Inside Polygon 2.0: Sandeep on L2 Wars and Business Model

Transcript

hey everyone before we get into today's episode I want to take a second to acknowledge vouch with over 4 000 startups insured from napkin sketch ideas to large IPOs vouch is the insurer of choice for crypto companies including l1s l2s Dows protocols and a whole lot more they're exclusive coverages are enhanced for crypto covering everything from regulatory defense to Smart contract vulnerabilities with vouch you're not just ensuring your startup you are investing in peace of mind so you can keep on building you'll hear more about vouch later in the show all right everyone welcome back to another episode of Empire we have uh Sandeep one of the founders of polygons

and Sundeep man welcome uh welcome to Empire my friend yep thanks thanks Jason for having me here yeah of course man so uh what I want to talk about today is polygon 2.0 which is super exciting and the way I was thinking about prepping like doing a little prep for this episode and was reminded by how much you guys have going on at polygon right you have polygon proof of stake right the proof of stake Network you have polygons the ZK evm you have polygon Maiden right you have uh polygon supernets which is kind of the like app chain Focus scaling solution uh you have polygon ID and uh and then you have like what I think a lot of folks who listen Empire know you for which is like these crazy big Biz Dev deals with you know folks like Reddit and uh I

think it was maybe Nike too and Starbucks and folks like that and it seems like your goal for polygon 2.0 is is bringing this all together through this kind of network of of zero knowledge L2 blockchains um so I think what what would be helpful here is before getting into the what of polygon 2.0 I'd love to get into like the why of polygon 2.0 and and why this is the it feels like the culmination of all of your work the past five years would love to hear about that yeah I mean I think that the why for for for us has remained always very very uh you know it has been has been very very consistent and that is how do we create the web 3 infrastructure for

Mass adoption right it's it might sound you know cliched uh because of the last four or five years because we are all stuck in the same uh you know same stage where everybody keeps saying that we want to see Mass adoption mainstream adoption and whatnot but here we are now where we still don't have a lot of good applications built on web3 but basically the goal is that from our side is is to create that infrastructure I would argue that we don't have dapps because we don't have scaling as of now none of the chains or none of the applications that you see today uh or you know people keep saying that there is so much of block space but

where are the applications they none of these actually uh you know none of none of the applications have that kind of scalability like if any one of them you know goes really viral and starts having like one million two million daily active users that share that app alone will break the chain whatever that app is or whatever that chain is so that's why like you know the quest is that we create this infinitely scalable uh you know blockchain infra where people can develop these trustless applications and grow it to multi-million users so that that that that's where the that that is the why of

that like why is yes like we believe that web3 is basically the next evolution of humanity like how we conduct our businesses like how we live we live our lives in the in these digital worlds uh for the mo for most of the times and you know all the all our Digital Life is controlled by uh some institutions which are in the middle like you know in this case we are recording let's say via some third party the you know online podcasting or you watch YouTube or you are you're on email everywhere there is a middle party and big institution involved in between and we all know that how much uh you know the low trust environment has got

created in the past few uh decades so you know why web3 obviously we need we we seem or we expect this new a trustless era to come in wherein uh like applications or our digital lives that we are living we can live it live this life more trustlessly and uh you know and hence we need an infra which can actually accommodate let's say 100 million users 100 million daily active users right and uh for that I don't think anybody any infrastructure uh you know chain or anything is ready and polygon 2.0 is are like you know attempt to consolidate all the kind of different parts of the research that we have done

whether it's like the it was or the polygon POS which started as a plasma or with the ZK which includes like different kinds of like you know evm non-evm like maiden for example is non-vee evm and all of these cheap things coming together in in like a uh environment which has Consolidated liquidity because what we are building is this this whole ecosystem is about building uh these uh you know Financial rails for this new age you know Finance world like you know right now blockchains are still primarily confined towards the financial use cases and these Financial use cases uh you know need this uh modern environment and we

need like we need this environment to be infinitely scalable as well as you know the liquidity needs to be Consolidated like I keep giving this example of like if you see the web 2 world today the web 2 world is practically practically infinitely scalable you can launch as many applications every other day new websites new applications are launched more capacity more servers are added into the system but the current web 2 system is the internet of information so in information is very uh seamlessly interoperable like you know we are talking like I am I am probably on uh you know uae's Network and you are somewhere in the US internet uh USS Network and these networks are connected

with each other we can create share and exchange information uh seamlessly same way should be possible with with uh web 3 for value and that's why I like polygon 2.0 they're infinite scalability you can add as many chains as much scalability into the ecosystem but the liquidity is still uh consolidated uh with one single trust layer or trustless layer I would say that is ZK provided by the settlement layer of ethereum so what's happening what is how would you define polygon 2.0 I was reading about it it seems like there are governance updates tokenomics updates uh the POS moving to kind of you've got the validium and then you've got the zkevm can you give us basically like break it

down into a couple components here of like what's actually happening with 2.0 yeah so see all the governance and token update and everything these are just means to achieve that trustless and Community governed network but what the network is doing is very simple like if you see like we started with the quest to build the layer 2 networks so we have the polygon POS chain which we are like because when we started you know the approach was plasma people used to talk about State channels then optimistic rollups came in and we know the problems with optimistic rollups they are like kind of a midterm solution and then but then you know we and everybody every researcher in this industry knows that and understands that ZK is the end game for all of this right all of these

