The Rise of AppChains | Season 3 Pilot

Transcript

before we jump into this episode quick reminder that everything said on bell curve is a meme and nothing set on bell curve is financial advice enjoy the app ethereum's first you know their their focus has been okay well in order to have any value prop at all as a decentralized application you know you need to have all the guarantees of security censorship resistance etc etc and I think Cosmo started at the place for okay if you want to scale this to a billion users you need to have products that people actually want to use foreign guys welcome to season three of bell curve uh very excited we're going to be talking about the app chain thesis in season three uh many of you who are

joining us via video know that I have a different co-host much better looking than my previous co-host uh Yano uh this is my friend miles O'Neill miles uh excited to be doing the season with you great to be here Mike uh long time coming and a huge fan of the previous Seasons you guys have done so uh really happy to be here yeah absolutely uh so miles is the reason I asked miles to do this is first of all he works at I'm gonna ask you to introduce yourself in a second miles but you know you currently work at reverie and are very Hands-On with the cosmos ecosystem and very knowledgeable about the subject matter but also uh for folks in the audience miles and I are buds from from college actually so this is uh this is very fortuitous it has worked out yeah it's

amazing we've come we've come a long way buddy uh yeah and and uh proud of proud of everything you've built at block works and really really have enjoyed you know seeing you guys grow so happy to be here maybe uh maybe we can use a little Easter egg if folks stick around for the whole season we can uh we can tell some embarrassing stories about each of us uh about God oh one or two of those no shortage no shortage of this um all right buddy uh I'm also I'm honored to be doing this with you as well seriously I don't want to you know pump your tires too hard but very very knowledgeable uh folks about uh Cosmos ecosystem and app chains and you were kind of one who actually first put this on my radar uh so before we get into it can you give a little like background

for folks uh about what you're doing at reverie yeah absolutely so uh at reverie we we are you know Dow service providers um and we do you know a lot of different things depending on the stage of the project uh one of the core activities we do is run grants programs um which is really just a catch-all Strategic investment budget for Dows um and so I spend the majority of my time focused on uh osmos's grants program and you know with osmosis we are doing a combination of you know attracting new applications to launch on osmosis um that are complementary to the amm uh or you know funding infrastructure providers different sort of service providers to come on board and uh really

just trying to fund things that move the needle for osmosis so you know it's a very privileged seat I get to get to meet a lot of folks across the ecosystem that are building a cosmos and I get to you know we get to talk with the team quite a bit and you know from that I've I've you know my conviction in this app chain thesis has only grown since we started to work on this in say April um you know you can I can just see firsthand that you can build things that are not possible on monolithic chains um and and you know really enjoyed getting to getting to be a part of some of those initiatives yeah 100 and guys if you've listened to previous uh seasons and episodes of bell

Corp we've had Larry and Derek who are the founders of rubbery on the show so big fans of what what you guys are all doing miles maybe that's a that's a pretty good lead and why don't we talk a little bit about why now right we're going to get into the meat of what the app chain thesis is and sort of our own unique flavor and what we're interested in exploring about it but what's like why are we doing this season today like what's sort of driving the the topical interest yeah I think I think we are seeing a lot more uh you know starting with dydx um I think this really started leading this narrative uh we're seeing applications want to vertically integrate in order to provide a better product um and you know this for do idx is the fact that they could not fully

decentralize on an ethereum L2 um and an order book is very specific right this is something that the best version of an order book decks is one that's built into the chain right um and you know this I think is this narrative is taken off as folks are beginning to see you know talk about l3s on top of l2s right you know what owning your own blog space what you can do with that I think is it's a really really strong narrative um and we're starting to see some of the the top applications kind of explored this road route um and you know I think we'll talk about this later but it does seem to me a little bit that ethereum and Cosmos are on a bit of a collision course

