously that's super super bullish for for coinbase as a whole um because of you know one or more of these ETFs were to be accepted coinbase would be the exchange of choice and there's sort of a delayed reaction whereas like on Friday we didn't really see a bump After People figured this out but as of today and Monday July 3rd coin is out like 12 on the day 11 to 12 percent um which I think is people sort of digesting that news and yeah I mean just another great week for for coinbase overall yeah this was this was an interesting one

um and I don't know I have zero information on the success the likelihood of success for the slew of ETS we've seen come through um I tend to lean towards the camp of you know we we saw this second round and I'd like to think that BlackRock knew something and even if the other firms didn't know anything they knew that BlackRock can do something um but at the same time it's like everyone is now listing The Exchange that the SEC is actively suing to get approval from the SEC on their ETF application so it's like I don't know it just feels so weird and ah I want to be bullish about it but it's it's tough because it's that that

that right there you just took that sentence out of context it would make no sense that these ETFs would be getting approved yeah I think a few other interesting implications of this is that for example is anyone going to come out unless they get you spot ETF um and then just a bit more it's a great Instagram agreement so that that's basically talking about the fact that a spot ETF needs an exchange with kind of sufficient liquidity right so that a manipulator would have to trade on that market to manipulate the spot price of that token and a surveillance a surveillance sharing agreement kind of says okay like if there is any Market

manipulation occurring then one thing we're going to need to do is going to show that trade data like see who's manipulating the spot by so you can pursue any legal action I think one thing that I think about is that if someone creates a spot token ETF with uh where like the most liquidity is on chain right on a decentralized exchange uh wrote it as a curve Unison for Seeker for State Thief right um how does the surveillance sharing agreement work you know or is it just not ever possible to let's say spot ETF because say your Dex has like 70 of the trade volume and liquidity whereas the largest centralized exchange has 30 of the

liquidity then price Discovery will likely happen on the decks right but how do you do a surveillance sharing agreement with a DEX and I think that's something that like we don't have to think about yet because we're just not that big of an asset classic but it's probably a question that someone will have to think about sooner or later down the road yeah it's definitely a really good point another thing along these lines when talking about the the ETFs is I'm hearing a lot of rumors sort of on many different sides about how this is going to play out like no one really has a clear road map I'm hearing from some people that the ETF could be approved as early as August maybe some people say that you know this is strictly a political move from Larry Fink that's sort of the timing of one this

application is up in February sort of time as well with a lot of the the presidential um debates and whatnot um and so there's a lot of different sides of whether you know this will be approved this won't what the timeline looks like and so there's just a lot up in the air that we really don't know so like while this could be bullish for coinbase if they get approved that's sort of like still a big if yeah and speaking of timelines there's actually a red flag this picture to me not too long ago I will uh I only have a screenshot of this but we'll figure out a way to get in the show notes for you guys but it's actually following the life cycle of the ishares Bitcoin ETF which is the BlackRock ETF so um the first major landmark what it will

come through in regards to its approval or deny uh being denied it will be on the 12th of August so at that point the SEC has the ability to approve deny or extend the uh proposal for another 45 days and then 45 days later will be September 26 in which they can either approve deny or extend for 90 days and then that would give them a third Opera a third deadline to approve deny or extend for 60 days in December and so generally what we've seen happen is on all three of those deadline dates the ETF will get the application will get extended in each period which brings us to the fourth and final deadline day which would actually be on the uh 23rd of February 2024 and so at this point

the SEC would have to make a final call on either approving or denying the ETF which is the expected date and I'm not a huge political person but I do believe that February is a pretty big month for the I think it's the primary elections so that's an interesting time there making the SEC kind of come out and take a huge stance on this uh during this very political uh point in time and more importantly in my behind the next Bitcoin habiting occurs roughly around the 25th of March so uh rough one month out we're going to have potentially An approved ETF and the Bitcoin having uh which you know anyone is spending time in this industry knows very well that you tend to get the bullish wave kick off right around that that next uh

happening period so the Stars could very well be aligning uh but I'll jump things over into my uh has equal Throne this week which is the last one uh of the week and I have compounds so we recently got the announcement of Robert leschner's new product superstate uh and so superstate aims to create this regulated Financial product that Bridges traditional markets and blockchain ecosystems and their first product is going to be this fund that holds short-term government bonds uh specifically SEC approved uh so like basically combining the tragic world with on chain the unchain world and it definitely need

to be kyc approved as well as kind of have this uh you know us-based Focus for like U.S investors and the tokens themselves will likely not be transferable so it's kind of you know the initial reaction there is kind of like okay well what's the point um but this is very much to me it feels like this step one of just bringing traditional markets on chain you know we clearly have improved efficiencies near instant settlement and very cheap transactions that really and over the long term traditional markets likely won't be able to compete with um but it's also this kind of like you know middle middle ground of this is this the next step to like kind of bring these off-trade deals on chain and find a way to incorporate them into defy uh

so you know I'd like to think the answer there is yes so super state is really trying to be this first SEC compliant uh kyc uh you know on-chain way to hold essentially government t-bonds so a pretty exciting development there however it gets bearish for comp holders as Robert leschner has stepped down as the compound lab's CEO and actually made way for Jason hobby who's been with compound labs for over three years now so definitely someone who knows the grounds knows how the protocol Works knows the ins and outs and kind of been learning alongside leschner for this entire time um and you know Lester hasn't officially stepped down until now but he's kind of seemed to you know been paying attention

to more different areas I know it does a lot with roboventures and really just hasn't been too focused on uh compounds so maybe in that regard it is bullish for them like hey we've got a new CEO look looking over our protocol and kind of you know helping push things in the right directions but for a long time it's felt like compound has really been losing the battle to Ave and if you look at World outstanding you know assets deposited now at the launch uh you know they did successfully watch their V3 but but you know without the native stable coin uh this really hurts the revenue potential of the protocol and there's really no connection to how superstate will benefit or just be totally separate from compound itself which I think is most interesting because if you look at