trustless systems or These Chains as you would call it so can you explain that real quick just like before we move for can you explain why optimistic is this kind of like short-term solution because if you look at the L2 space most people like familiar with optimism and arbitrum and those are both optimistic Solutions right now so can you explain why ZK is the yeah absolutely so essentially in this layer twos what exactly you are doing is you are having you are doing some computation on an off chain environment right which is like let's say the chain of you know optimism whatever it is right and you essentially with layer 2 what you want to do is you want to prove this computation completely on ethereum and you want to make sure that users if the

users stop trusting this chain they can exit uh based on ethereum only they they don't have to come to this change they can exit from ethereum only these are the two main things that you're trying to do how optimistic rollups achieve that is they say that okay you have to do competition on a separate side where you so that you can scale but what you have to do is you have to still provide all the data back to ethereum and the proofs of the you know State transitions why you have to provide all the data and that is exactly why it's called optimistic right optimistic means like there is nothing special that you are doing technologically why technology Wise It's a fairly simple technology if you see like there is nothing special you are doing what you are doing is optimistically assuming that these the

the Layer Two Chains are working fine the sequencer single operator sequencer is working in working fine but you expect the sequencer to put the data and the proof on ethereum and if something goes wrong since all the data of the transactions is on ethereum in a minified way anybody can actually check if the change is working fine and the moment you find that there is some level of you know uh uh you know fraud has happened or uh you know the code has been executed in in a bad way in a fraudulent way then somebody can initiate this is called fraud proof and there is a delay of seven day you you do a seven day withdrawal period that's why you know when you use optimistic roll up

it needs it takes seven days for you to withdraw your money back to the main chain the reason for that is that uh you need to give enough time for everybody in the community and you assume that somebody would be watching this and the moment they find something some fraud in that they will raise uh you know the fraud proof that's why you need a seven day withdrawal period but if you see as a technology is a very fairly you put all the proofs back on ethereum that's why the costs are also you know fairly high for optimistic rollups right because you are putting all the data back on ethereum even though it's minified but you still have to pay but with in case of ZK what you are doing is ZK is like you know without

going into the details of ZK what ZK is allowing you to prove a computation that you did just by providing me a a kind of a constant size proof constant size proof means that which which takes same amount of computation every time for me to verify so let's say you are that chain let's say uh Json right and you executed hundred thousand transactions you don't need to give me the data of those hundred thousand transactions you don't you know you don't I don't need to know anything about that all you need to give give to me is that here is your ZK proof of all the previous like you know the the current state right uh current state to the next state and you just give me the proof I I verify it on ethereum and the moment I verify I am 100 sure that

everything you did it is correct so you can already imagine the amount of scale you can achieve right now with optimistic love you have to put all the data back on ethereum whereas with ZK roll ups you you don't even need to put the data back on ethereum you can have it off chain and as far as that data has fair enough data availability uh you know guarantees for you you are fairly fairly sure that this operator cannot change great because that ZK proved the mathematical proof is will not allow so you can say that trust model is in ZK it's fully being trusted by maths in case of optimistic rollups you are relying on some sort of socio-economic games that somebody from the community might be watching it and will raise the fraud proof another problem with that is

like the optimistic change let's say you have one chain it's fine like you can assume somebody is running a full node of the chain and which is these are fast chains right these produce fast blocks and running up running a node for our layer to chain you know cost you around let's say you know maybe uh at least two to three thousand or five thousand dollars a month roughly right if you want to run all the chain to check the check for the fraud right so sixty thousand dollars a year minimum I am saying you want to you want to run you you need to run a full load now imagine you have 10 optimistic chains now somebody from the community needs to run these 10 nodes minimum and this is the minimum requirement otherwise you are testing that guy only right and so it

says that's 600k if let's say this is then if it is 100 chains now the similarly the cost goes to six million dollars somebody has to run on the as a community as a whole has to run six million dollar worth of nodes to constantly check for those fraud rules so hence those socio-economic proofs do not scale especially for the app change they do not scale whereas in case of ZK proofs you can have like millions and millions of chains you don't care as far as the chain is the proof is being submitted to ethereum you don't care whether there's a guy who's sitting on a college dorm room and has built a game and you are using that game and you have 500 000 in that game you don't you don't

mind that much right and uh same case like you can think about this app chain thesis uh like how why it did not like you know Cosmos like I love Cosmos Community uh you know one of my favorite projects in the ecosystem but then Cosmos app chains do not scale because of this property only right because you have like 10 chains one of them has 100 validators which is fairly secure but others have like five validators and all of these chains are connected with IBC so the if you are moving one million dollar from this uh five validator chain to the 100 validator chain you know the 100 validator chain needs to trust these five validators because if there is a fraudulent let's say consensus uh fraud that happened on that five validator

chain now you are stuck with a one million dollar which is a bad value that came to you in case of ZK if both these chains were sharing ZK approach with each other it doesn't happen and that's what is one of the main thesis behind the polygon 2.0 as we go along on that got it so what you're saying is the all the governance changes the tokenomics changes changing Matic to pull these are all secondary things that are the goal is to move for this ZK evm Network yeah the CK ABM Network which has two key characteristics as I said the characteristics first infinite scalability that you have the you can have 10 000 chains in this ecosystem for everything works perfectly fine as far as the ZK proof is going back on ethereum second unified liquidity

infinite scalability unified liquidity how unified liquid how unified liquidity is we have this LX ly Bridge which is which we are going to launch a faster version of that is all these chains liquidity is connected into one single bit so you can move your funds from one chain to another without going to ethereum right now this kind of interoperability you will get in in let's say every 30 minutes but then very soon you will have a fast uh aggregator layer which we call the aggregator layer currently or interop layer where each chain can actually push their proof every 10 seconds and every 10 second you know once the chain has pushed the ZK proof on this aggregator layer every