um you know to this app-specific environments I in complete agreement and we'll get into more detail obviously even in in this episode but I think one of the ideas that you know what I think you have frankly helped me see and understand a little bit more is there's a a vein of sort of a narrative in crypto that isn't being fully explored which is sort of this idea of product maximalism right we have a we've got a lot of maximalism in crypto in general those that tends to focus around specific ecosystems or communities or assets but I think it's very appealing to me to look at the idea of like look we had a lot of stuff happen this past year ultimately if we want to achieve adoption and scale there is an infrastructure component to that which frankly I think the eth side of the

equation is really really focused on but then it almost sounds obvious to State like we need to build products that people are ultimately going to want to use right and although the app chain thesis isn't necessarily native to Cosmos you know in talking to a lot of the folks in the community and you know we're going to have several of them on throughout the course of the season I think they really approach things from that view point of really wanting to focus on the layer above the sort of consensus data availability layer and like really building app and products that people want to use yeah I think that's 100 correct I think it it's instead of starting with the infrastructure layer it is starting with the application layer that is the focus and the infrastructure will you know the application will determine what the

infrastructure looks like um I think ethereum you know started with the infrastructure and is now focusing on the app layer um and the apps you know as they gain leverage and users they're going to want to own their own block space um and in a cosmo side I think they started with the applications first um and and the rest of the stack is kind of determined by what can make the best version of this application um you know you and I are very product Maxis right we are we are you know very product Centric mindset here so that's really what I'm focused on I believe the users will follow the best products um and you know the if you can build the best product by owning the full stack or

at least more of the stack than you can on a monolithic chain then you know you're likely to to win out at the end of the day in terms of value accrual um 100 so I think just to lay out sort of the the broad sort of Contours of what we're going to be talking about this season uh I want to give you know make sure we get into it without giving everything away but giving listeners like an understanding of some of the big Concepts and episodes that were that we're going to cover and frankly I think you you and I are going into the season kind of with an idea of what we want to talk about or a slant on how we think things might turn out but I would love it frankly if we ended up learning a lot this season and even changed some of our

some of our viewpoints right oh oh 100 um and I still have many open questions myself um you know I think I think we're talking we're going to talk a lot about the benefits of owning your own uh environment um and and owning your own stack potentially but I think there's a lot of different flavors of app chains that will that will you know we will explore and I think you know really understanding the trade-offs uh across those different flavors will be something that I'm still trying to understand and you know I think that's what I'm interested to get out of this season yeah I agree all right let me let me give uh listeners sort of a we they're going to be seven seven episodes this season I'm gonna give you sort of the the tldr Highlight right of of what these episodes are and then miles maybe

I can pick on you a little bit to get in the detail of why we ordered it like this so kicking off the season we're going to be talking about the case for Sovereign blockchains right and this we've got we've got Dimitri brenzen from 1kx and sunny agrawal and we're going to be talking about this is sort of the you know kicking off the season talking about what are app chains what is what are the broad sort of Contours and ideas about the app chain thesis and what is this concept of sovereign blockchains you've heard about it this a lot from sort of the cosmos ecosystem but fleshing out what does it mean to be a sovereign blockchain and then what are some of the you were just sort of alluding to this what are some of the trades trade-offs and spectrum of being a fully Sovereign blockchain versus like

being a smart contract on Ethan like where is the you know where's the space in between right and how are apps going to basically approach approach that um next we're going to go go into sort of this idea of fat apps and aggregation theory in crypto which is it's almost flipping on its head the very popular idea which was sort of pioneered by Joel minegro and I think still largely accepted by crypto writ large which is fat protocols right value is going to accrue to the protocol layer at the base whereas I think a lot of people in in the cosmos ecosystem believe it's going to be the opposite of that in mere dynamics that we've seen in web 2 where value is going to accrue to the top layer because they have the closest relationship to the consumer after that you know we're going to go on

to we're this is a working title but call competing security models for app chains right this was this is alluding to this idea that you were mentioning that there's sort of two approaches here which is the apps and products that users are going to interact with but then there are layers of different uh you know there's like a consensus and data availability availability layer um and stuff kind of underneath and there are different models like there's sort of an ethereum approach a Celestia approach um there are some interesting things going on uh with uh with eigenlayer and there's there's kind of like a cosmos uh sort of approach um so we're going to be exploring what are some of the different architectures that go underneath uh and support applications next we're going to be talking about Mev and how that's a not only a driver of the business model for