the token price hey somebody definitely knew this was coming because the token started absolutely screaming a couple days before the sec's filings were even made public so the SEC filings went through on the June 26th the tokens started absolutely moving on the 24th from the June lows to the peak highs during its run it was actually a 200 percent move and the rest of the market moved a fraction of that so definitely seemed like somebody new had some preview information here given that compound's been down only for quite some time uh so I hate to see that honestly we we really need to be avoiding things like that but nonetheless somebody

believes quite confidently that there will be a connection between or maybe you know it was just a trade that they had some information on like okay it will be attention we'll flow to compound so let me get there first hard to say but definitely some speculators in the water on this one yeah I think it's an interesting move that the starting of this considering there's a few other protocols that are already providing treasury used on chain perhaps in a less like permissioned manner such as on the finance and there's a few others that I'm banking on I think one thing I'd like to point out is that the cd5 like the mix or the intersection of centralized finance and decentralized finance gets a bad rep like a lot of people out there like guys

no like if you want to do D5 s would be like entirely decentralized we're not doing this CD side BF but I actually think much of the future is probably going to be seated by it if anything if I had to put a number to it probably 90 of the value on chain it's going to be CT there's like a lot of money out there from ultra high network of individuals family offices Pension funds that are chasing yields and investing opportunities of different schools right and bringing your own chain enables two things one sort of enabling the opportunity to be exact possible in the first phase because for example I don't know if you're in Australia and you want to buy something in Canada like you're probably not going to buy the Canada to sign something in person or spreading

your oil change makes a lot more accessible and two it makes it sort of like it decreases the cost of fasting the transactions you know E5 is all about removing the middleman and putting it on chain does bring up the opportunity and there is a lot of money chasing a lot of different opportunities there's family offices worth like hundreds of billions of dollars to spending their entire day looking for the most random investment opportunities whether that's real estate Adventure uh bonds and if you put that all in one place on chain in a transparent manner like that's still a lot of bad for a lot of these people even if you think about for example your exchanges such as avoid you would think of Avo as like uh options decks but in

reality like their messaging engine runs off chain probably 99 of the liquidity is provided by like centralized market makers probably like two or three maybe five and I don't think it's a bad thing that they're centralized I still get access to those type of opportunities whereas in the completed like alternate world I wouldn't even have access to those opportunities yeah the way I see this is has like a bootstrapping mechanism I know a lot of other rwa Protocols are doing something similar where they're using U.S treasuries and the fact that they have high yield given how high rates are currently and using that to sort of bridge the gap between traditional

investors and sort of defy itself and so while things may like begin permissions and begin with uh treasuries only I think it's probably going to expand from there maybe having more permission pools for for different rwa devices than eventually getting their way to more like permissionless open types of products uh but you know this is sort of the necessary First Step because you know other rwa product is probably going to do um the kind of impact that treasuries will because treasury yields are higher than a lot of defy yields at the moment and I agree with you Ren that it's sort of like unnecessary the quote-unquote

evil although I wouldn't really call it that um and that like permission D5 is going to happen whether you wanted to or not um I guess the question is how it happens I'll maybe we develop things beyond kyc that are maybe more improved that use CK proofs to sort of prove identity and whatnot um but over time yeah I think that's going to be a growing sector of the market and something you're going to have to pay attention to as it grows yeah I'm with you on that and thinking this back to compound um they had something called compound treasury for a while there right after they launched their V3 I want to say and I'm not sure if that got killed off or not uh but definitely never got a meaningful amount of traction and so I

think Lesnar was pretty excited about that so my guess now is this is kind of super state is kind of like the reincarnated version of compound treasury you know really being that like institutional Boral land space that kind of helps bridge the gap between tradfi and being on chain so that's kind of where my head's out with this but it'd be exciting to see if anything does develop and there is any you know rekindling of a connection with compound um but you know that'll that'll be it for us guys we'll get you over to the interview with sunny from osmosis again super exciting conversation around really just what it is to to build a decks and how do you kind of shift things back in favor of LPS and really get profitability uh flowing their way but before we jump over to that interview I want to give a quick shout

out to the atom accelerator for sponsoring our show and again if you're a developer looking to build an awesome product that has real economic value or can just you know in general bring benefit to an ecosystem the atom economic zone is looking to help you build currently the accelerator is giving out grants in batches of ten thousand to one million dollars on a rolling monthly basis and they're super passionate about building up the system the the ecosystem and so interchange security means you can launch with the security of the atom Econo the Costco sub itself powered by Adam and IBC gives you the flexibility of interoperability and in combination with intertrained accounts gives you this seamless cross-chain ability to transact and it truly is becoming quite seamless and

stride is really can show you what that is with their one-click deposits and their again stride is helping push out the advancement of lsts which improves D5 alongside Noble bringing in Native usdc and most more recently we know we have Duality kind of setting the standard on what value accrual should look like like when it comes to making a deal with the cosmos Hub via interchange security so again if you're a developer looking to build a project and kind of needing that first Kickstart again be sure to reach out to the atom accelerator we will put their Link in the show notes now on to the interview with sunny from osmosis all right we are joined with a guest who obviously needs no introduction Sunny from osmosis uh thanks for coming on Sunny how the how'd

the hackathon go over with Delphi uh correct really well uh the it was a like not like one of those two a one it was like a month-long online one uh but uh you know really happy with the results I'm glad to hear that the enthusiasm despite the bear Market amongst Cosmos Builders is still robust it's always good being here um but I did want to obviously have been Osmos is here there's been a ton of different changes but before we did that I was hoping you could just give a quick 30 second elevator pitch what is osmosis how has it been since Genesis launched would you define it as a success and I guess kind of like what are the goals going forward yeah so osmosis is a decentralized exchange but what makes it