other chain can simply observe the ZK proof and allow any kind of incoming or outgoing transaction value coming to and fro from this chain so you know all these chains become interoperable at a you know at a time scale of like two to ten seconds and if you see if you want to see like that let's say I am on a gaming chain and I want to swap my game tokens against usdc on polygon ZK VM so I do a transaction this game chain submits a proof in 10 seconds the moment this proof is submitted in 10 seconds the other chain let's say zkevm now knows that this particular proof has come in from this chain and any cross chain transaction I am sending knows that okay this transaction is

legit it's kosher and you know I do the swap and then now the ZK proof ZK chain submits the proof in 10 seconds and now if I have a usdc going back to the gaming chain the gaming chain knows that GK VM has executed correctly and it allows me to get my usdc back so in 20 25 seconds you get you are you are on a different chain you don't have to Bridge and all that stuff you just do a one single trustless transaction one or two trustless transactions and you are done that is the kind of so what it starts doing is all these chains then start feeling like one single block space and this whole block space can have now millions and millions in TPS let's say I mean millions in PPS over the time as these things scale and if you actually

you know look back you will see the internet has also scaled in the same way and you know from the polygon side like we are not here to you know uh kind of you know create a project which is like you know which happens in crypto cycles that you have a project and you know for one cycle it's it's great and all that no like we are very clear that we want to become as I have also said that you know we want to become top three players or top three projects in the space BTC ethereum they have at a big impact on the on on the world and we want to be the third project you know after them or like join a list of these projects which have that level of impact that's the goal of polygon and there is absolutely no uh you know compromise on that so

Sunday we extend this Vision out like more than just one year like if I'm if I'm if I'm trying to get inside your brain for a second and like think about your maybe five year Vision or something I feel like where you're going with this is uh your vision of the world might be you have this like ZK attack that basically makes it possible to prove a wild variety of things like maybe you could have Cosmos chains on polygon or or optimistic Roll-Ups let's say someone does decide to do optimistic Roll-Ups they could still build on on polygon right or absolutely yeah Starbucks wants to build and uniswap wants to build and got a college dorm room wants to build this all happens on polygons that that's your longer term Vision yeah our goal is that you know you have this block space which is basically essentially

everybody's trying to create trustless computation I think that blockchains uh you know the trustless computation is actually a much bigger phenomena like we all think when we talk about blockchain we talk about decentralization but actually it's not the right thing decentralization is a means to achieve trustless computation now with Bitcoin that trustless competition is payments right ethereum that trustless computation is any kind of generic program so we all are trying to create this trustless computation environment and as polygons take uh you know to answer your question very specifically that what we are looking for is that imagine in five years from now you have like you know 10 20 or like uh tens of thousands of chain 10

20 30 000 chains which are all like you know which can be layer ones which have their own tokens which are validiums roll ups you can Define them in two big categories validiums and roll ups Roll-Ups means you are putting your data also back on ethereum and validiums means you can you are you can you are having your data off chain so you can be a layer one nobody cares right you know you can be a layer one having data on your side but you're still proving back on ethereum so there is one single the Baseline of security for everyone is the moment you receive a proof of a chain on on ethereum you know that that that execution till now is perfectly uh it has been done perfectly there's no fraud so that that in five year old five five year long goal would be that you have

these tens of thousands of chains all of them connect back into ethereum settle back into ethereum using these DK proofs and there is cross chain interconnectivity uh you know possible with them and this is also infinitely scalable like you know from 20 000 it could go to 100 000 chains it can go to 500 000 change this architecture that at polygon 2.0 that we have proposed it will still scale so that's the main one and you if you ask like some of the researchers in the space they would tell you that this is probably like you know very bold but also one of the most practical uh you know architectures uh which and whether it's polygon or somebody else but whatever comes out of this would look very similar to this

when somebody when a protocol comes out or a pro or a project which becomes the mainstream web3 uh like or become AWS or web3 everybody's using them they will have something similar in their in their architecture yeah so you what I mean what you're really implying is this isn't just the end game for polygon but this is the end you think this is the end state for what infrastructure should look like absolutely yeah um all right so I would describe polygon as like a side chain I think maybe is the word to use right now and you're moving that's that's our biggest branding problem that polygon POS and till the time we recently allow that polygon POS will be upgraded to ZK till the time we upgraded to that like you know polygon branding will have this problem like people think polygon POS is

a site is a side chain but polygon ZK VM for example is a full-blown layer too it is as Layer Two as it gets okay true true so but like um but you keep so okay so then why so you're moving to the ZK evm folidium this is where some of the technicalities go beyond me but would you ever think about going becoming a full scale like a full-scale roll-up because the way I understand like a full like a full scale roll-up verse of validium is uh there's slight differences there like you were just explaining yeah yeah yeah so polygon POS will will always remain a validium because it has its own validators which are storing the data right the ZK proofs are implemented it is putting a data it

is putting uh the ZK Pros back on ethereum till that time currently so okay let me explain again yeah polygon PS is the side chain it has its own validators it just you know puts a checkpoint back on ethereum for the current state of the chain once the ZK proof plugs back into the polygon previous chain because the data is still managed by the validators polygon POS becomes a validium right but polygon ZK evm is a separate chain which puts both the data and the proof back on ethereum so that's a full-blown roll-up so the polygon 2.0 architecture which is a multi-chain architecture it will have validiums it will have rollups who knows like as you said like it might have

