Sharon Goldberg: Arwen – Centralized Exchange Trading Without Counterparty Risk (#305)

Transcript

this is epicenter episode 305 with guests Sharon Goldberg this episode of epicenter is brought you by cosmos the Internet of blockchains the next cosmos hackathon is happening during SF blockchain week in November the theme is defy and there's a $50,000 prize pool for participants visit epicenter rocks / SF cosmos for more details my name is Smith and I can't my name is sonia agarwal and today we're

speaking with Sharon Goldberg who is the CEO of Owen Owen is a technological protocol that plugs into centralized exchanges currently cue coin and allows users of those exchanges to retain custody of their tokens while still being able to exchange them over that exchange Sonny what did you think of this week's episode it's pretty cool I've actually been you know looking into our end quite a bit recently I mean I've passed couple months I've been doing a lot of just like Dex research on leg and exploring everything in that space and so I definitely came across our win and I thought it was really cool because it's the first time I saw someone kind

of you know atomic swaps are an old idea but it's the first time I saw someone building a centralized order book that settles on atomic swaps and I've never really seen that before and so that was very interesting I think it's like as of now there seem to be some limitations to from what I could tell in the current design that's mentioned in the paper and Sharon says that like you know they're working on a lot of things to improve a lot of these things unfortunately she couldn't really you know go too much into them throughout the episode because I think some of them are like you know very active projects that they're working on but if they can solve a lot of those problems I think that's a very huge step forward for just safety and security in in

the crypto space for people who want to be active traders how do you feel it stacks up against just using a Dex why self custodian yo and tokens I think using a Dex like Xerox or something or Gacha X or whatever like it's great when you're all the tokens are on that chain so if you're trading ether for ERC 20s I think the Dex makes a lot of sense but if you're trying to use a Bitcoin for like coin or a Bitcoin for aetherium and one of the things she really talks about throughout the episode is how simplistic Arwen protocol is meant to be and simplistic not in like the protocol is simple in that it's meant to work with very simple block chains even things

like Bitcoin cash that don't even have segments right now and so that I think that's kind of one of the key differentiators is that it's great for settling cross blockchain trades which today is the vast vast vast majority of trading on centralized exchanges yet room and she also said that in her mind is going to become a solution for players who actually want to settle large trades without giving up custody of their coins which makes total sense but the one thing that I was a bit disappointed about was that she didn't want to disclose what the current trading volume on Arwen is but maybe we'll find out soon any announcements are you going to any

events coming up soon I know this week Sebastian when this goes out we are he's gonna yet the Tel Aviv blockchain week still or it seems like more it's like Tel Aviv blockchain by week or something there's two weeks of it first week with scaling Bitcoin and then like this week that the episode comes out you'll be at the stark we're sessions so if you see him around there give him a shout out Fredrik are you have any events and stuff you're planning on going to not in the upcoming week I think the next bigger thing I'm going to is a Def Con where I'll have a talk I don't know one yet because there's no agenda as of recording of this episode but yeah I think it'll probably fall into place eventually you're going to Def Con as well right yeah I'll be at Def Con

giving a talk as well and then I'll be at the etherium classic summit the week before and so in Vancouver yes and thank you everyone will be fun to see the contrast between the two events the contrast is going to be stuck I can tell you I'm sure there's going to be a meet-up at Def Con in Osaka will probably announce that next week yeah so please enjoy the episode with sharing hi wait with them sharing goes back the CEO of ours hi Sharon good to have you on hi guys Sharon can you tell us about your background and how you got interested into blockchain technology yes so um so I come from an academic cryptography and

security background I was starting my PhD in 2004 at Princeton and in electrical engineering actually in communications engineering and then I was working on this project that had to do with optical encryption and part of the way through the projects I decided that I didn't know what encryption actually was so I took a course in cryptography um in 2005 and that was actually a really fun course because a lot of the people in my course are now like famous cryptographers so one of them is Nadia Henninger actually who you may have seen breaking a lot of factoring keys that were that were used in block chains to hold crypto assets anyway so I took that class in 2005 and I just loved it and I decided I would become a cryptographer but unfortunately I wasn't a computer

scientist and at the time cryptography at Princeton was really theoretical computer scientists um and I was not one at all so I decided that I would have to find some way to become a cryptographer without being the worst cryptographer out there and so the way I did that was to combine cryptography with network security and telecommunications which is what I'd been doing telecommunications at least I'd been doing for like four years at that point I did a bunch of work on Internet Protocol security so internet routing in particular is the thing that I focused on for a really long time and then I expanded a little bit into you like the DNS domain name system I did a bunch of work on NTP the network time protocol that was my PhD started as a professor at Boston University in 2010 and then you know it

was running a lab there with two other professors and in 2013 I got a new PhD student which is Ethan Hellman is my co-founder at Arwen and so in 2013 when Ethan joined the lab he was one of these people these early like Bitcoin obsessed people Ethan is just an incredibly knowledgeable and very talkative person if you let him you know get started and and so he was all you know talking talking our ears off about Bitcoin for for basically a year while we were kind of all working together on various projects that were sort of the continuations of stuff I'd been doing up to that point so in fact even and I have papers together on routing security that we wrote when he just recently joined my lab and then after about a year of that it was clear that like we had to work on

Bitcoin and so we started to work on Bitcoin and so the first thing that we did together with Ethan was this paper in 2015 we basically coined the term eclipsed attacks in the blockchain world it was a term that was used outside of the watching world but we were the first to think about eclipsed attacks in blockchains and we found an attack on Bitcoin what did the Knick dip attack just on my benefit oh yeah so eclipsed attack is a is an attack on the peer-to-peer network of a blockchain and so if you think about blockchain if you read the Bitcoin white paper what's really interesting in the Bitcoin white paper is that there's assumption that all the nodes in the Bitcoin network actually can see the same blockchain right so they can see the blockchain is something and they all have the same

view of that so how do they actually like see the same blockchain well there's this assumption that they're all communicating with each other and sharing the blockchain through this gossip network that they have so Bitcoin like through press nothing about the to pure you know gossip network that's used to communicate the blockchain around so that was actually never written down anywhere but it was in the code and so inside the Bitcoin code there is this like part of the code that is the peer-to-peer network that is the block communication cross nodes and so we started to think of like what happens if you subvert it that communication what happens if you put you know you partition the network so like half the nodes could talk to each other but not to the other half right and so basically what you're doing is you're splitting the mining power in half you have like

half the miners on one side of the partition and the other half on the other and you can start to think that that's basically you're creating a 51% attack but without actually owning the compute power for the 51% attack you're just owning the network and creating this partition so this whole idea of like owning the network and creating partitions and like manipulating the views of different nodes in the network that really comes from an Eclipse attack so when eclipse means if you think of an eclipse it's like you know the the moon blocks the Sun so essentially what it means is that all of your connections are owned by the attacker and he's completely owning your view of the world that's what an eclipse is you're completely owned so there's not even one connection that you have that isn't controlled by the attacker this type of