unique it is a decentralized exchange built as its own app chain so instead of being built on top of ethereum or evm or l2s it's its own chain for the purpose of being the best decks possible because what we realized was when we were trying to design how to build a decks we realized most of the limitations come from the constraints that the chain puts on you if you want to build stuff around privacy you need to add New cryptographic Primitives if you want to do things around uh ux of how fees work you need to go change how the mempool works if you want to do stuff with Mev mitigation you have to go you know also change how the mempool works and so uh

there's all these things where we thought that like okay the next where the next Innovation is really going to come to make Dex as a D5 like usable um especially for privacy and ux side is Count comes from building their own chain so that's what we did uh it launched about two years ago uh last week was or two weeks ago was the uh two-year anniversary of osmosis and uh in that time it's been a lot of ups and downs uh both that you know and here if you're talking about price or liquidity and usage but like so I I would say like overall osmosis definitely has been a success you know part of the goal there was to help bootstrap the cosmos ecosystem and so

you know we kind of helped it did that because that's the stack that we're built on and so uh we became the largest decks in the causeless ecosystem there was a few competitors and the shallard today but like you know the Lions share a volume and liquidity is on osmosis uh we were the biggest decks for UST uh which was uh what worked really great for us for a long time we were growing like crazy a lot of liquidity and then obviously that all vanished Into Thin Air uh so but we are uh still you know but at the same time the whole Terra uh explosion uh kind of I call it the Supernova because it exploded but it

sent Stardust throughout the cosmos and so a lot of the uh Builders and users and stuff who maybe got onboarded through Terror have like found a new home throughout Cosmos many of them building on top of osmosis and like building the other building this like ecosystem of applications around the osmosis decks nice that actually set me up perfectly for this segue here the carbon upgrade from 2022 enabled cause and wasm smart contracts on osmosis and I believe Mars has been the first protocol to to utilize that and launch on osmosis as an outpost so how has that gone so far have you been happy with the traction yeah yeah so we uh what we realized basically was what are we trying to

build with osmosis is like build a platform that is comparable to what you like see on a centralized exchange and honestar you know we've been mostly focused on like the decks like really the trading engine for Spock trading right but if you go on a centralized exchange site the spot trading is one aspect of it right they also do other things like margin Trading perps launch pads Fiat on-ramps like you have this like ecosystem of things that are all packaged into one unified experience and you know and so what I thought was like originally we were trying to build all of that in-house we were building our own lending protocol in order to do

margin trading we were working on our own launch pad um but then what we realized is like okay we were actually kind of spreading ourselves uh quite thin there and so what we realized is hey instead of us trying to build everything in-house why don't we make a system where we can work with other teams to build these necessary components and you know as I mentioned it just happened to come at a the same right around the same time as the Terra debacle and so that you you had suddenly had a lot of teams with a lot of cosmosm development experience we're looking for a new home and so basically we were able so yeah so Mars uh is this uh project you know built by by Delphi labs and so they were building

a lending protocol uh that they migrated to osmosis and now you know you can do do borrow lead not all sources but what the real goal here is to build a proper margin trading uh experience which is what they're working on right now then you also have projects like levana and omx omx is one of the other uh uh doll by hackathon winners and then lebana came from Terra but they're both building uh GMX style purpose protocols um you have like ibcx which is a index token for the cosmos ecosystem uh you have people built calc who's built DCA uh tooling you have stream swap which is this launch pad that we originally

started building in-house but that we just like sort of hand it off to another team to be to like run with and so yeah now we have all these like components that you imagine expect to see in a fully functional like exchange you you're now able to start accessing them uh all on like the osmosis chain and on the at on the website for osmosis now we have this like app store where you can access all of these like different uh tools as well and then you know the goal is right now it's still when you click on them it it kicks you off onto a different site you go on to the calc site or you go onto the levanda site but the end goal here is to have them all eventually integrated into one uh ux oh that's awesome I love to see all the pieces

kind of falling in place right there that's that's honestly really exciting to see that's that's the beauty of a nap chain is to be able to recreate uh that off chain like experience and you know building a chain specifically tailored two to your needs um one of the other questions I had related to this was you know the hot thing to do these days is is build your own decentralized stable coin any plans there I think there's a team membrane financing if I remember correctly is doing something similar to this yep so membrane um also a post Xterra team but they are building a multi they're taking sort of some ideas from a bunch of different existing stable coins and combining them into one so they take some a lot of inspiration so they're they're a multi-collateral uh overcloud

device stable coin um and they follow more of a reflexor a rye type of thing where instead of you know taking the uh die approach of having a PSM which eventually leads you to be mostly like centralized stablecoin back they are instead making it so you know it has a free-floating exchange rate but unlike Rye it which is only single collateral with eth this is going to be multicolateral so you're able to use atom osmo e Bitcoin um all these different assets in order to do this um and then they'll also offer systems like LUSD for uh direct redemptions so even though it does have a floating rate

like uh Rye the LUSD system the the direct redemptions will help it uh maintain the peg a little bit more strongly than you would with Rye so um yeah so there it's definitely a little bit of a radical take like their whole Rye free floating exchange rate it's uh TBD how that fares with like users long term right because I think uh I think long term it is the necessary right thing to do I saw this interesting graph the other day of like showed that over the course of like the last two years Rye has actually more closely tracked the US dollar than like most like uh FX like major FX assets so like it's better track the dollar than the