Osmos chains right it might have some layer ones which are proving back on ethereum so the that's that's that that's what it's about got it one last question on this then we can move past it right now you have how many validators you have like 100 validators or something yeah and they they control the bridge back to ethereum yes that that will change with this right that will become trustless then the validators don't control the bridge they just control the sequencing of the transaction that is also important is that think about like you know the current layer layer tools that are there like you know which includes polygon zkvm includes arbitrum includes uh optimism like you know I think we you know the ethereum

community has not discussed that much because you know we try to follow the narratives but actually if you have a single sequencer uh chain and which is which is let's say very big in D5 right for example base chain now imagine on that base Channel I am polygon ZK VM or let's say I am arbitrary or optimism and there is a high volatility period in the market where there is a hundred million loan from my team only let's say whoever is running the sequencer sequencer has a hundred million loan on away which can get liquidated because of the volatility period right and now there is an incoming transaction from an oracle which is changing the price which is like updating the price I can simply for that like you know the blip where the

whip whip goes below and then comes back I can simply sensor the Oracle transaction at that point in time so that my loans are not liquidated and then bring it back so the for the D5 chains eventually all these layer ones for now it's okay people are trusting the the the sequencer team or the project team that they are running it okay but eventually for D5 at least if a chain wants to be layer to chain wants to be departure they need to be decentralized so that if one sequencer is not accepting oracle's transaction in next second or two seconds later on other one will accept that so with polygon POS I think that it will become the first layer 2 which is fully decentralized once it gets updated hopefully like you know it becomes first

but maybe by that time some other layer 2 also is able to launch something decentralized sequencing who do you think of as your like if I were sitting in your shoes think about my competitive set I'd probably put it in three buckets there's like there's optimism in arbitrum um then there's probably like coinbase there's like bass right and then there's these like zks that you know talk about the tech have like supposedly really good technology but maybe haven't gone to mainnet yet even and uh you know maybe 2024 even 20 25 will be the big years for them that's kind of like how I would how I would see the three competitor buckets I'm curious if you see it like that and maybe who you think of as like your main competitor there yeah so see from the ethereum community uh then in ethereum community right now

we are like you know everybody is such an at everybody's as at such an early stage that you know thinking that on ethereum community we try to at least like you know maintain that mindset that anybody who's killing ethereum is fine like we are also hardcore well so but if you ask me the competitors I would say anybody who's providing trustless computation is is a competitor to each other right so because the the the the the the the target addressable Market is the same like everybody who's looking to build either in D5 either gaming or whatever they are trying to build as a that's why I said trustless computation is a much bigger phenomena than you know this decentralized blockchain that we are talking about and uh anybody who's building that trustless computation

engine is in in a way is a computer so ZK optimistic rollups maybe uh you know some other approaches that might come up they you know in a way are competing with each other so if I'm a Founder listening let's have a Founder listening to this I've uh I just raised my seed round and I'm looking to maybe yeah I don't know I'm playing dabbling and I'm I'm trying to figure out if I should build on base I should build on optimism arbitrum polygon scroll how do I how do I make that decision yeah so if it like it depends on so many things like if you are a long-term a long-term founder like you are building an application and you believe that this will be a big application in

five to ten years then you have to see I actually look for two three things like I would look for the users maximum Integrations like which which particular chain has maximum Integrations into various exchanges and uh various liquidity providers on-ramp off-ramp uh which chains have uh better uh if I'm building D5 for example which chain has more liquidity right uh if I'm building a gaming application which chain has more of these gaming communities where I can get the early users and things like that but then in the short run as a as a as a as a Founder many people also look for novelty factor for example because in this market like all people reward is some sort of novelty so right now maybe

base chain is a good example good good option where like for the first two three applications five applications who will launch there they will have this novelty Factor once those have launched then you know it kind of goes away same will be applicable to any other chain which are doing the air drops like upcoming airdrops for example arbitrum had a massive airdrop and you know that kind of incubated a lot of projects in their ecosystem so similarly that that will that I feel that will happen for scroll and other things also and maybe you know if polygon is launching some other uh you know layer twos and things like that maybe their novelty Factor would be there so those kind of things but depends on like if you are building D5 you would you would want to choose what liquidity

if you are building gaming you would want to choose for distribution to gaming if you are building something like social and all that you would want to have a you know distribution to normal uh like crowd all right everyone wanted to talk about vouch again our favorite insurance provider for crypto companies if you are building in crypto you have probably come to realize that contracts need Insurance Partners demand insurance and as a Founder myself trust me when I say you owe it to not only yourself but your investors and your clients and your customers and I'm not just talking about any insurance there are exclusive coverages are tailored specifically for crypto companies that can address issues like protections for regulatory defense recognizing Dows as insured addressing

smart contract vulnerabilities and even covering the loss of digital assets they're in it with you whether you're working on l1s l2s Dows MPC wallet providers building a protocol and a lot more so whether you're just scribbling your next big idea on a napkin or gearing up for a big fundraise or maybe thinking about that IPO or an acquisition don't leave things to chance get insured today with five percent off vouches exclusive coverage for Empire listeners using Code Empire think about it this way with vouch you're not just ensuring your startup you are investing in peace of mind hey everyone we'll get back to Empire in just a minute but before we do that I want to let you know that we have permissionless coming up permissionless is Big conference that

block works and Bank lists put on together it is the biggest the best D5 conference in crypto this year it is in Austin Texas September 11th through 13th if you've been in crypto for a while you know that bear Market conferences are the best kind of conferences we have a phenomenal lineup of speakers a lot of the guests that you hear on Empire are both going to be speaking there you will have the opportunity to meet them there and a lot of the topics that we cover on Empire ZK attack roll ups account abstraction Mev app chain thesis a lot of that kind of stuff that will all be discussed at permissionless this year so because you are a listener of Empire you get a special discount that's right