idea which which can be also used to like create partitions in the network that's sort of fundamental attacks on proof-of-work consensus um and we were thinking about that in 2015 wrote a paper about it and then Ethan spent like at least four months basically writing code for Bitcoin core that ended up getting merged in it has to do with the peer-to-peer network and then recently we actually extended that work to look at the peer-to-peer network of aetherium that was in 2018 with says student of ours um eval Marcus who's now an undergrad at BU and actually works at Arwen in the summers what you've all found was actually that the peer-to-peer network of aetherium was actually even more vulnerable than the peer-to-peer network of Bitcoin we've actually found script kiddie level attacks on ethereum

where you could launch an attack with one or two machines and like completely eclipse nodes in Bitcoin we needed like a botnet of four thousand nodes to actually pull the attacks off so that's sort of like where we're coming from sort of started from the network side like understanding how block chains work at this sort of unsexy network layer and then in 2016 Ethan got really interested in micro payment networks and lightning network and all of these sort of payment channel layer 2 networks as a way of solving the scaling problem of Bitcoin and so again he pulled me into that so we wrote a paper called tumble bits in 2016 that was a way of doing anonymous mixing of Bitcoin and it was done at layer two so it was fully compatible with Bitcoin at the time pre seg wit and it was at layer

two so you could instantly sort of mixture mixture coins once you've set up channels to do the mixing that was really the impetus for starting the company so at you know by 2016 I was already you know doing a bunch of work with Ethan and on on blockchain I was already like pretty interested in the topic generally speaking like in 2016 what like was super fascinating for me was like if you come from a cryptography background and you come from a security background you're always in this position of like this struggle right to get people to pay attention to you to pay attention to security to pay attention to your work and I've been living that struggle for like how many years like ten years twelve years at that point and then what happened all of a sudden was like the whole world got really interested in this blockchain

thing which is really ultimately a cryptographic object that is existing to remove trust right to sort of like have a way of transacting without trusting a central party which is like the fundamental thing that every cryptographer wants to do to everything get rid of trusted parties right we want to have mutually untrusted parties transact and correctness enforced by the protocol so you have this blockchain thing that really solves this trust problem in this fascinating way and it should have been this weird obscure thing that only cryptographers and academics care about and ended up exploding and you have companies being built you know you have like massive amounts of funding going into this you have like big companies doing blockchain projects and we were watching all this happen I was just like amazed like I'd never seen this happen in my entire career that you would get so much

attention for really what's a cryptographic object and so between that and the tumble bit paper getting a lot of attention and actually being implemented at Nicholas story--a who's like a really really strong Bitcoin developers started to write an open-source implementation of tumbl bid and then a bunch of other people started contributing to that was all done independent of us just watching that happen was like so exciting I had a sabbatical and I was like okay let's start a company so we did and so that's how that's how Arwen started in the middle of 2017 basically after a year of us watching all the stuff happening around tumble bin and in the industry we're sitting in the university saying like we have to start a company we have start a company and then we did in 2017 so that's my story to how I get here

from academia yeah I mean I was talking to Dan Binet and he hears something like yeah man I would have never imagined I'd ever see the day where like VCS are coming with me talking with me and they know about the latest like development and BLS signatures and it's like I I remember reading the tumblr but paperback when it came out but I think Ethan you know really got a lot of publicity in the space when he was helping with the iota like breaking were you involved with that as well so I can tell you is no I wasn't so the story is like the following in 2017 we we basically had finished a lot of different projects we were working on together so we've kind of finished

tumble bit you know he thinks my PhD students so like at the beginning Ethan and I basically wrote every paper on blockchain that Ethan wrote we wrote them together where he was really like the like ideas man in the driving force and I was the like sort out what he's saying and make it like understandable and academic and all that stuff right so I was really look like the cleanup crew anything was like the brilliant ideas person the the thing that happened was I went away for a month and Ethan was here and he was just he went out for lunch with someone who showed him this hash function and like we weren't working on anything I don't know what he was working on and it was like irresistible he saw this hash function he had to break it Ethan actually has a really really strong background in in

cryptographic hash functions and like symmetric cryptography that has nothing to do with me or anything that he's done at bu he actually was that's the reason we admitted him actually was he had actually broken a Shah three hash contestant as a like startup engineer he broke it because he took a class with Ron Rivest at MIT for fun and then he saw this hash function and broken so he actually eliminated one of the competitors from the sha-3 competition then he did that unaffiliated like evenings and weekends while he was he was just like wandering around Boston actually and that's actually the reason I admitted him to the program I I don't even remember that I actually looked at what his resume said he just came in and he started telling us about how he had broken this spectral hash hash function and I just asked him like how did you do

it and he described like walking around at night and thinking about it and I was like aha there you go that is what you wanted a PhD students so that's that's how the whole thing start and then the iota piece really was just like you give him a hash function it was so obviously weak he just you know started breaking it and that was it and actually the the fallout from that was a little surprising I have to say like I I wasn't expecting that and neither was he because we really come from like this you know ethical hacking whitehat academic responsible disclosure like I teach a class at BU that I'm teaching it still now actually on Tuesday I'm having a colleague of mine Andy Sellars come to the class teachings class was run Kennedy but a nice Andy sellers from from view is like our cyber

la clínica professor and he's coming in and he's teaching a class on responsible disclosure and ethics of hacking and the laws associated with that and so like I stand there in front of a hundred students every year and I tell them like if you find a vulnerability you have to responsibly disclose it there was one class that I couldn't teach that Ethan taught for me at some point in the last you know five years and that was the class he taught it was responsible disclosure so we really come from like this responsible disclosure background I will tell my students that if you plan on like selling vulnerabilities on the grey market or on the black market you will fail my class right like that is unacceptable I'm not going to teach you to hack you can do unethical things and so he just disclosed it and then there

was all this fallout it was really a big surprise it was just like we found a bug like fix it and that was that was the plan that was all that was going on there so Sharon what's the current makeup of Owen and why is it called Owen is this a Lord of the Rings reference yes so we are currently 10 people at our one of the 10 only two of us are from a non-technical background and the name actually is our like second name our first name was Commonwealth crypto which was the name that Ethan picked because we like like the amount of letters and awkwardness of the name but then we sort of eventually found that this was not like an effective way to market company or a product so we had to think of a new name and we actually worked with them an

external consultant to help us find a name because we had a variety of like really stupid names that we came up with internally and then this idea of arwen as the sort of protector and the guide as you go through dangerous territory in the forest that was that was how we sort of came to that to the name I guess we just really liked it because it was short we also you know our company's really built around atomic swaps so this this a in sort of atomic swaps in my at least in my head was part of the piece of how er I bet the name Arlen but really it is it is what you would expect it's the Lord of the Rings character have you checked into cosmos lately the ecosystem is growing so fast and there are already dozens of taps and projects building on

the SDK the next hackathon is happening during SF blockchain week from November 1st to November 3rd the theme is defy and there's a $50,000 prize pool in Adam for winning teams this is gonna be a huge event with over 400 participants from all around the world so come to the hackathon and build something cool like staking derivatives or a lending platform you know you could even build the next make or die like stable coin for cosmos all these things are possible with the cosmos SDK and another cool thing is that the inter blockchain communications protocol IBC will be ready by this time which means that your DAP will be able to interoperate with other daps in the cosmos ecosystem and I think this is one