Euro then this was Frank then like you know the pound and so it's like it's actually pretty good as a store of value uh All Things Considered um and but so we'll see how it and I think that's the end goal here you know we should be building crypto native units of accounts so uh yeah I'm really excited for for that with membrane uh and then I've also been chatting with the membrane team about potentially reuse using their contracts so so one of the things that they do also that uh different than how dye does it and die even though it is multi-collateral every CDP is single collateral so you you can have an each CDP and then you can have a wbtc CDP but they both have their own independent

liquidation points with the membrane design all your assets are in a single uh Vault and so that way uh you know you don't have to have different liquidation points for every individual asset they all follow us you know uh even if let's say your eth goes down in value but the Bitcoin goes up it's fine because they're all uh working on a single CDP so um yeah so that that's one of the cool things that they've done and so so what I was mentioning was uh we're discussing with them about reusing the contracts to launch a second stable coin uh called bit dollar which is going to be a Bitcoin only backstable coin so just like you know I think the multi-collateral stablecoin has some usages but I think there's also uh you

know it's an experiment where we want to run of like hey why why what if we had a just how you have a lot of stable coins in ethereum ecosystem that are only backed by eth and there is a demand for those uh we want to see how we can What will What kind of demand we can drive for a stable coin that's only backed by Bitcoin interesting I love how uh everyone in the cosmos ecosystem seems to have a soft spot for Bitcoin that's one of my favorite Parts honestly but I did want to dive in a bit into the Proto rev module um I actually don't understand this super well at all but I did read uh effort capital's latest blockworks research report and he said that you guys had generated about 100K of Revenue since launching that I think in early April can you kind of explain the

listeners what exactly that is and and what the integration entails yeah so protorv is the first of a couple of products that we're building around Meb um in in osmosis and what it what the idea you know our take on Mev in general is we kind of split it into harmful and benign Mev harmful Mev is the type where you are reading other people's transactions before they're executed and acting upon them so basically that would include things like front running or sandwiching and stuff um then there's the benign Mev where it's not really it's what you do based not off of reading other people's

transactions but just like you know uh let's say you're doing an Arbitrage you're arbing a centralized exchange you know arbing prices on the decks to prices on uh external markets and you know no one's really getting harmed there and so that's kind of what we're uh we want to encourage uh you know how can we instead of leaking all of that value to external Arbors how can we capture as much of that value into the protocol itself so Proto rev is the first one of of these products where what it does is it back runs uh users where what what you can imagine that there's like multiple pools on the decks where uh let's say there's a way someone

wanted to trade uh usdc for osmo right the thing is there might be multiple pool routes with by which to do that you could there's a direct usdc to osmo uh pool but then there's also a pool that you can maybe swap usdc for Adam and then Adam for osmo and you know we incur you know we encourage people to use good routers that like try to split correctly but at the end of the day it's not always possible to split uh perfectly uh just because of you know how you don't know what the state of the blockchain is when you execute the transaction um so what we what proto-rev does so normally what happens is there's a lot of back running happening where people

would be like spamming transactions trying to uh our background people and our uh are of the pools um what we realize is hey why doesn't the protocol just do this itself so instead of like being spammed by people trying to background we we can just have it after everyone any anyone does a swap the The blockchain Code by itself looks for a certain cyclical arbs and executes them and then takes the revenue from those executions and gives gives it to uh well the the governance proposal for what to do with the earned revenue is up for vote right now what's your uh what's your insights like what do you think is the best use of that Revenue I think probably a combination of uh you know

just I would say majority should just be distributed to stakers because I think you know osmosis currently mostly been you know it has pretty high inflationary yields in order to incentivize staking but the goal here is to switch towards like real yield right you know uh similarly like the governance just uh voted for the activation of a fee switch where basically start charging take our fees off the exchange and go to the protocol yeah that's that's let's dive into that that v-switch there as well because my understanding is this is an additional fee on top of the uh the current swap feed that specifically goes to the protocol uh so what was your uh what was the idea that was really the driving force behind this decision to add this additional fee yeah I think the

driving force is that at the end of the day uh the osmosis protocol needs to be self-sustainable and you know up till today it was mostly uh driven off of like inflationary rewards but uh as part of osmo 2.0 which we'll talk about but basically you know inflation needs to go down right you know it was a good growth hack but we need you know at some point uh like any business osmosis as a protocol needs to be uh self-sustainable and it needs some uh source of Revenue and the primary source of revenue for any exchange centralized or decentralized as at the end of the day you know we have the Mev revenues as well as a second Source but

at the end of the day the trading fees are sort of the primary bread and butter for any exchange uh and so uh you know it's two we're two years in and I think it's it was governing Society it was time to start activating you know start charging or take our fee uh and it works well because um like you mentioned it is an additional fee on top of the uh LP fees I actually don't really like the term LP fees to be honest I prefer we're actually changed in the code we went ahead and changed all of them to be called spread factors because that's really if you think about it that's what it is when you you set a in a pool you're basically you know what are what is an amm it's people Market making at a certain price and when you're Market

making you set a certain spread the difference between the highest buy and uh bid and ask right and so basically the spread factor is basically it's the automated Market maker it's what spread their Market making at so it is an additional fee on top of the spread factor of each pool but we expect that most liquidity is going to start to migrate towards thinner uh spread factors so with concentrated liquidity because now you're going to be able to uh you know concentrate and you see this happen on unisopic for most pairs where you know uh active more active market makers will start to come in and basically start to quote at uh smaller uh spreads and then there's also a cool way you know once it's funny that once

you have a protocol fee now you can start to build in mechanisms of reducing the protocol be it kind of uh sounded funny where like now you know you look at a lot of exchanges do things like affiliate referral links you can do things like oh the more osmo you have stake the your trade your protocol fees can go down uh you can decrease based off of trading volume that's a common thing that most centralized exchanges do so now that there's a stick that's involved now you can start to like use it as a carrot as well uh to incentivize certain behaviors from from Traders so one of the things that you know between the proto-red module and the allocation of which what to do with that revenue and then with the inclusion of the the additional fee here the the taker fee

um you know I'm starting to get the sense that there's I guess the difference between osmosis and let's say you do swap for example is you know osmosis has the extra factor of having stakers and they need to take care of that party and make sure that they're incentivized to to contribute doing their work I really like the work you're doing and trying to get that um towards I guess more real yield side of things where it's this not just inflationary rewards but I'm curious like how do you think about the trade-off as well because you you almost need both parties equally without liquidity you don't have a decks and without stakers in in validators you don't have an amp chain so how do you think about the Dynamics that play there yeah so I think you know it's not like incentives are going away for liquidity providers it's