Santi and I negotiated with our marketing team you get 30 off if you go to blockworks.com forward slash permissionless Empire 30 is going to get you 30 off your ticket today when I'm recording this that's about 300 off your ticket so type in Empire 30 when buying your permissionless ticket you get about 300 bucks off click the link at the bottom of this episode it's in the show notes do it quickly because prices go up all the time and if you are going to permissionless hit me up let me know shoot me a DM on Twitter I would love to meet up with you there you want to talk about tokenomics or governance I can talk about uh tokenomics also first uh because you know like this is a

question from many people that you know we actually uh once we when we when we rebranded from Matic Network to polygon at that point only we had said that you know this is due on us that you know we need to upgrade the Matic token which was a single token single chin uh or token chain uh or single chain token this will migrate into this multi-chain uh environment where multi-chain uh you know tokens are there so I think on that front uh you know what we have built is basically we believe that this poll token is upgradation of Matic and uh that upgradation allows it to become multi-chain

right and also allows it to you know kind of serve this uh whole uh you know multiple chain uh you know environment like when I what I mean to say is that previously like I think and that's why we call it a third generation token uh because if you see the first generation token BTC with BTC as a holder you have no way of holding BTC and and with that contributing into the contributing into the network like you cannot stake that Network you can you need to have miners like you know which are which is separate uh stuff separate setup to contribute into BTC then came ethereum especially after the merge now you if you are a ethereum holder you can

participate in the network for securing the network and uh then polygon kind of tokens will be these third generation tokens where you can actually secure multiple chains in your ecosystem so not only you can validate and earn rewards transaction fees from one chain you can earn transaction fees from multiple chains and the second part is that you can also play multiple roles in polygon ecosystem you can be a validator or a sequencer you can actually be a proverb you can actually become a data availability provider and you can also be an aggregator of uh these posts and we expect that to for run for running this whole large trustless ecosystem uh you you know this this will generate a

lot of transaction fees and that will go to the people who are uh you know for the poll stickers which will be running these chains and different different kind of services so you can also think that Paul has kind of like uh as popularized by eigen layer like restaking but we call it like multi-staking like you know because every poly eigen layer restaking is uh built on top of ethereum protocol whereas this multi-staking mechanism is built in protocol in polygon so huge stake I mean stake once and then now you just can subscribe to multiple chains and let's become a validator for for multiple polygon chains yeah yes yes okay you so if let's say you are a validator node.json then you can say that okay

this new chain is coming up and this is run by let's say base like base is being run by a point let's say some other exchange is running and you would say okay I would like to be a validator on this chain and then you you pick and choose that chain that kind of stuff you can and the the other thing it does that I don't think you just mentioned is it um so you guys have this uh 10 billion uh Supply cap right on on Matic which is now going to become Pol uh you guys are switching to an inflationary model right I think this is to incentivize validator participation and then probably also just continue funding the treasury and maybe in maybe a better way but what's the rationale behind that yes yes so as I said that the Matic is moving from a

single chain token uh to a multi-chain token so you know we need to have initial validator incentives uh which can actually incentivize people to run and validate multiple of these chains so which means what it means is that in that case uh you know we have we have a provision for one percent of uh you know addition of this piece every uh year one percent every year which is less than let's say I think Bitcoin is one point eight percent ethereum's also uh you know minting is but ethereum also has burning mechanism but I think it's more than 1.52 or something like that so it's very like kind of a low but base

security uh you know rewards for the validators like you know we all discussed that if BTC if it the rewards keeps going down with every hobby center for the validators or minus run that so that that is one part then secondly we have also provisioned for a limited amount of time from for five to ten years to have one percent of the treasury in poll token which can be used to further grow the ecosystem right and uh the reason for that is that you see that every other uh every other like quarter are actually some new layer 2 token is launching with a fresh Treasury and what happens is that all these like for example arbitrary optimism when they launched they like the the markets

assign them a value based on keeping let's say Matic token as a like originally you know when when it was the only kind of layer 2 protocol available the kind of assigns of value around around that right like in the market cap and now you have other layer tools like arbitrary and optimism being there the third one with whatever protocol will launch their new token they will also get assigned somewhere there and those protocols have from Day Zero then billions of dollars in treasury so it kind of puts the commit treasury of polygon ecosystem uh at a at a kind of a handicap where other ecosystems have much more uh money to incentivize and grow the chains grow their uh kind of ecosystem so that's why we kind of

provisioned one percent per year for next 10 years and the community can decide like if it needs to be two percent for the first two years us and then one one percent for next six years or two percent for five years all that is flexible but the point being that the treasury or the community uh needs to agree that okay we need to have till the time in next three to five years when these infrastructure Wars are going on polygon is not handicapped uh polygon community ecosystem is not handicapped to keep acquiring more and more developers to it because no other protocol can also uh kind of uh you know spend more than one 1.5 percent of their treasury legitimately if they don't want to experience a huge amount of you know