of the most exciting things about this platform you don't need to be a developer to apply in fact you can apply as a designer a project manager a legal expert all skill sets are welcome so the first 100 people who sign up before September 21st and who are accepted will receive a free ticket to SF blockchain week epicenter it's the main event it's got the same name as the podcast but it's not affiliated to the podcast and if you register after September 21st you'll be entered into a raffle to win a round-trip flight to San Francisco to register go to epicenter dot Rocks / SF cosmos and make sure to let them know you heard about it on epicenter we'd like to thank cosmos for their support of the podcast so can you tell us describe to us like on a high

level what is our way and like you has something to do with atomic swamps but what is this project what are you guys working on so let me let me like pop it up a level actually because I think what I want to talk about is really like in what direction we're going there's I think there's two currents right now in this industry that we're seeing and sort of one of them is really this notion of like decentralization and sort of using the blockchain to provide people with the ability to sort of hold their own assets or is this idea of self sovereign tree anyway the idea of kind of holding your own coins where you sigh do you want to help hold them without having to necessarily cede control of those coins to a bank or to put everything in sort of the same

transcend till trusted party alright and so this idea which is really like if you think about where I'm coming from I talked about a lot about my background in cryptography right the idea that you should want to you know choose your own place to custody your assets and have that choice um and not really have to trust anyone else to custody your assets if you don't want to alright so I should be able to custody my assets like on my ledger or inside Anchorage right maybe I trust Anchorage maybe I want to use fire blocks which is a self custody solution or maybe I want to use you know fidelity which is going to be a custodian and I would have to trust them right there's like this array of solutions in the industry and really like our point of view is that people should be able to

choose they should be able to have the ability to custody their assets wherever they feel is the right place for them and then they should be able to transact trust lessly with others you know the reason that I think this is interesting is because if you look on the other hand you have sort of other other solutions and other approaches and and in fact if you even just look at simple centralized exchanges right if you want to trade on a centralized exchange you have to actually cede custody of your assets to that exchange so you have to deposit your assets at the exchange and then you can trade right so alternatively we see sort of like settlement and clearing solutions that are there being built in the industry where like if we are all inside the same custodian we can send assets to each other right inside that

custodian but we all have to share that custodian so this idea of like having to trust a single party with your assets and therefore that allows you to transact with other parties who also trust the single party with their assets that's really the old-fashioned way of doing things that's the way we would do things in sort of traditional markets and so from our point of view what we're trying to do is break all that apart right and give people the ability to transact with each other without all having to agree on like the same single custody solution and so it's not just self custody sometimes you hear people talk about self custody like I want to hold my own keys like I want to have my hardware wallet and I want to hold the keys in that wallet it's really more than that it's like if I want to hold my

keys in my hardware well I should be able to and I should still be able to transact with you who wants to hold your coins infidelity all right and that's sort of the type of financial tools that we're building at our when we're allowing people to swap assets without having to trust each other and without having to have the same sort of trusted part custody their assets and so if I bring that down a level right really the specific problem that we're solving here is that when you want to trade on it on a centralized exchange you have to cuss to your assets at the exchange because otherwise the exchange won't really credit you with having these assets and we'll let you trade alright and so we're really trying to guide the industry in a direction that is to allow for this heterogeneous custody for allowing

people to store coins wherever they want and I think that personally for me that's what really drives me and I think it drives most of the people on my team if you were to talk to them about this this idea that like blockchain can do things that don't exist in the physical world that we're not possible in the traditional financial system and so just trying to build something where there's a central or trusted party and just giving them their out your assets and like trusting them to like have a database and track who's moving what asset to who that's what we did before like we can go and rebuild that now but we're not going to sort of take over the financial system if that's all that this industry can produce and so we're really trying to produce you know something a lot more than that

the other thing that you asked me is they can do what what does Arwen duh do and what are atomic swaps so I want to sort of just quickly talk about atomic swaps I'm pretty sure most people listening have already understood what atomic swap is but I'll just get into it really simply so typical way where you were to exchange assets like in the physical world if Alice has something a and Bob has something B what we would normally do is something called a second send protocol right Alice would have to give up her asset to Bob and then once Bob has the asset Bob will give up his asset to Alice and so that's called a second send protocol because Bob sends his asset second Alice and so if you think of the trust model here Bob gets all the power in this deal right Bob

gets to decide whether or not once he has Alice's Alice's asset he gets to decide whether he actually wants to give Alice something back in return or whether he wants to run off with both assets and just keep them both for himself so in a second send protocol there's always one party that has counterparty risk and in the example I gave it was Alice and so in the real world the way we solve this problem often is with a trusted party right so Alice and Bob will give their assets to the trusted party and then the trusted party will give Alice's asset to Bob and Bob's asset to Alice at the same time so in cryptography this is actually called the fair exchange problem so the blockchain world we found our answer to the to the fair exchange with the atomic swap so the atomic swap

basically when atomic swap is exactly what I described it's like giving your both of your assets to a trusted party and having it sort of swap the assets for you but the thing is that there is no trusted party in fact what you do is you trust the blockchain to enable you to do this atomic swap and so the guarantee is that Alice has asked that we'll go to Bob and Bob's asset will go to Alice and so either the swap will happen or there will be no swap it can never be the case that one party has both assets at the end of the trade and actually there is a result in cryptography that says fair exchange is impossible without a trusted third party this is a really old result that's from the late 90s I think I forgot who it's by and blockchain breaks through that

negative result it's a sort of technological breakthrough that allows you to have fair exchange without a trusted party and the reason you can do that is because you have this blockchain which is this distributed ledger created by a lot of different parties and you can trust that basically because you trust a ledger you can achieve fair exchange and so what we're doing with r1 is really enabling atomic swaps to be brought into into trading a financial asset right and you're kind of using the block can - the trusted third party at a very highly trusted third party exactly atomic swaps have been like around since like no very early days like me nor so before even lightning so what does Arwen bring to the table and well I guess also

before that are there any existing implementations of like atomic swap marketplaces so I know like Zuma has a version that they've been working on recently but in the six years that atomic swaps have been unknown concept have we seen any production grade peer-to-peer atomic swap marketplaces yet yes we have seen production grade peer-to-peer atomic swap marketplaces but let me take a step back so what we're doing with r1 with atomic swaps is we're facilitating trading on centralized exchanges and so with r1 you can trade it a centralized exchange without trusting the exchange that's our tagline why do you not need to trust the exchange well because

whenever you do a trade it's an atomic swap and so the guarantee is that if you you know sold your Bitcoin you're definitely gonna get some litecoin in return that's the what the atomic swap will guarantee for you and so specifically solving the problem of trading on centralized exchanges so essentially what it is is like a trustless settlement and clearing later light layer fervor for transacting on centralized exchanges so that's our very very specific use case that we focused on and you ask me you know what does Arwen bring that's different from all the other atomic swaps that we've seen in the industry so so let me just start with like a history of atomic swaps which I'm now channeling ethan again but I'll do my best what's different about the atomic swaps that we're doing in our win for example from something like the Lightning