D5 and blockchains but how that actually pushes uh you know how that might be a headwinds or sorry Tailwinds for for the app chain thesis we're going to be talking to a couple of app chain Pioneers uh hopefully they know some of the leaders at dydx and um actually compound when they they almost made the the decision to migrate uh we're going to be talking about where ethereum and Cosmos intersects so really diving deep into the what you were talking about kind of eth and Cosmos converging on the same Viewpoint from different starting angles and then we're just going to be talking about a road map going forward for like when is this likely to happen and what's the market structure going to look like in timelines so that was a pretty broad thesis and I just heard

myself talk for a long time like why did we decide to start with this kind of what you know what what does it mean to be a sovereign blockchain and kind of starting from the cosmos side of things yeah I think I think it's all about what can you do as a sovereign blockchain that you cannot do when you know built as a smart contract application on a general purpose chain um and I think that's that's a great starting point because that's really that what gets people interested in this and this was what gets applications developer application developers excited about the app chain thesis um and I think you know it hits on all parts of all parts of the application from performance to you know ux through the customizability that you have value

capture which can then reinforce you know better ux through better you know uh business models so you have more you know to eat at your disposal to invest in further growth um and I think from there you know you can understand okay here here the range of benefits I get um now what is the trade-off space between you know a roll-up that's app specific versus you know a full stack app chain and how much of those benefits you know do you get across these different flavors of app chains and it seems it seems you know to be more and more topical as well because we're sort of there are a bunch of apps that are launching on not ethereum main

chain we've got layer twos right that are making block space you know that inherit the security benefits of eth more cheap right and therefore accessible but you know now that we've solved sort of the cost right and throughput or starting to solve that from the ecosystem we're sort of running up into the logical limits of the execution layer right so it seems this is that's also to me like that's pretty timely right and I think you have some pretty nuanced thinking and we're going to be exploring this this season like look we're going to be kind of extolling the benefits or exploring deeply the benefits of owning either full stack for for your chain but it's ultimately not going to make sense for a lot of chains at least to start off with right so I think we're going to be trying to put ourselves in the shoes of Builders and

explore where does it really make sense when does it make sense 100 because there are you know very considerable trade-offs right and and I think it the every application Asian developer needs to make this decision in thinking about you know within the context of their own application how much do these trade-offs matter and how much the benefits you know what what is the magnitude of the benefits versus you know the potential trade-offs um I think you know we will we will see you know a lot of larger it kind of depends on how much leverage you have with users if and and what stage of maturity you're on to you know potentially fully vertically integrate versus you know maybe

vertically integrate just a part of the stack um and so yeah I think I think that will be it will be interesting and and to talk to some of these Builders you know about how they made these decisions um and talk to builders that are you know potentially exploring this now um I think we see starting to hear you know more and more interest especially from the ethereum community um of really you know being able to own your own blog space curate what is in it um and we'll see just how this plays out you know we're talking about l3s these days on top of Roll-Ups um that's that's another really interesting angle to explore so you know absolutely you know we're going to put

ourselves in the shoes of a builder and try to you know imagine these trade-offs from there from their uh perspective yeah let's talk a little bit about the idea of sort of fat fat apps right this is this is actually we've got Sunny sort of kicking the season off but I've heard him uh talk about this sort of at length which is you know this was the Joel menegro from placeholder sort of thesis that you know ultimately look at the returns of layer ones like ethereum or Bitcoin that far outpaced what you'd consider sort of the app layer he was actually comparing it I believe in his original piece to coinbase and the Returns on on equity for coinbase and Bitcoin outstrip that so I think we'd like to sort of gently challenge that uh you know throughout this season and sort