sell pressure into the markets so kind of It kind of puts polygon at par with uh with other chains uh you know especially who are launching with the new token because polygon is like four years old token 90 of its Supply is out and and all those things so you know the ecosystem needs a way to sustain and secure and keep grow uh growing uh on the on the distribution and adoption Frontline yeah um on the governance side I mean we can talk about it quickly it seems like you guys are basically breaking the three main governance pillars right which is protocol governance uh system smart contracts governance and Community treasury governance why is why is this the I'm curious like what learnings in the last couple of years led to this

kind of three similar model yes so see see like the the one is the protocol governance right if you see ethereum and Bitcoin they are not their core protocol and client development and core things are not not governed by the uh by the community right like but they are like ethereum for example has a core devs group where everybody can join anybody can join they can raise their opinions and there is a rough consensus uh off chain that happens and then you know people upgrade the clients and other uh other validators also have to upgrade the client that's the way these are governed so some of the parts of that though those kind of protocols we don't think uh I think Bitcoin and ethereum have have proven to have a very good

model and we don't need you don't need Community governance on that like where the token holders which have no understanding of those hardcore technology details because we want to be we want to be real with the governance like we don't want to call it governance for the sake of calling it governance and asking all the people to vote on things where most of the people have you know don't have much understanding then you have the protocol smart contract governance which are the smart contracts which are being uh you know like all these Layer Two smart contracts where you know they had the bridge contract and all those things so there the community if there are any kind of further any kind of upgrades that are coming coming in we can actually take

the vote from the community or put a times a time uh you know as they call a time delay into that time like uh and uh uh you know with that any kind of upgrade is coming is going it has a let's say 7 to 30 days Peri period where Community can review and say okay this change is going in this affects the security everybody take out their money and all that right so that's a governance mechanism so uh you know no change can go immediately but for for the state of layer twos as you see like these are smart contracts every other day D5 smart contracts get hacked and all that all that and those kind of things uh with those kind of contracts uh you know nobody can tell in advance so you we also have a we also will and

all the layer tools have this Security emergency upgrade Community or security uh committee all the layer twos have like in the past you must have seen that polygon POS a lot of people said that oh this is a multi-seek and all that it's just that we did not brand it more fancy like all the all layer tools big small supported by vitalik whoever it is everybody has that security committee but again it's it's the power of narratives in crypto and you know people have you guys have had a couple of uh those narratives go against you like the side chain narrative yeah yeah it's it's the same thing like uh you know right now for example like the like I mean again uh you know we don't want to like call that all those things out but actually

if you see optimism without the fraud proofs or base chain for example without the fraud proofs and they are single server side chain at least in our case there are 100 validators on that side chain these are single server side chains right so but but again like no no towards optimism and uh base chain like they are they have been trying to build their part right like whatever we were also trying to build our plasma part but then obviously when you have you know teams from the Silicon Valley and supported by large VCS and all that it's easier to form those narratives and you know uh kind of bypass imagine if polygon had done something like that you also are remembering some of those narratives going again if we had done something like that let's say we launched our ZK proof without the proofs

and say that ZK proofs will come later on like we will be killed out there right so you know it that's the advantage of being from uh from the Silicon Valley and maybe us and all that and having the support of a lot of uh you know institutional investors but uh but that's perfectly fine uh uh what I was saying is that yes going coming back to the governance that uh the smart contract governance Community can also be Community vote can also be taken but mostly it will be actually the time time lags that will be implemented and Community will have the way to review but this will be often governance and then there is this uh third part of governance which is the community

Treasury and all that there again we want to uh we want to involve a community on like right now till now you must have seen that polygon labs and some of the you know other other parties in the system or in the ecosystem they are actually doing a lot of BD work and things like that like now with this treasury we want more and more Community to be involved how they will be involved as per the compliance structures of us and all that because the the regulation on Dao's also is keeps on increasing keeps on growing and you know I think largely everybody understands that you know if you if you have a pool of money which is controlled by token holders that's not considered very uh this thing but we have to find out a way where the

community is fully involved in taking some of these decisions growing the ecosystem and uh you know we are able to do it in a very very compliant way yeah suddenly anything else on polygon 2.0 because I want to move to another topic unless there's anything else yeah I think like we discussed most of the part like you know yeah we discussed that infinite scalability and unified liquidity with that aggregated layer I think we discussed um the other thing that I think people know polygon for are these like big BD deals right like uh who are some of them Starbucks uh we met uh stripe Adobe Adidas DraftKings like some you know Reddit some of those big names I'm curious like so I was looking at um the tvl on polygon and uh you know

it doesn't come from Starbucks no surprise and and Nike and folks like that it's it's Ave V3 it's Ave V2 it's uniswap V3 it's curve it's balancer it's you know compound Etc it's the name that kind of you would expect so I'm curious you know looking back like a year and two years later on some of these deals what are your what are your learnings maybe like the the pros of doing these deals and then the the unexpected like uh negative downsides of doing these deals absolutely so again like you know this is this is one more part where polygon is stuck with like kind of narrative uh yeah yeah but let me ask you this question for a proof of stake protocol what do you think is more important like tvl or the transaction fees generated on the network uh the transaction fees on the network

exactly right because TBL has no like tvl Matrix as a matrix is just a leading indicator that this chain must have a lot of equity going on but imagine if I if we have a Instagram chain or Instagram on our chain and Instagram is generating 10 million dollar of transaction fees that transaction fees is going to the protocol token right the transaction fees are are 10 times more important no I I agree with that exactly so all these these now now you if you want to open let's say cryptoslam open cryptoslam and go to 30-day view on that and check that uh as per 30 days which are the top what is the top protocol there buy volumes I'm saying like you know I