Network or some of the other on blockchain atomic swaps that we've seen is there two things so the first thing is that our window Tomic swaps are crossed blockchain atomic swaps and so what we want to do is enable the swapping of one asset that's native to one blockchain with another asset that's native to another blockchain so like a you know the simple example is Bitcoin to litecoin those are two kind of separate block chains they have some differences right Bitcoin block time is 10 minutes and litecoin block sign two and a half minutes on on average and so on I'm different you know proof of work and stuff like that but ultimately they're very similar kinds of block chains and you can swap you know bitcoins for like coins atomically using the Bitcoin blockchain to back your trade and the litecoin blockchain to back your trade

so the actual backing of the atomic swap is both of those blotching that's a sort of the simplest cross blockchain atomic swap and those are some of the earliest sort of cross block G an atomic swaps that we saw pre or win' the reason that everything was a Bitcoin to light coin was cuz those two chains are so similar at our line we're doing you know we're trying to support changes that are more you know heterogeneous than just bitcoin and litecoin at the moment we support you can go to use it today for Bitcoin litecoin and Bitcoin cash and I think by the time this podcast comes out you'll be able to do at least an atomic swap with aetherium on test net with Arwen so we're just about to release that I think today will be the day that this comes out you know in order to do that you

need to actually support these different types of block chains that have different types of scripting languages so famously Bitcoin uses Bitcoin script which is a very restrictive scripting language ëthere ium uses solidity which is like the complete opposite of Bitcoin script in every way and you want to sort of let these two blob teams communicate and do swaps between them and so that's one of the things that we've really focused on do at Arwen we actually can do a Bitcoin cash aetherium atomic swap you can probably try that today on test net if you'd like and and so like how can we support so many so many change well what we're doing is we're very very focused on the simple use case of of trading atomic swaps not sort of the more elaborate use cases that some of these other protocols are focusing on and so

by keeping it very narrow to the idea of trading that allows us to support as many block chains as possible so we've been very very careful to design our protocol that it's so extremely simple that you'll be able to use it on as many block chains as possible and that's been our sort of guiding principle in the design of what sort of smart contracts actually need to be used in order to enable these protocols so that's the first difference generally speaking when you see sort of atomic swap protocols they're focused on sort of one class of block chains or even within a single block chain like lightning which is really perfect coin only another key difference that we have from some of the earlier atomic swaps is the notion of doing them off blockchain and so the earliest atomic swaps like the 2013 tier Nolan is an on blockchain atomic swap

what that means is the swap time takes it corresponds to the amount of time that it takes to confirm blocks on whatever blockchain that you're using so if it's Bitcoin and it's it's your nolan swap you have to wait for a single block confirmation time on bitcoin at the minimum which takes ten minutes if you're lucky and so the issue with that is that if you're thinking about atomic swaps for the purpose of trading if you have to wait ten minutes for your trade to actually execute there's a lot that will happen in the price volatility of the coin that you're trading in that ten minutes and that's really what we're trying to eliminate with Arwen we are doing our atomic swaps instantly so they happen at the speed of an API call right and that allows us to avoid this issue of like the swap taking so long that the

price has sort of moved in the time that you had started the swap and the time that you ended the swap um and so we are really we were a sunny day one you know really focused on layer 2 atomic swaps layer 2 means that the swap will happen instantly off blockchain and it'll be backed by smart contracts on the blockchain so this approach is the same approach that's used in lightning there's a lot of different layer 2 protocols out there lightning is one of the best-known there are other protocols like the Raiden protocol for aetherium and variety of other protocols all of these layer 2 protocols are in the class of protocols where you put something on the blockchain first you confirm it but that is not the actual action that you're taking you may be doing a trade or you may be doing a payment or you may be

doing any number of other things with tumble bit we were mixing bitcoins you may be doing any number of things but those actions only take place after the the first you know escrow or channel you know Penn channel open is actually confirmed on the blockchain so that's what we do with Arwen we have this notion of escrows where you first set up escrows on the blockchain and then once those are set up you can trade at the speed of an API call that's very similar to what you see in lightning where you would open lightning channels and then you can pay through the lightning network at the speed of you know basically API calls as well like you're just sending payments across this network the last thing I would say it's like the real difference between Arwen and some of these other layer 2 protocols is that we've really focused

on making it a cross blockchain protocol and so that means we had to really strip out a lot of the sort of extra functionality that you would see in like a lightning Network we don't have a network there's only like a a user and in exchange there's not like a network of nodes that you go through you know we don't have things like relative time locks we don't have things like popping up the channel with more coins because all of that is really complex and not necessarily supported by a lot of watch chains right so we've really tried to stay away from that so there was a lot here so let's try to unpack this we talked about custody we talked about centrist exchanges and we talked about atomic swaps so the way that these actually fit together is you are letting the user retain custody of their own

coins while at the same time enabling them to do an atomic swap with an exchange de-facto using the liquidity on that exchange while retaining custody at any time right that's right yep so the goal is you can use Arwen to trade trust lessly at an exchange and you would be doing that using atomic swaps and so what that means is that you're actually custody your assets inside whatever your custodian is and you are basically holding your assets in your custodian and then when you actually go to trade that trade is an atomic swap with the that big trade is basically placed on the exchanges order book they're really interesting and weird thing about Arwen

is that the other side of the trade the counterparty to that trade is actually not an r1 user it would be a custodial user of the exchange to some regular user of the exchange that's what's matching your order on the exchanges order book and then you know it's getting confirmed to you through the blockchain protocol of arwen what we do if you want to think about r1 is really you're holding your assets inside your wallet and you're placing trades on the exchange and somehow you're being matched with a counterparty who's not an r1 user who's placed an order on the exchanges regular order book and so you're doing trades basically at the speed of an API call on the exchange of centralized order book but you're doing that while holding the keys in your own custody solution and you're doing that with atomic swaps so kind of I guess one

of the big differences here is in most past atomic swap like marketplaces you usually had some sort of listing service that would list a bunch of counterparty potential counterparties and you could kind of like you would open up an atomic swap set up with them enlightening for example you kind of you use the Lightning routing tables as a way to do this as well so what's happening here you're not creating an autonomous off with a counterparty you're creating it with an exchange right you're trading against the exchange how does the does the exchange have to hold positions in all of these assets that it's wanting to trade that users are wanting to trade this is a complicated question so let me

take a step back so the important point that you said and this is the really unusual thing about our one that you don't really see in any of these other atomic SWAT protocols really anywhere is the idea that when you do an r1 trade and you're an r1 user you're typically matched with a user who is not an r1 user right and that is really strange right so essentially you're doing if you read our white paper it always talks about the user and the exchange the user is doing a swap with the exchange that's a little bit of an oversimplification we kind of wrote it that way because we wanted to focus on a two party protocol where there's two mutually untrusted parties untrusting parties one is the user and one is the exchange and there's swaps happening from the user to the exchange if you read our white paper

actually there's no mention really of order books or how this integration works or what's actually happening here you're just basically saying that users doing these swaps at the exchange and so what that actually means in practice is that the user is taking her per trade and placing it on the exchanges order book so how does that happen that's really the the piece on the integration that we we had to really work very hard on to figure out how to actually make that work in practice the way r1 works out the protocols so there's kind of two worlds there's the Arwen protocol which is like what is going on you know in blockchain messages going back and forth and then there's the you know actual like how do you translate at this onto something that's going on to the exchanges order book so there's almost like two worlds there's the Arwen world