of explore the trade-offs of like obviously this is all going to play out in in real time but where value does accrue because it's certainly the opposite dynamic in in web yeah yeah 100 and and really you know I think Sunny calls it either fat apps or or tall apps um I like I like tall apps and just thinking about the stack right um and I think the perspective you know that I've I've heard him speak about before which I think really resonated with me um is that when you think about you know the early development of the internet um the the consensus bets early on were really around the infrastructure layers like AOL um when in reality you know value accrued to the application layers because they owned the users

um and then it ended up actually being Google and Amazon that then built the infrastructure right and starting at the application layer you know and getting as close as possible to the users you know it will allow you to have you know maximum flexibility later to build out you know other parts of the stack um and and your users will come with you right applications are far more sticky than blockchains um so you know I think we're we're trying to take a long-term perspective here um and imagining you know tons of users using decentralized on-chain applications and and really what the stack might look like for them mm-hmm and I think you know the reason I think it's important to get this episode

at the top of the season is sort of a fundamental reorienting right of your perspective I think many people implicitly kind of actually agree with the fat protocol thesis in the space because frankly the l1s are what have performed really well as an investment they have the largest communities around it and I think you and I want to challenge that and turn it on its head and say actually from a logical perspective right historically the closer to the customer you are the more leverage you have sort of down the chain and you were talking about you know Tech and web 2 but this exists you know this exists in the automotive supply chain right this exists in finance this is a dynamic that has been replicated across multiple different Industries and and I think that sets us up for like the next episode which is where we're going to

have representatives from you know sort of these different let's call it like architectural sorts of models like underneath like infrastructure providers and once you look at it from the perspective of okay maybe Leverage is going to exist on the app chain and everything underneath is going to be commoditized it's just a fundamental reorganizing for okay let's let's take that perspective and then say what are the different architectures for how we're going to achieve you know all consensus datability all the things that need to happen underneath the apps right right I mean I think the value of l1s is really driven by the quality of of applications built on top um and and really you know speculating about the the future applications that will be built on top um you know I think as those applications actually get larger and

gain more traction and potentially mainstream adoption you know they will they will then have the leverage to be able to take the users where they want um in order to make the best possible product and you know whether that is on their own app specific rollup or full stack app chain or you know maybe it's an evolution right as they mature and as they grow um you know the market continues to grow there will be incentives to vertically integrate just as we see you know with any traditional company now it's probably like good to explore right uh so what are the things that could disprove what we're talking about here thus far right there there are definitely some disadvantages to app change tonight that app chain sort of viewpoint I know you're familiar you

want to walk through some of them that we have kind of going into the season for why we might be wrong you know again it it I think just to list off a few right I think you there it is a greater cost rate you have to provide your own security you have to bootstrap your own validator set this is for the full stack you know Cosmos Sovereign app chain um and and that may not make sense right from from day one when you're trying to iterate quickly and find pmf um you know it's just the general cost and and time to develop is right now one of the challenges um another one is really you know around I would say uh having the entire stack controlled by governance I think is is another

underappreciated trade-off here um I don't think it's really you know we're very close to it at reverie um and it's not impossible it hasn't necessed we haven't seen it slow down applications you know app chains quite yet but but it there are a lot of stakeholders right across when you have when you own every single layer of the stack um and frankly it can be challenging um and you know I think the other big one is probably even more important is around the interoperability piece um and to me this is a big question because I think composability has been you know one of the main value props of of D5 especially early on um but when we think about traditional Finance I mean these these applications