uh they part of Osborne 2.0 all they did was shift more of the incentives towards stakers there's still uh you know a significant portion of inflation goes towards uh our daily issue and goes towards uh LPS and the thing is with concentrated liquidity like Ubisoft V3 style culture liquidity you just really don't need the same amount of uh capital in order to provide the same uh liquidity like the same you know at the end of the day you're trying to provide users with a certain level of price impact when they make trades and you know with actually Clinton you can get away with like significantly like a magnitude less of liquidity and still get the same uh user experts and so

that's the idea where you know we can drive down incentives because we're we just don't fundamentally need as much capital and we can back capital in the automotive ecosystem can be directed towards other things you know uh being lent out on things like Mars or being you know staking to help secure the protocol okay I like the the the breakdown there as well because it's kind of become the Hot Topic recently to you know realizing that lping just seems to be negative EV whether you're using IL and permanent loss or lvr loss versus rebalancing or like a markout strategy as the common thing to do uh in traditional Market making and that's just kind of what every different angle of people are coming at it from that the

results should show that being an LP is kind of taking the short end of the stick so do you how do you think about that like you know you see univ4 come out ambient and now you guys are using this uni swap V3 model uh that's kind of like this active Market making like do you think that that's really the future and more of that like uh you know the traditional xyk or even something like a curve V2 that's passive concentrated liquidity do you think that the future of amms is really just this more active design I I definitely think it is the more active design I think um it depends on the stage of the market right so our take has always been amms are really good for bootstrapping new ecosystem I'm sorry bootstrapping new assets and for the last few years that's what we've been doing is bootstrapping

helping bootstrap casual so I think now Cosmos is getting mature enough there's enough High cap assets that uh you know we need something more Capital efficient than what we had before uh and so I you know I hope you mentioned curve V2 because I I still do believe that passive strategies are good but I I think the passive strategies need to still be smarter than uh just you know xyk and so uh Astra port for example is uh building a there's actually a number of teams sort of building Market making um amm vaults you know they call them amm because that's what they are right they're automated market makers but instead of being a DEX that people trade against that pool it is they are Market

making on top of the osmosis uh contrary liquidity and Order books so that's another thing I didn't mention we're also building order books as well and so and the idea is the order books and cl pools are actually integrated as one system um but yeah so with you know yeah you'll be able to do a curve V2 strategy but it's going to be on the same book as you know active you know limit orders and stuff um or Elixir is building their own strategies as well and so um what I imagine happening is that new tokens at launch they might go you know the nice thing about what amms did was it made the process to launch a token

much easier you don't have to go hire a market maker to do that for you you just put assets into these uh into the pool or into this like these vaults they'll do it and then eventually what will happen is if an asset gets enough volume enough traction you'll have naturally have active market makers come start to Market make and then at that point maybe the even a curb V2 style strategy it probably won't even you know maybe it'll still be effective for your mid cap assets but it's just fundamentally not going to be uh competitive in like a Bitcoin usdc market and so those are just gonna start to go away and it's gonna those are gonna be dominated by your active market makers so the nice thing of having taking this vaults on top of a single

unified order book we call these loot books um it's an or it's the the combination of the limit or the order book and the contrary liquidity book we're calling the they call these loot books it stands for limit orders on ticks um because basically what happens is you know in a CL system you have these like liquidity buckets and what we let you do is we're going to let you place limit orders at the tick boundary so if you're making a swap it first goes through a specific bucket then it goes fifo through all the limit orders at the tick boundary and then it goes into the next bucket then to the Limit order so uh you got to get a unified book and so yeah the goal is build a single unified market and then let people build different strategies on top that's

incredible so we just spoke to uh Doug kolkit the the founder of uh crocslot formerly clock swap now ambient and they they did they're doing this similar thing with the the limit orders which is so cool I love the use of this this tick methodology to kind of create on-chain limit orders um and then in that case like you're kind of like the lp not the trader very interesting Dynamic uh but just for the The Listener I feel like everyone's pretty comfortable with what the uni V3 amm style is but when we talk about curvy too this is a like an an automated concentrated liquidity that's why calling it passive so there's like basically like a trailing exponential moving average that the pool was aware of of what trades could executed through the pool and then the liquidity in that pool will continuously be rebalanced

um back to the central or the current point so basically creating a uni V3 style but without the LPS actually having to move the liquidity the pool does it instead um and so I love to hear that you guys are kind of innovating and shoving these two models together it's funny effort capital and I were actually talking about that just a few days ago so he probably uh was talking to somebody over there and then brought that idea to me trying to seem like the genius in the room I love that but um so yeah we were talking about the the trade-offs between stakers and LPS but there's also like the same trade-off between LPS and Traders and so the like leading methodology to kind of bring some value back to LPS has been all right well

let's Institute a instead of just a flat fee on trades like a dynamic fee based on volatility or trade size of something of that nature are you guys thinking about kind of in introducing this Dynamic fee model like Trader Joe made this popular univ 4 is talking about it curve does it yeah so I this is part of the job of a vault basically um like I said I think the notion of the framing of LP trading fees is kind of off what it really is is these are spreads right and what curve V2 does by having a dynamic fee right and it but if you think about it if it's a vault that's Market making on top of an order book all it's doing is based off of the

volatility it's replacing limit orders at like changing the spread that it's charging uh on on these limit orders and so that's kind of what um these you know this is what astraport is building right now is a vault that like you know it places limit orders on the order book and just shifts the limit orders uh base instead of changing the fee it's not really a fee it's just changing the spread that it's charging I got you guys just keep in mind this is what market makers do in the real world when when volatility is high they they do two things actually right right they do one which is they change increase the spread but the other thing they also do is they pull liquidity and that's the other