and then there's the translating back into the exchange world and so we've had to solve both problems if you read our white paper we really only reveal how to solve the first problem which is the Arwen world and so in the Arwen world what happens is the user will set up an escrow with the exchange she'll deposit some coins in that escrow and then the exchange will set up an escrow with the user and deposit some coins in that escrow and then so you know bitcoins go into the user's escrow deposited by the user light coins go into the exchanges escrow deposited by the exchange and then once those are confirmed on the bitcoin and litecoin blockchain you can do instant atomic swaps to do trading of Bitcoin for light coin that's what the white paper talks about and we go into a lot of detail and like how do you

actually build a protocol to achieve this for different types of trading instruments and different types of blockchain so that's the Arwen world and then you have to somehow actually like get this trade done on the exchange so how do you do that that's really like are when you go to market question that we've been working through in the last like year and a half and the different ways of doing that so I can tell you about you know we're live right now on couponing which is like one of the top exchanges in Asia and I can tell you about our integration there was basically done with the coins that were going into the escrows worker coins coins they are coupons coins and they fund those escrows and they enable the traits to be placed on the order book and and really when you traced a place

to trade on an order book you really are just making an API call however our one cloud is placing a trade on behalf of the user using a call to the API so anytime a trade comes through through the r1 protocol you know the hub receives that speaking the r1 protocol translates it into a simple API call and places it on the exchange through the API not that's the integration with the you know with the way that we did it with COO coin and we've been pursuing that with a variety of different players but there are other ways to do this too and we've been exploring a lot of different ways I'm not in a position to sort of talk about any of those plans that we have but there are a lot of different ways to achieve this that don't only involve like taking coins

from the exchange and I think that that's like one of the fun exciting things that I'll be able to talk about soon so in the queue coin example case right so let's say I'm I'm a user who's trying to trade some Bitcoin for like coin I want to you know trade one Bitcoin for ten like coin let's say I send the exchange my you know request like to put an order in their limit in their order book and now when it's time for my order to be matched do I have to be online in order to participate in that swap that's needed to be executed that's a good question so this is really sort of protocol level questions of how Arwen would work so we have two trading instruments that we support in the paper

at the moment we are live only with one of them which is RFQ so RFQ is really a translation of the idea of an atomic swap into sort of an order type that is familiar to people in the in financial markets right so RFQ is a very very simple type of protocol it is not a market order what it is is that you know the user says I would like to buy some coin I want to sell some Bitcoin one Bitcoin and then it asks for quote how many light coins can I get so then it gets that quote and then once it gets that quote it can either execute or not execute on that quote and that is really sort of very very well tied into atomic swaps because the idea of an atomic swap is like Alice has something Bob has something else they agree they're gonna

stop to op these two things atomically and so that either the swap fully happens or doesn't happen right and so the RFQ the quote instrument really lets you say okay this is the amount of coin that we're gonna swap and now let's do this well and so our queue is something that executes instantly like once the user says let's do the swap it happens and we're done so there's this question of like whether it's live or not is irrelevant because RFQ is really like a taker order on an order book as opposed to a maker or if any of your streaming quotes you're just taking the quote kind of so kind of like a dealer market and so I just for context like I guess the most similar thing for people in the crypto space to like analogize it to it's sort of the UX of using shape-shift

when I want to use shape-shift I say hey I'm gonna send some Bitcoin and I want some like coin back and then it's like on the website you know they quote prices I think it updates every like I don't know how often it up basis we had Eric for he's on the show a two weeks ago there's no order book here for me to see it's sort of just I'm asking the exchange tell me what price and they kind of and then the exchange would have a spread that they're making yeah that's right so it looks a lot like shape-shift it's a real difference like if you're an r1 user versus shape-shift user is that when you actually try to do a shape-shift when you do with the shape-shift you will be sitting there waiting a long time for the shape-shift to execute that's because it's happening

on blockchain also at the very beginning of this conversation I mentioned second send protocols in which you know Alice first sends her asset and then she receives the asset in return so shape-shift is a second son protocol so you are first sending your Bitcoin and then you are waiting to receive your litecoin but this idea of yes you sort of receive your price you agree on the price and you do the swap that's when an RFQ is I mean it fits very nicely in with an atomic swap so that's why we started with that if you read the white paper we also have limit orders all-or-nothing limit orders in factor what we have in the in the white paper where you would place an order on the order book and it would either be filled or not filled completely but the the cool thing is that no the user

doesn't have to be online in order for that trade to execute if you get into like the little details of the protocol what happens is that the like execution and Arwen is you just like the final execution is the exchange releasing a random value that we call a pre-image or a solution and so if the user is not online to receive that solution it's not a big deal because she doesn't have to do anything with it like she can just get it when she comes online later and if the exchange doesn't give it to her and claims that the trade actually happened then she goes in to her like you just attacked me I'm gonna do my exit procedure to recover my coins and so there is no requirement that the user is online in order to sort of see the the limit order execute and it's just

because the execution is like the exchange side sending like one value over to the user and that's it the user can like either or not be there when that value is being sent could come back online and request that value and so I assume it's always in the users incentive that when they come online is it like let's say there's a price change between the time that exchange sends it is there any case where the user might want to not like pretend that they never received it and want to actually execute at a at a previous state okay so let me let me just start the simple answer is like there is no roll back so you've placed an order the trade is done you can't just say sorry guys I want to go back to the previous state that doesn't happen and with the way that Arwen is

using is is implemented right now where it's like a trade by trade settlement we're not doing any net settlement where we do a bunch of trades and then you could net out at the end of the day I will say that we think that's a really really interesting model for designing protocols in so stay tuned but currently Arwen is not doing that we are doing trade by trade settlement and you cannot roll back at any point think about a limit order when you do a limit order you've placed a limit order and then like you can come back later and change your mind and cancel the limit order so Arwen does support cancelling a limit or but it does not support like just saying like oh sorry I didn't mean to actually do this order right so if you try to cancel a limit order in Arwen what that

is is a protocol that you undergo with the exchange to cancel the order and if the exchange sort of like deviates from that protocol you claim that the exchange is attacking you and you go into the coin recovery procedure alright so we do have the ability to cancel orders we don't have the idea ability to rollback orders that have already happened which is what you need for a limit order okay so no road backs so you earlier said that limit orders all or nothing do you have a way of doing partial fills on limit orders so we haven't published anything on that at this point so at the moment we don't support that it's currently or all or nothing but there are a bunch of different ways that we've considered actually building out some of that stuff can you go into some detail on how that

would look because I'm so interested in passionate on atomic Buddha's just because you know it's so fascinating well I mean I guess the best I can do right now is just explain why this is hard and what's sort of like antithetical about this and and so maybe that that's that's where we can go with that so okay what is an atomic swap Alice has one Bitcoin Bob has a hundred litecoin and they're gonna swap right that's what an atomic swap is supposed to do it's supposed to fully swap one asset for another asset and so when you build an atomic swap protocol what's comfortable for you is to do a sort of I swap my entire Bitcoin for your a whole lot of a hundred light coins so that's what these protocols are naturally able to do when you start to get into like a