fintechs don't run on a single computer right they all they all depend on async composability so I think exploring really what is the best version of composability that you could have while it's still in your own you know app chain or app specific roll up um and just how you know strong are those trade-offs against you know actually having everything live in the same place like like a Solana or like an ethereum layer one right composability it's it's an interesting concept because it even goes beyond the app chain thesis but if you look at sort of both of the the more mainstream sort of consensus approaches to how we're going to scale people are basically on board with the modular thesis right but layer twos

you know they sort of break or make make composability much more difficult or at least Atomic composability yeah yeah 100 and and I think that we also need to think about all right for this app chain thesis to play out what sort of infrastructure needs to be built right uh and right now I think uh that's where Cosmos is is way ahead of ethereum um because they really started from this place of thinking about every single well if every chain is going to be their own application the most important thing we can build is one you know interoperability standard that is shared between all the chains and that is is as secure as possible right so that is IPC um so if we're going to see something similar play out on the ethereum side

what does that look like what is is it IBC itself that's being ported over and then you know all these chains can talk to each other or is it you know more local specialized um you know interoperability Solutions uh so I think I think that's that's another part of the season is saying okay we understand all the benefits what needs to be built in order to actually get the best version of this yeah I'd be curious you know we're going to be talking to a lot of the folks from sort of the the core Cosmos Community right and then there's also sort of a different right it emerged from from Cosmos it's it's Celestia right as a chain and as a Viewpoint they you know while they sort of sit somewhat in the

cosmos ecosystem is definitely a different approach right like to use a really simple heuristic right if if Cosmos is an internet of blockchains and Celestia is an internet of modular blockchains right whereas Cosmos sort of sort of you know Advocates the full stack whereas Celestia has both the you know app chain sort of thesis but they also Advocate a modular approach right right I think as you go I view the Spectrum as you know Cosmos uh Celestia and then ethereum on the other side and I think you know on the first Celestia and ethereum you know the common the commonality between them is they are sharing some sort of you know uh security or data availability solution at the very bottom of the stack right

and I think understanding what are the trade-offs between owning that full stack versus you know sharing some portion of it right is is really interesting and still you know a lot of open questions there because we frankly you know have not seen what these modular app specific Roll-Ups look like um and and I I'm very excited to see what applications can be built but you know I think at least exploring the trade-offs right now is is the best we can do yeah I think one big idea that we want to exploit this season as well is where do especially like Cosmos as an ecosystem and ethereum as an ecosystem Collide right or we see them sort of on this course where they're starting to

bump up against each other and they're they're to not put I'll you know say what I think and then you can kind of correct me but it seems like they're trying to solve the same basic vision of scaling like crypto to billions of people eth is approaching from sort of the consensus data availability security layer Cosmos is approaching from that we need to build products people want to use type layer there was a pretty interesting paper you actually highlighted to me about potentially implementing IBC on eth I think it was layer twos right so that they could at least do like contract calls they're basically sharing some amount of data in between each other so I'd be curious like I know we're going to explore where these two communities bump into each other but like how do you see them sort of interacting over the coming years

yeah I think you know they're you're you're totally right they're both coming from the same place and that we want to scale you know decentralized applications to billions of users um and I think that ethereum's first you know their their focus has been okay well in order to have any value prop at all as a decentralized application you know you need to have all the guarantees of security censorship resistance etc etc and I think Cosmo started at the place for okay if you want to scale this to a billion users you need to have products that people actually want to use um I'm not to say that you know application developers on ethereum don't believe that um I think they they very much so do but I think where these two are on a

collision course is is you know some of these applications on ethereum realizing okay you know we are past the bootstrapping phase um what do we need to do to really you know improve this product to to reach you know the next level of adoption um and I think that they will start you know the at least the the apps with the most leverage will start heading towards some sort of app specific environment um on on that side right so I think people are starting to realize that general purpose permissionless l2s like arbitrary and optimism at the end of the day are not all that different than general purpose permissionless l1s apart from lower fees I think the applications