don't want to actually uh you know say the this part but I'm just saying on the volumes by uh this one like check the top three what D Market board API Club DraftKings yeah I see what you're saying oh 680 000 transactions 30 days up 113 14 000 buyers I get I see what you're getting at right so so basically and and now check like you know just Google like Reddit number of uh number of nfts on Reddit right then the 16 million nfts that are that have been generated by ready holders with the on-chain non-custody wallet which and the chain these nfts are minted on chain so 16

million transactions were done by Reddit which actually would have given easily uh I think a revenue of roughly 250 to 300K to the polygon uh validators right that is the part that should be like but only problem is that you know we only care about the speculative use case like Nike Swoosh for example check Nike's push what Nike Swoosh is doing just later on you can Google how many holders they have oh no I saw I'm in a I'm in a group chat with some of the Nike crypto I mean yeah third right so what I am trying to say here is that because the whole narrative and again it needs we don't have that narrative power in the you know on Twitter because we don't have like those influential uh investors

who can actually talk and then it becomes narrative right if we say nobody here you know people say okay we are saying but basically what I mean to say here is that lens protocol for example the many of these protocols might not have a lot of value trading on the Chain but they will be generating a lot of transaction fees which is the most important part part for uh you know for polygon but also I would also say that uh you know that value is definitely the leading ending indicator of how much you know activity is there on the chair and I would say if you go to the tvl also even though polygon has not done any uh any sort of uh liquidity incentives for last two years you still see like

polygon after like in the ethereum ecosystem it's polygon arbitrum and then uh you know so it's become arbitrary and polygon number three and that also arbitrary recently likes in the last four five six months uh they they came up because of the like you know obviously they have a great Community but also airdrop and whatnot so what I mean to say there is that there is a lot of uh you know traction uh there uh you know and and you should also like one more thing like uh Jason I would say that if you go to the main page of this crypto slam if you go scroll up and just go to the main page uh yeah yeah here here yes the home page just click on crypto slam logo yeah just keep on cryptoslam logo

oh and then go to the chains basic basically there is a you know on the top you have rankings yeah rankings and chains blockchain rankings and then you do 30 days basically just do a 30 day average of that you see where polygon is yeah you've got ethereum's number one in polygons number two Danica Solana myth and you know like actually you one could argue that Solana had like I think in the recent Times Like Only nft is going on over there right and then polygon Community actually like you know in the nfts started like six eight months back last year November December and uh you know a lot of projects are doing well and projects are doing well over there

and it's it's claimed and you already must have seen on the D5 side so on the D5 side also TV always after ethereum arbitrum it's polygon right nfts rank two uh B5 rank three in ethereum ecosystem gaming gaming you know I don't even know like uh how many people know about gaming in because gaming nothing in gaming has actually exploded but in terms of the games building on polygon especially with the mutable X which is the which used to be like the you know number of they have like 150 to 200 games of building on them they completely migrating over to polygon you know polygon is like probably from the rank 2 it will be easily around

one to two orders of magnitude like orders are magnet I'm not saying two x three x I'm saying minimum 10x and up to a you know like 90 90 x also from because the rest 10 I think polygon has like 80 to 90 of that market and 10 is distributed between like various layer 1 layer twos and things like that very little gaming uh on that and most of these games there is also this interesting stat maybe I can share with you later on which is which says that in 2022 there was around 1.4 billion 1.5 billion dollar of funding in the a 2.2 billion dollar funding in the web 3's gaming space and if you you know consolidate the numbers and extrapolate them you will realize that around 80 to

90 percent is polygon and IMX uh you know ecosystem and polygon alone is like you know around ethereum so if you see like multiple and Brands the fourth segment I was talking about D5 rank creep nft Rank 2 Gaming absolutely rank one like there's no even not even second on that Brands no second in that all most of the brands are polygon so if you see in terms of adoption like we are actually very focused and I told you why of following only about adoption like we don't we We believe We I should not say we don't care about the narratives we believe that eventually these narratives will subside yeah they will it will will matter but right now the all the money in crypto space is basically on social

layer there's nobody cares about this yeah of course yeah yeah what do you think of uh of decentralized social like lens and forecaster and what's happening on friend Tech I'm curious what is this a I know you're very bullish on gaming is is is Social something you're excited about or not really no I am I am excited about the social side where I feel that uh there is something there but not like this uh like you know I mean Whatever Gets popular or vital actually if you see this and that's the whole uh you know kind of what I say Misfortune or unfortunate that is very unfortunate for the industry that even now any use case that becomes viral that

has some speculative angle to it right so uh you know like where people are trading these things and all that like I I don't think like social uh with with some with only these games will become uh really big you need to have like some fundamental value being delivered to the users on top of that like of course there is native money you can add some other things so I feel social to become really really mainstream crypto social to become really mainstream we are we are we are some years away from that I am very bullish on lens protocol for example obviously they're because they're Empires because they're built on polygon but I think stani knows like he's actually building an ecosystem around it instead of himself building

like few apps right right because you can slowly slowly slowly can start getting Network effects and the thing with these things is once they go viral they really go well yeah great um as we think about wrapping it up some deep I just want to zoom all the way out I had a I have a almost a non-crypto question for you which is um if let's say you were in a room let's say you're in a room with you know maybe 500 institutional investors um and you know exacts from Fortune 500s and stuff and none of them really understood crypto and they they asked you this one question they said Sandeep can you explain to me the business model of polygon and they don't know crypto how do you how do you think about explaining that to them yes so when you say business