partial fill where like I have it one Bitcoin and I want to buy a hundred light coins but I can't fully fill it so I end up selling half a Bitcoin for fifty litecoins right what you have to do is basically break up that order into potentially into pieces all right that's one way you can do it or you can just throw the whole thing out the window and think about other completely new ways of designing protocols that do that which we also have done and are doing but at this point I can't really explain the techniques that we're using you can sort of think I guess at a very high level one way to think about it it's like you can sort of just write down what the swap was and if like sort of post talk like so we do like a limit order and it

partially fills and so you know when it partially fills the exchange we'll say okay this is what the partial fill looked like and then there would be some protocol that enforces that if the exchange actually doesn't give you the assets associated with that partial Phil you could punish them or you could sort of get that asset anyway but that's very different from what Arwen is actually doing at them at the moment so like looking at Arwen and seeing that protocol is not that easy would that work on something like Bitcoin script it starts to get really fancy when it when you work with Bitcoin script so generally speaking I think what I would say is like when you think about something like Bitcoin script and these more elaborate sort of partial Phillip protocols you often need to have a currency pair where one of the

currencies is like got a more rich scripting language so it's more like a theory and more cosmos or something like that that has the ability to write more complex weren't smart contracts it's a lot easier to do these types of tricks with Bitcoin when the other side of the trade is not like litecoin or a Bitcoin or something like that what are your thoughts on like for example comparing something like our went to the inter ledger protocol where an inter ledger they kind of make this assumption saying that like maybe the atomicity isn't that important to this entire system what they do is just for a reminder for some of the listeners is they use these are streaming payments where they say I want to trade Bitcoin for like coin I'll stream like micro

payments to the exchange and they'll stream like coin micro payments back to me and worst case the exchange might run away with one Satoshi or mine or something and you know in that case yeah you know I'll just stop using that exchange and they probably just lost my business how important do you think the atomicity is and how do you think about compared to like intellect like solutions okay so I really like the inter ledger protocol I think it's really cool and I love that it has this sort of like analogy of everything to like the internet so there's this tcp/ip analogy and then there's the BGP analogy which I like a huge BGP person um before I started on this whole like sort of second career that I'm in right now so first of all I think it's really cool

but I think there's a couple of things that we think are really important for to the trading use case that are absent from that protocol so first of all is speed right speed of execution you don't want to worry and wait for this long streaming process and so you said in worst case the exchange steals one Satoshi for me well if that's really the case then we're gonna stream one Satoshi at a time like think how long that would take if you're trading 100 Bitcoin huge amounts of money right and so if you're treating huge amounts of money you don't want to be sitting there waiting for this streaming thing to do its thing that's the first thing and the second thing is that often when you think about trading you are really worried that something breaks down so if you're doing a payment right and the

payment doesn't go through it's like not the end of the world okay you couldn't buy the thing you're buying right but if you're doing a big trade like if you think of a way financial markets work there are all these complex mechanisms that allow people to do trades and financial markets without anyone seeing them or without anyone interrupting them because the notion of like interrupting a trade you can actually move the market by interrupting a trade and so using a protocol that has the ability to potentially interrupt a trade or sort of caused it to not completely fill that can actually move the market in a way that you don't want and so if you want to do this really cleanly I think that atomic swaps are actually the right tool especially when you're talking about things like an OTC trades or big trades you don't want to be sitting there

waiting for something to stream and you don't want to be sitting there you know worried that someone's going to interrupt your trade in the middle right because if you look for example and I know what you see trade like if you do not to see trade in it's big you're gonna want that trade to fill you don't want like 5% of it to fill you've just wasted your time with these people if they're only gonna fill 5% of it right so so this notion of like instant and the full atomic swap I think is really important especially when you're talking about big trades and so what about creating multiple orders using the same channel so can I for example let's say I have an escrow with the exchange for I have a Bitcoin and outgoing Bitcoin escrow and I have some incoming like coin and Bitcoin

Cassius grows so in the limit order model can I have a concurrent order open on the like coin order book and the Bitcoin cash order book or even on the same order book but at different prices but using a single Oren Channel yeah so let's talk about mixing and matching our wind traits so there's a lot of different things you can do I can set up a Bitcoin escrow and a litecoin escrow and then I can do many many bitcoin and litecoin trades Bitcoin to litecoin trades I can just sit there trading selling Bitcoin and buying litecoin I could do that five times and then close my us gross so that's the sort of simplest thing I could do there's another thing I could do I could have a Bitcoin escrow to sell Bitcoin and then I can have a litecoin escrow in any theory of escrow and I'm sorry I

want to buy litecoin and I want to buy eutherian right and so I can use the bitcoins that I've locked in my Bitcoin escrow to buy some litecoin then I go buy some eath then I go buy some litecoin again another like coin then more ease so I can do multiple trades and I compare my escrows with each other in arbitrary ways right so I take my Bitcoin and I buy a bunch of light coins with it and then I buy some eath and then I buy some Bitcoin cash and then whatever else right so that's all possible in terms of the flexibility of the protocol and allowing multiple trades the other question was can I have multiple limit orders open at the same time and the answer is yes in the limit order protocol you would be able to do that you could have a few of them open

at the same time so the only the only problem is like you if you have you know massive numbers of them it starts to stop scaling but if you have you know three or four limit orders at the same time then that would be easily supported by whatever we don't so unlike like you know traditional lightning channels they don't have to be sequential I could kind of have Forks in my I don't know how to recall this like payment channel logical machine where like normally in lightning we have to go like okay we have these like sequence numbers that we're following but here I can execute my Bitcoin cash limit order and my like win limit orders right one of them would fill in than the other would later you could do that yeah thirst I mean our wine and lightning are quite different there's I mean it's very

similar in Al in like the high level way but when you look at the mechanics like litecoin is a much richer protocol there's a lot more things that you can do but we're also focused on a different use case so it's a different looking protocol you just said that lightning and when a very different they also sound very similar in some respect would you do a short breakdown of how they differ you know like Allen and mighty Chain Lightning specifically for the atomic for the swapping use case of lightning so protocol wise are wind does not have a network lightning does have a network Arwen is a two party protocol lightning is a you know passed protocol you have to route through the network we

specifically did not want to have routing through the network because I earlier mentioned that if you interrupt a trade that can be really bad it can move the market so you don't want to have arbitrary players on the path you know with the ability to sort of close a channel and interrupt a trade or something in the middle so that's the first thing from a tech perspective our wind does not use seg wit and so if you look at the protocol it looks super different because we don't use segment when you have seg what you can do a lot of things that you cannot do if you don't and so we chose that approach because we could support more chains that way gives us more flexibility on what we could do you know when when we were building in 2017 in fact we were seeing a lot of chains that don't have