that you know really get mainstream adoption on a general purpose L2 will soon find that you know they first of all to improve the user experience you know to have get even closer to the user that they will want to you know go to their own environment um so I think I think that's the collision course I think you know the interoperability standards on the ethereum side are going to be very interesting to see how they play out um and I think we'll be talking to a few folks that are working on that so very excited about that same maybe to to sort of wrap here you know I think one of the things that knowing that no one has a crystal ball and this is all very difficult to predict we're actually

we're recording this actually on January 13th Friday the 13th uh but we're also sitting in the depths of a bear Market here right so it's very difficult to sort of see a through line to what catalyst is going to take us out and what the timeline is and all that sort of stuff but it'd be great to get sort of ideas about magnitude here right like let's say at the end of this season having recorded six episodes we're very bullish we understand the benefits of the app chain thesis we think at least some amount of market share is going to accrue to this particular architecture is is this like 50 of the biggest apps eventually end up uh having their own full stack chain is it less Are there specific types of apps or sectors right that are actually would benefit more from this particular architecture how do

we think about some of those those sort of directional ideas yeah I think I think you have to think about your you know your own application and and uh you know how important is composability for your application right as a lending protocol uh it's incredibly important you need to be sitting in you know the same environment as as a decks normally for your protocol to actually function efficiently um you know as a gaming application you might require less security right than than say a financial application like a DEX or a lending protocol um and so the trade-offs around you know having maybe a smaller security budget uh and and a you know a lower cost of attack may not actually be you know as as strong of a trade-off for you versus

you know a D5 protocol right um and so you know I think I think one thing that is a big Catalyst for this is you know this the fall of all these C5 exchanges and lending you know providers um I think there's a lot of users that are looking for a an experience and a you know an offering that matches or is as close as possible to matching that C5 experience while getting all the benefits of a decentralized application so that they know they cannot be rugged or at least they have the ability to check to see if they're being rugged right um and you know I think we'll that that is one of the biggest catalysts I think

for app chains is that you know the closest version you can get to you know FTX on chain is probably going to be an app chain um and so you know that that could be a catalyst but we'll we'll it's it's a different equation for every single app and and it really also depends on the stage of maturity yeah I think it also depends on how core Mev is to your business model as well we haven't really talked about the intersection of Mev Dan ellitzer wrote a pretty good A pretty thought-provoking piece right on he called it unit chain is inevitable and it was a little bit of a you know marketing forward sort of title but he made some really good points in that a lot of a lot of the economics basically that that uniswap generates are being

captured by eth the the main chain and eventually uniswap is going to try to take greater control in the execution layer but they're also going to want to capture more economics and at least my personal opinion is there's going to be a strong fee preference that gets expressed not for upfront swap fees but for more invisible fees and I think Mev and some sort of representing that so yeah and and I and I do think it also like when speaking about Mev this plays into ux as well right um if you think about uniswaps I think Dan laid it out the three the three costs for for uniswap users are gas fees which or I should start with the swap fee that that one accrues to at least uniswap stakeholders uh gas fees all of that goes to you know the leaks to the

L1 uh and then of course there's the Mev piece which which all of that leaks to the to the L1 um the first two you know of costs there gas fees and swap fees those are rent seeking you know sorts of Revenue right that does not improve the user experience um and so I think you know by harnessing Mev as a business model you can also improve the user experience by decreasing Reliance on those sort of friend seeking activities um and as an app chain you can be very opinionated about what sort of Mev you know you will allow um and you can be very opinionated about how that revenue is captured and how it's distributed um and so you know I think

when we talk about business models here I I do want to like pull it back to the actual product itself um I think I think we'll explore that more on in episodes to come but to me it's you know Mev for app chains is one of the most exciting and interesting you know aspects of this conversation completely agree all right buddy it's going to be a fascinating season really excited to do this with you um we've got you know just to plug our first episode we're going to be going live with with sunny and Dimitri uh next week so yeah guys tune in should be a ton of fun um miles excited to explore this with you yeah I'm pump buddy this will be fun [Music]