model of polygon is the business model of protocol not the polygon there is no polygon Labs as a company and it is also non-profit it does not generate profit right it's a part of the foundation only so there is no profit that comes to this what happens is that you are building a protocol where both demand and Supply is outside of you demand is demand what is the demand for demand is for trustless competition whether you are doing in a decentralized way or you are doing in a single sequencer way that you are just providing Tesla's compute and you have these third-party developers who are on the demand side who will be using these services and they'll be paying transaction fees for various parts of the of the network who will get this

transaction fees that is the supply side and that also is outside like where you expect the community and the whole like you know people from the whole world to join this and join this protocol and run various different kind of nodes or Services which which will be served to these uh demand side people who are looking for trustless compute and in this between whatever transaction fees is being generated that goes to the uh supply side people that is the people who are running the nodes now how does it connect to the overall let's say token ecosystem or whatever right you know for example if in case of ethereum how does it connect to the value of ethereum is that all these or in case of polygon also all these validators they stake they have to because they have to

provide these Services there is needs to be some way for them to act uh or or their incentives to be aligned in the direction of working positively towards the network so they stake these tokens and these tokens stake tokens uh you know determine how much gas piece or how much part of the transaction fees they take the larger number amount of demand here which is generating larger amount of transaction fees in the network the more your uh you know validators of your token holders who are becoming your validators they are going to uh you know generate that fees and ideally if that fees let's say today if five percent is a U.S Fed rate if today your network is generating 100 million dollar in transaction fees right so ideally your

token should be valued minimum 20 billion if 100 of that is take minimum two billion dollars because that's like 100 million is five percent of the of of that fee so people are like staking that amount of capital to earn that five percent uh yield yearly on that right so that should actually how it relates to this and then some of the tokens are owned by all the projects treasuries and all that and they have to use it till the time the projects you know reach and escape velocity and from there the foundation also can dismantle itself the project becomes ossified it goes that's how like there's no business model for these like there's no money making for the teams who are building it all their incentive is in those tokens actually

that if those tokens appreciate in value probably you know the the founders will also get something if you guys if you guys accomplish this um the last question I had for you is uh so so Mike and I spend a lot of time like thinking about uh just getting inspiration from other businesses outside of crypto right whether that's Bloomberg or you know other media companies or data platforms or whoever it may be I'm curious if there are businesses outside of crypto that you look to for inspiration uh outside of crypto uh businesses I think like you know off late what I

what I see is like crypto is so speculative in nature right like you know I actually have started appreciating the normal traditional business model where you know uh people have uh like you know you put input capital and you build something around it like you build a factory you build something and then you know you are generating Revenue out of it and hope that Revenue Minus cost is you know is positive I appreciate those uh models also because there's like so much of speculation in in crypto and we are trying to build this decentralized you know ecosystem where community participates and you know everybody participates but then the thing is there are very very small part of our community is interested in things which

are not speculation so which is like kind of a hard and unfortunate part of uh you know our our thing and I think we need to do well on that because let's say in five years from now you still have to invite people like me who are building infrastructure structure for these podcasts that means we have failed as a collector you should be inviting apps you need the apps and the consumer things yeah yeah no I agree so anything all anything more like you know you want to ask from me you know come to controversial and all that that will be more fun no no I think I think this is a good uh good over overview of polygon 2.0 good good shout out kind of the L2 Wars infrastructure Wars that are going on uh interesting getting your take on some of these like BD deals and yeah man

great great conversation no and one one more thing I think I I just uh you know this thing is that uh we we have also we are also you know we've also launched this polygon cdk which is basically the consolidation of all the polygon technology uh which can be used to run your own chains like run your own zkjets like this has been already there a lot of players like IMX and I didn't uh idex and uh you know so many applications and so many Palm Network and all that they have announced that they are building their ZK chains using this uh but you know for us we had to you know we wanted to bundle it into one single package so polygon cdk uh would love people to check that out especially the founders to check that

out like you can build your own ZK chains which can be completely Sovereign uh you can have like uh you know ZK proofs which provides you like five to ten minutes or half an hour uh you know uh maximum half an hour uh movement to and through movement of the funds liquidity from ethereum to uh to to to it's from ethereum to to your chain which is not possible with optimistic roll-up chains for example you have a seven day withdrawal period and for the larger chains they can have these fast withdrawal services but for app chains like you know it will be very very hard for you to provide uh fast with all services so that's a very big advantage and in that in that mode so no a seven day withdrawal period and uh second part is that these are future proof ZK chains

are definitely like more future proof and more and more scalability is coming to that because provers are like polygon Proverbs for example are very very efficient so it's like hardly any cost for you so I definitely recommend uh Founders to who are looking to launch their own app chains do look at the ZKA technology because technology is fairly mature for you to launch your main Nets with that and uh also this is the only path that will provide you interconnectivity like using the polygon aggregate layer also it provides you the interconnectivity or liquidity aggregation uh or seamless movement of liquidity across chains so if you launch with this let's say polygon Network your liquidity or your change liquidity is connected across multiple chains so

people can move to and fro without even coming to ethereum uh their funds and in future as I explained at the start of the podcast that you know you would be able to have cross chain transactions in a matter of like two to ten seconds 15 seconds which is almost like all these and start feeling like they are one single that's great Sunday man a pleasure having you on thank you sir foreign [Music] foreign