thing I think uh you know we were working uh we were working on a design for this it kind of ended up kind of uh being put on the hold because we decided to focus on building like concert in the Korean order books instead but we were building a passive contrary liquidity system as well that would like not just increase the spread but also pull liquidity at times of high volatility and then re-add liquidity once the volatility goes down so that I imagine you know I I think that by having a really good order book and a system for people to experiment with building vaults we're going to start to see all sorts of interesting like passive Vault systems being built okay that's pretty interesting and are these vaults like

um you know permissionless like can anybody go create a vault and pair it with different assets or what's the idea there so they will be uh so deploying contracts on osmosis is permissioned uh so it'll have to be whitelisted by governance uh but you can also do it by uh interchange accounts right so you can have a contract on a different chain like Quasar for example and you know all the logic happens there and it just like using an inner chain account it just replaces the uh positions the benefit to having a native whitelisted one on the osmosis chain is a with the app chain functionality we can give a little bit more benefits where like let's say something like Astro Port it's if it's a permit if it's

like something this curve V2 strategy is this like uh you know special strategy that we want to encourage we can actually give the Astra Port Vault the ability to like replace their limit orders at the beginning of every block because otherwise they're kind of playing this race game against other Traders but instead if we like say oh no we're going to treat this curve V2 strategy as something native we can like poke it at the beginning of every block and it will reposition its limit orders uh before anyone has a chance to uh trade against the stale data okay awesome awesome I love that as well now this is super cool and one of the other things that's kind of been a Hot

Topic these days is like if you know a user is bringing you toxic flow should you discriminate against their order and maybe charge them a higher fee what are your thoughts on that um the who should discriminate the job of a market maker is to do literally that and the problem is how do you know um you you can't really know the job of the sen of the exchange is to you know access our job how we see it is to build like privacy right and so um right now like this is the whole idea behind jit like just in time liquidity uh where you know the idea is oh you're only going to be Market making against

non-toxic flow and pulling out when this toxic flow and some people actually you know I think this is like harmful meme narrative that like this is good because it gives better execution to Traders but I think that's actually like not exactly correct where I think second order it actually hurts the market because the job of an order book is to like aggregate information in the market and when people are keeping liquidity off of the order book there's less information in the market there's people don't know how to set their slippage bounds correctly and then because of that that will actually because it looks like there's less liquidity on the book and because people

have set larger slippage bounds now you're actually going to have more front running and sandwiching Company so I think really this legit liquidity is kind of harmful to the network where and like I said it's fundamentally coming from a privacy breach right now where the fact that you can see trades in the in the mempool so you know what we're what we're moving towards is um like making you know private trading and then if market makers have other ways of figure of differentiating toxic flow or not that's up to them to build strategies around interesting so Switching gears a little bit there is a ton of different decks Primitives launching in the cosmos you

got Astro Port which you've mentioned a few times you've got Duality which is more Adam economic zone Centric you've got I mean say like the list goes on you got dydx coming so I guess just how are you thinking about this conver competition do you think it's like synergistic or are you looking at it as like man the time to ship and make changes to Osmos now um well I guess both like I mean obviously I think competition is good it puts a fire under our asses to like ship a lot of those uh you know ship faster um and you know I think more dexes more activity in Cosmos is always good just like you know we can't be everything for everyone like like dydx right like we are not even like

going after the same Market whatsoever right dydx is very much focused on like only on purpose and like way more like institutional Traders that's you know our internal mission statement is we want to be like our biggest competitor we see it as coinbase right we're trying to be like the best retail experience for trading crypto but in a decentralized way and so it's like we're not competing with dydx and we're actually like I think it's actually quite synergistic like you know I was we're just chatting with them about what uh ways are we you know they're going to use us for onboarding flows of like bringing users from ethereum into like their dydx V4 chain or even once they you know one day start to go towards multi-collateral like

using osmosis for like liquidations for example right um so you know I think like a lot of synergies uh there um and then yeah Astra porch uh right now they're kind of acting like a decks themselves that's kind of the strategy that they're going on for some like how they are in on Tara and neutron for example but on osmosis like I mentioned like their goal is less to be the decks they're not they they know that long term like you need order book style stuff and that's not what they're building right their goal is to build amms whether that means you have an amm that people can trade against directly or whether it's an amm that a vault that market makes on top of uh order books

and that's what they're doing on top of osmosis and on top of injective as well so you know uh with with us report I think you know where we're collaborating on stuff um Duality uh I actually don't know too much about like what what what exactly it is that they're building I haven't really seen or played around with the product yet yeah that's that I was curious specifically about Duality just because they're probably not launching their own token they're like Adam economic zone I'm just curious if you think uh I guess this Adam economic zone is like the right path forward for the cosmos as a whole or whether you think they need to be remaining more incredibly neutral like was there you know kind of original mission statement

um no I mean I think the atom economic zone is a good strategy I don't understand why Duality doesn't have a token though or like I don't know the whole Duality proposal was a little bit odd to me I don't uh well keep in mind like this is not the first time that causes Hab has tried to build a fully adam-owned decks right there was gravity decks but it kind of failed against osmosis because of a lack of incentives of the lack of incentives for the dev team really right and so it's kind of seems a little bit odd to me that The Duality system is like oh kind of just repeating the same thing there's no token for incentives there's no why is the dev team even incentivized to work on this two three years down the road if they don't have any upside on it

so it's something feels a little bit too good to be true in The Duality proposal to me um but I don't know if there might be you know other tricks up their sleeve on how they plan on doing it um the the aez stuff is interesting like you know you see what like stride did with getting Adam from the community pool put it on SD Adam the LPL Neutron promise Adam St Adam is not really a trading pair right that's like a single asset there's two versions of the same asset it's like you know I think how you build up liquidity is you need actual users who are willing to take risks and like Market make assets right you need you know Adam SD Adam is not really a DEX right you need atom with usdc or you need Adam with Oslo you need ball assets