the ability to survive malleability attacks on them so Arwen is sort of ignorant to whether the chain is malleable or not so that was like sort of highly technical pieces of like what what are the differences between them the other the other thing is like we think about things like limit orders as part of the protocol so so a lightning really is concerned with like movement of value across these paths so it's more like a payment use case so I mean I can go into more and more details I think in terms of just like being a protocol engineer the biggest difference is that we don't have seg wit and so that just changes everything it just changes the way you build everything in terms of like thinking about what this protocol does versus what lightning does is like you know with lightning you're using it

for small payments that should move quickly through a network and with Arwen you're potentially doing big trades that should move just between two parties so that's what you know you end up with like a very different looking protocol and thank yous how do you do the challenge periods without seg wit because so the reason lightning needed Sigrid was for the relative time locks how do you avoid the need for the relative time locks in Arwen lightning meet said wait for so many things I mean I can go into it like you you know so I'll just answer this really simply like like if you have said what you can do really cool stuff at the protocol level if you don't have segue you can basically do nothing and so you have to build this protocol that's super super simple that survives despite the fact that you can't do anything so that's

what her win is relative time of X versus absolute time lapse is if you're building across blockchain protocol think about time okay so um think about time in like different chains that are running by different nodes and different software in different places and different clocks right and I've actually done a bunch of research on clocks in my other life so we really want to have absolute time because it's hard to sort of think about like how chains will evolve when they're different chains and you're doing swaps across them and so the notion of sort of like absolute time is actually very appealing because you don't necessarily know what's gonna happen in the blockchain like one block chain and the other block chain has they evolved separately so that's the approach that we took but if you think that it's just time locks that are creating the differences here like no

like as someone who's been designing seg with free protocols for a long time like if you don't have cigarette you really are limited in what you can do you can like it's I but it's just like it's so easy you can do so many things it's amazing this is fascinating but I feel like we're getting sucked into a hole here so maybe let's with switch gears and then talk about higher level stuff again so you're currently integrated into one exchange you coin so how did that relationship form so it was just an introduction that was made and we had a couple of calls with them and talked to them about the sort of the vision that we had for noncustodial trading and that really resonated with them and so we just decided that we would start to

integrate this product into their platform and it was actually really easy and really smooth the only two challenges that we are in different time zones and so there's like a particular hour of the day where we we will talk to each other and also like if someone from cou coin pings me at any time of day I will like drop everything I'm doing and make sure I'm talking to them because it's probably like 11 p.m. where they are an 11 a.m. where I am or you know the opposite so so that was the real that was the real challenge but I think the time zone challenge but that's fine because if you're an insomniac it's no big deal the really interesting and exciting thing about the partnership was that they really see this idea of non like non-custodial trading or self custody is really important and and sort

of like that's the important direction for the industry and that's sort of how this relationship how this relationship started what I wanted to add to that is sort of if you if you look at like what's going on in Asia and with Asian exchanges there's a lot of thought being given to this notion of custody indexes and self custody I thought it was really interesting for instance when the CEO of clean of liquid he was interviewed by TechCrunch and they asked him you know what is your deck strategy what are you going to be doing about decentralized exchanges or self custody for trading on your exchange that was asked of him as he was sort of like doing his interview on you know closing a like a Series A or I don't remember what what funding round it was and so like if you look at like

all of these exchanges in Asia they were they're all really thinking about this this issue of where do you how do you allow users to self custody assets and so I think that we just really resonated with what the way they were thinking about this and kind of what's what's going on in Asia and then you know this this is a conseguí into a longer conversation about like the difference between arwen and x's and how they operate differently and the difference between are when in like a pegged approach to to trading assets that I'd love to go into but I think what I think is really interesting is the the notion that like even centralized exchanges are sort of thinking about self custody and how you support that and I add we do see more of that sort of discussed at least if you look at the media that's this is

talking to the agent exchanges why do you think this is anything that's big with Asian exchanges I assume you've approached a large number of exchanges to actually integrate with them as well I mean I think probably it's coming from - so the - Dex when it was announced and there's a lot of you know discussion by cz on Twitter you know we're gonna I don't remember what he said something like we're gonna we allow you to self custody and we will disrupt ourselves like he said something about disrupting himself but I don't think he's doing by the way but building this decks that finances has launched is a sort of new way of trading and that would be disruptive to their model as a centralized exchange and I think then

all of the other exchanges kind of looked at that and said like what are they doing and and and should we be doing this and what does it mean for the industry and that sort of made a lot of I kind of got a lot of attention in Asia from all these machines and so when an exchange wants to sort of integrate into the Arwen protocol so you know I installed the Arwen application do you have to go sort of custom build into their api's or do they sort of is there a standard are in trading API that exchange is kind of have to integrate into their systems so we went through a lot of evolution of how we did this and we've done it all we've thought about all possible ways we've thought about having our own API as we thought about

using the exchanges existing api's generally speaking you know it's better not to have to have people terminate to your api's if they don't have to so I will leave you to guess what we where we've converged to at this point after sort of a lot of thinking about the right design of an API it's one of the things that for me was really interesting coming out of academia is like and I'm saying this you know if people listening our you know have done startups before and like ours this is the most obvious thing but like your API is like one of the most important things you could ever design and we've put a lot of thought into how this whole thing works with you know existing API is or our own API than how to structure this it's really like the number one thing you need to be thinking about sort of

when you're building at least something that's integrated by API what is the format of the UK have any upcoming integrations you can't up up I think the thing that I'm gonna talk about today is really our aetherium test net launch so basically I think but I'm not sure I think this might be the first time you can do layer two atomic swaps from aetherium into Bitcoin I'm pretty sure it's the only time only way you can do a layer 2 atomic swaps from aetherium in typical - I don't think anyone else has even attempted to do that and so that's the the key thing I want to announce I want to say that on the back end like I was highly unprepared for this podcast actually this morning had to run around

looking for headphones and stuff and part of the reason for that is because we've been working on a whole bunch of other really interesting you know go to market items that I'd be very excited to talk about but I unfortunately can't do today when I'm in EM one more business item so what's the business model of I would like how do you make money with Arwen when you set up escrow so what's happening is that you're getting coins that are locked up for your use in order to trade on an exchange and so this doesn't come for free because otherwise we would end up with griefing problems where the user is requesting escrows from the exchange and they're just sitting there and she's not treating and these coins are being locked up and not used right so we charge an escrow or escrow fee that's associated with

holding the escrow is open for the users and that's basically where we make our revenue that comes from that part how is yes prophy um so at the moment it's pretty low we're experimenting with a variety of different business models for the escrow fee ranging from basis points on the escrow to sort of a flat fee on the escrow ranging from having it depend on the amount of time that the escrow is open to having it basically be like you get six hours with this fee of escrow time so there's a variety of experiments kind of we're working on right now with this but at the moment it's very very low in the sense that it's just around like one basis point um I think per day so very very low and this is just to get people started with this um this product but there's a lot

of sort of innovation going on on that side as well so one of the things that you mentioned about sort of the finance kind of system as well is what by Nance is sort of doing is they're allowing it currently most Dex's have been pretty limited to using like for example most exes are currently on aetherium and they're mostly limited to trading ether and ERC 20 tokens but as we see more pegging solutions coming into play so you know for example in theorem we see this t BTC which is using like you know it's a pretty trustworthy the term decentralize or trustless peg but I like to use the term pretty