uh you need you need multiple ball assets so um TBD how the aez manages to build up liquidity for non-atomy yeah I think that's a super Fair take and a good point um in terms of you know you brought up interchange security with stride I'm curious about mesh security can you kind of explain exactly how that's different just to clear it up for me honestly and then how osmosis is uh planning on implementing that if at all yeah so mesh security is kind of was what interchange security was supposed to be uh interchange security was this idea that like has or like the original idea was this move is to build this like restaking protocol

where oh atom holders are going to be able to restake their atoms like they and like be used to secure all the different Cosmos chains and then the atoms on the Costless Hub will get slashed if there's anything malicious happening on any of these trades and so that was you know this design that we came up with years ago and then at some point along the way that team about like the Hub development team abandoned it and moved towards this like very simplistic basic version of ICS which is all the Hub validators run all these other chains which is not really that's like it's not scalable at all right like you have to go through a governance proposal to add new chains you have to um like it's really a block size

increase it's not a scalability solution or like anything right and so um the the goal really was supposed to be this opt-in thing where individual validators or stakers can choose which chains to get give security to and and the whole point is that like the belief in Cosmos is not all chains need the same level of security like you know the example I always gave was maker does not need it's like crypto kitties does not need the same security as the maker chain right it's fine for cryptocurities to have less security and so that's what the opt-in model does and so because the ICS development team effectively abandoned it we were like okay well someone has to build this because this is like how security needs to work in Cosmo so that's kind of why we ended up

building mesh security and along the way while building it we were like hey there's ways of using this protocol in ways we hadn't thought of before like so instead of just so mesh security is really just this primitive of restaking where you but we realize hey why do we actually only have to get restaked from one chain why can't we get restaked from multiple chains let's say osmosis wants to get you know uh do get security from Adam but why can't we also get security from eth via eigenlayer or why can't we also get security from uh I don't know uh Bitcoin by a Babylon right like why don't we get security from multiple

places at the same time the other thing one is like why aren't we actually running these things bi-directionally like why are like hey if the atom I'm sorry if the osmosis wants to provide security to the axillary chain but axler wants to provide security to osmosis that's actually win-win for both of us because now both of our chains are being secured by the sum of our market caps and this kind of builds this level of resiliency where like you know we don't want our entire ecosystem kind of the whole premise of Cosmos has always been this like very mesh decentralized idea of like no one central point of failure you know IBC is point to point um and you know you know that's something like camera right like if

you're if you're it's always possible that the base asset of a system could go to zero in like a day right and so it's like let's not build all of our security assumptions around a single uh asset or system let's like make it so security is this like very poly uh polycentric thing of like getting getting security from as many different places as possible so yeah like I said mesh security It's A Primitive it's a set of like things that you can use and then the economic instructions that people use this mesh security primitive in uh there's gonna be a bunch of different ones so we'll see how those play out yeah that'll be interesting to watch the Dynamics play between and I'm just

curious like if I'm a hub validator and I'm just running you know my software and Hardware to power The Hub and now I'm powering multiple chains through through ICS like how does my how does my like you know let's say just utility costs like Hardware costs software costs like how does that change with the inclusion of ICS and is that any different for this mesh security model so the the thing with the ICS model is that as a validator you are forced to validate every chain that like uh gets approved by ICS and I think there's almost this weird mismatch between like the validators who incur the cost but are not the ones where these sole people of

governance and so governance keeps us like approving every ICS chain that comes along but like validators are like bearing this cost of increasing fees and so maybe what end up might happening is like validators have to start charging more and more on commissions for example uh to cover these costs um but as well that revenues from these chains could also offset the cost that they have to do but the idea is that with mesh security is by making it opt in validators choose which chain so they want to run on that now it becomes a you know instead of like use instead of this like very top-down decision making that's gonna be like oh like governance selects that like oh the this is what

very command economy style like the idea behind match is like supposed to be like way more hayekian right like individual people will make decisions of which chain validating which chains makes economic uh sense for them and what will end up happening is having these power laws of security where like some validators are going to be so efficient and they're sort of like run on every chain possible or maybe they'll run on the chains that they haven't sent up alignment with um while some chains are going to be like so important and so lucrative that every violator is gonna uh like co-validate that chain as well so um yeah it's just more like let the market figure out where security flew like the balance between security and

economics right on right on and uh we just did a podcast with the matter Labs team on the announcement of ZK stack and I'm curious to get your take on more broadly like the ethereum vision has kind of like shifted over the years uh and it's kind of like culminating at this point that it looks quite similar to uh what the cosmos crowd has been begging to drum about for quite some time as well so I'm curious to get your take like you know we have app chains roll apps now they're calling them hyper chains that's basically just change using like the cosmos SDK um you know the cosmos ecosystem has IBC for Native out of the box communication uh where the CK stack is using this when you're using the same approver you have the ability to like what they're calling

hyper Bridges so there's a lot of parallels that are getting drawn between the two what do you think about that and like is this the right path for forward for the ethereum crowd um I think it's off to the right path forward for ethereum I think this architecture is the correct architecture um and what you know why we've been working towards it for years um I think obviously it does lead a question to like okay in in this world how where does cosmos land given all of this right like if everyone in ethereum is just building the same thing what differentiates Cosmos now um and I think you know I I mean I have my own answers to that but I you know I think we'll see how the market plays out I also wanted to get like a more high level question from you we're all

speculating on what you meant by this uh in our analyst chat in in slack but you tweeted out proof of stake was a mistake could you please elaborate on what you meant by that yeah so I think what I I've just been a little bit disappointed with how like what's taking derivatives in general I think uh or just like the impact that they've had on honestly I'll admit it was a little bit of a uh just like in the moment tweet I didn't realize it would get this much attention it might have been one of my most popular tweets in like a while because I think all the proof of work Maxi's founded and or like oh look see and that's not really what I meant but what I what I really uh was trying was you know we spent so much time like building

these like mechanisms into proof of stake built like having like you know you cannot make it so oh validators have something economic at stake um being this very open market where you say oh the holders of the tokens of the network will make decisions up to choose who the validators are um and using like Risk decisions that they make but then the problem with stake narratives is they come along and basically hand select validators um via sometimes a pretty opaque process and then you know all the users choose to stake through these liquid staking providers

in order to get the liquidity you know to get the staking derivative because they want that liquidity and so it just feels to me that like proof of stake is almost evolving somewhat into this like proof of authority system instead where it's like being select selected by a hand selected people are just like I guess my point was more like well if we're going to do that why don't we just do it why don't we just like do a proof of authority system instead maybe let governance like whitelist validators instead of having this whole like uh proof of stake system so it wasn't something that proof stick was like wrong I think the mistake was that we spend a lot of the time in the design of proof of stake not expecting staking derivatives to become as dominant as uh

they are today and so there's things I think we can solve like in the short term uh one of the things I've been pushing for heavily is this idea of copy staking which is this idea that um staking derivative providers should exactly copy the delegation distribution of non-like liquid staking derivatives users so now that way when you're staking you have the choice of either you go through the consecutive derivative provider and you get this like um you know liquidity on your estate assets or you stake directly you you're foregoing that liquidity but now you have the ability to choose the uh distribution of voting power so you know

you can imagine it basically ends up devolving down into like validators self bonds are the ones that are actually directly staked while everything else is going through liquid staking which seems like the end goal we're going towards so might as well make it so the liquid shaking providers aren't the ones selecting the validators rather it is still somewhat proof of stake-ish in selecting the validator so that's one thing um long term I mean I've always been a big fan of uh reputation based systems that's I think I think proof of stake was better than proof of work in many ways um and worse in some ways uh but like I I think the end goal here is like okay well proof stick is done we've solved it I think

I wonder what are other mechanisms we can do to build decentralized consensus protocols and I really think like web of trust reputation systems are this like interesting Avenue Worth exploring yeah shout out to our our good friend Ian for that tweet he uh he really got got everyone thinking on that one but I do agree like you know if you look at back at the ethereum ecosystem for example lydo has such you know overwhelming dominance and there's only 29 provider uh node providers that are operating the the stake behind that ecosystem and you know there are things like rocket pool that exist and that are kind of working to a much more decentralized model but specifically in the cosmos you know we really only see stride who is kind of building towards a more decentralized model that's similar to the one you just

described and you know they've mentioned the use of like bonded uh delegations and things like that but like is I get yeah it's just interesting to Think Through the Dynamics of you know the one protocol really being the deciding factor on stake especially when there are pretty aggressive winner take all forces in the LST mark and I think um so do you think like there's a like a possible solution would be other liquid staking providers kind of coming to Market and having a great product and kind of you know helping balance that back out you know I think that's one thing that we're starting to see in ethereum I think rocketpool and CBE and stuff are like starting to provide reasonable competition to Lido but we'll we'll see um I think the two

things that I think are would be the biggest threat to a dominant liquor shaking providers like a stride or a Lido would be one of two options one is chain start building their own native liquid state so imagine someone built builds like here's a this whole copy staking thing I mentioned right someone could just go build a module that anyone can import into their causes SDK chain and it just Auto distributes like immense liquid shaking tokens uh following this copy staking mechanism and so it's like why do you need a separate option when Every Chain can just issue its own LST so that's one option the other option is every D5 protocol becomes its own liquid staking provider so this is something

I've been uh I I don't know I still think makes a lot of sense where like let's say something like Mars a lending protocol instead of it accepting St atom and St Osmos collateral what it could do instead is say like oh it's only going to accept atom and osmo and then it's going to go use the non-lent out Adam and osmo and put it stake it uh and like earn the revenue from that treat it as you can either trade it as protocol revenue or you could like use it as incentives in your system or like basically like why give up that Revenue to a liquid shaking provider when you know the D5 Protocols are really the

ones who have the TBL at the end of the day and they could cut out a liquid shaking provider as the middleman and just build that as a function of their D5 protocol this is kind of what anchor was trying to do um in in tear up so I think those are the two systems I I see you know potentially disrupting the LST monopolies interesting all right well we're running up on a uh an hour here actually it's it's uh getting close to time but I did have one more question I wanted to ask you before we let you go ABCI plus plus what is that exactly and how is it beneficial for osmosis hmm yeah ABCI plus plus is um it's a way of the way the cosmos SDK

stack was tenderman stock was designed was basically you have a state machine that doesn't have to think about consensus you can write a state machine your business logic without even knowing it's running as a blockchain you write it and then you just run it on top of tenderman and now it's like boom now you have a distributed State machine um which was sounded nice in theory but in practice at what we realize over time we're like no actually when you're designing decentralized blockchain like decentralized protocols you there's actually times when your state machine does want to be more opinionated about how consensus works and so ABCI was the name of the original protocol I send for application

blockchain interface that the cosmos SDK used to talk to Tender mint uh and what we did was real we ABC plus plus was basically something that our team like invented two over two years ago now at this point where we're like hey okay let's add more ways let's this is like the extension of ABCI we called it originally ABCI 2.0 but it was a way of like the state machine being more opinionated about the consensus protocol and that gives you just the ability to do so much stuff like our original use case was we were trying to build the threshold decryption which was like the private mempools uh but you can also do things like validator provided price oracles you could do

um all obviously like there's a presentation we gave like two years ago that kind of like lists out all the different things you could do with uh with ABCI plus plus so it's really that's ABC plus plus is what's going to give most unlock a lot of the app chain benefits awesome Sonny well thank you so much for coming on this has been a fantastic conversation and again thanks for being so generous with your time uh do you want to tell people where they can find you and learn more about osmosis yeah sure uh you can find me on Twitter I am sunny a97 and you can on Twitter osmosis is at osmosis Zone um and then the website is uh you can you try it out using osmosis dot Zone awesome well until next time

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