trustworthy peg and things like I be C which is like you know what kind of what I work on at cosmos where we can make it very easy to peg between chains what is the benefit of settling on a atomic swap rather than doing something similar to zero X and settling on a single state machine and yeah so how do you decide how do you compare these so let me talk a little bit about what a peg is so everyone listening to this podcasts probably heard of tether USCT and so you SC t is a coin that is tethered to the US dollar and so the idea is one tether should be worth one US dollar and so there should be like some US dollars sitting somewhere and if you take your tether and you go to that place you

should be able to get a dollar for that tether so that's it that's the idea of a peg I'm at the simplest idea of a peg that's sort of an idea in the tether case that's the the idea that you basically have to trust the issuer of tether to really actually have those dollars there and not be just making that up so that's the biggest risk that you have that comes from that type of basically I might call it a trusted peg like a peg in which you have to trust the party that's issuing the tether there are other assets that are just like that all over the place in this industry so for instance BTC B it's the buy nance bitcoin is essentially a coin issued on the finance chain that is tethered to Bitcoin so you basically

have to trust finance that there's a Bitcoin available for every BTC B that they issue and so that is sort of like this very simple tagging that comes with pegging risk right the risk is that if someone gives me a BTC B or someone gives me a tether and there's actually no Bitcoin there to back that BTC B there's no US dollar there to back your tether and so that's like the very simplest level that's the issue with pegs right here it's essentially the same risk that you have when you're trusting a centralized exchange with your assets right when you trust a centralized exchange with your assets I put my Bitcoin in I do a bunch of trades I bought some like coins and I'm done trading at the end of the day I want to withdraw my light coins but oops the exchange is insolvent there's no light

coins to withdraw same risk with a peg at a stet you know I've got my BTC B and then I ready to convert it back to Bitcoin and oops there's no Bitcoin here because the Gateway is insolvent right so we see these types of assets all over the place we see them like BTC B is an example if you look at eat or oh they have on their exchange they have pegged assets like this they have it even I think for gold what was the other one waves there's also rap BTC on aetherium which is custody by bit go mostly right now right and then if you look at the waves platform they've also got this colored coin they were one of the first to do this they were doing this back in 2017 right so there's this like this notion of pegging sort of all over this

industry and it makes sense we have a blockchain we can issue these assets but we can't actually tie them to the real assets so we just like assume that that's the trust is there and that the real asset you know the US dollars really there even though all you have is tether but you know I don't need to tell the listeners like you know that there's all kinds of security issues and and risk issues associated with that sort of peg what about more modern pegs like tea BTC where actually you know you have a relatively decentralized custodian or in the ibc cosmos scenario we kind of you know both chains are running on chain like clients of each other what about in those cases so those are the sort of like the the old-fashioned peg and then there's the newer peg which has some

sort of cross blockchain protocol where let's say you have your I I forget what you would call it in the cosmos world but you would have some sort of asset peg to Bitcoin on the Bitcoin blockchain and the cosmos blockchain can verify that yes indeed there is something locked on the Bitcoin blockchain that corresponds to this coin that we've issued in the cosmos world same idea with T BTC you would have some Bitcoin locked on the Bitcoin blockchain that really you can validate from the theory and blockchain that's really there right so you have this wrapped Bitcoin or this trusted Bitcoin whatever it is called on the on the theory on blockchain you can verify that there's a really a Bitcoin on the Bitcoin blockchain that's there backing that peg so that's the other approach I will in a minute go into sort

of the issues that we see with that approach but I want to say there with Arwen like all of that goes away there is no pegging we don't use pegs right so the really the main thing about Arwen is when we say cross blockchain atomic swaps if you're swapping Bitcoin for a theorem you are taking an actual coin and soft clapping it for an actual ether there's no peg there's no sort of like pegging risk associated with any of this it's just a very it's a native swap of the assets and I think the real advantage of that is that I don't have to sit here and explain to you what the pegging risk is or is not it just doesn't exist we don't have it at all we just use the native coins and there is no pegging risk I spend at a little bit

of time telling you about the pegging risks associated with tethered coins like tether or BTC B um I could spend some time talking about the risks associated with like the the IBC approach that you talked about with Bitcoin the bottom line is like anytime you have a pegging approach and you have like like the the raft Bitcoin and then the actual Bitcoin if something goes wrong and that actual Bitcoin isn't there you have to run some procedure to recover from this and there's all these cases of like well what happens if the real Bitcoin is there what do you do isn't there what do you do all sorts of protocols that you have to go through and there's sort of varying levels of assurances you can get that you really will get your Bitcoin back for this wrapped Bitcoin and we can go into like

individual sort of discussions on each different protocol but at the end of the day like you have to worry about that when you're worrying about when you're working with a peg with Arwen we just never had a peg there is no peg there's nothing to discuss here you're trading a Bitcoin for an ether and that's it you're done so Sharon can you tell us about what's next for our win so in the next year where would you like to be in the years time from now I would like to be the sort of chosen way for people to trade assets especially for institutional players to trade large blocks of assets and so we would really be taking advantage of this atomic swap property in the instant property where we're fulfilling the ability to trade and settle instantly and trustless Li between mutually

untrusted parties and we're really exploring like a large amount of different ways that we can take this to market with the protocols that we have and the additional protocols that we've designed as well internally that we haven't really talked about publicly yet so I have a last question I think maybe Sonny has another one so you have spent most of your professional life in academia and have been actively involved or you know involved as the CEO of a start-up for the last two and a half years and how would you say to these two things compared to each other and will you be returning to academia first of all I'm not going to answer there will you be returning AK to academia a question because no matter what answer I give I will lose so um you will have to see what I do but you know the

differences in the similarities are it's very interesting to go from being a professor to being a CEO most people typically go from being a professor to being a CTO which i think is an easier transition and going to being a CEO but I really am a CEO and I do the job of the CEO and it's quite different from being a researcher or a professor I do think that there's a bunch of things in common between academia and startup life number one is randomness in academia you write a paper you spend three years on it it gets rejected never gets published I can tell you about this that happened to me over and over and over again as an academic papers I loved papers that actually for example a paper we wrote that includes the design of a verifiable random function or vrf that is currently

used in Libra and in Elgar and and in a number of other like commercial things and I've never been able to publish that damn paper keeps getting rejected and it's been like five years can't publish this thing um it's an IETF standard now but I still can't publish the damn paper so you know that that will happen and you can be in the startup world you can work really hard in every sort of deal you try to do fails because something and you just can't get it done so this is sort of like randomness and living by the the role of the dice I've been doing for a while and so that that's similar I think some of the really big differences in academia is just sort of as a researcher I am a professor and I have run a lab but there's still this ability

to just like close your door and not talk to anyone for three days and work on something and as a CEO that just goes away so the ability to just like sit and like think for three days or write for three days is like a massive academic luxury that I don't have anymore as a CEO on the other hand you know the reason I left academia was not just that like this paper that I loved couldn't get published for years and years and years and it drove me crazy which it did but the sort of like as an academic I spent more and more of my career on more and more applied aspects of my job so I spent a bunch of time working with the internet Engineering Task Force standardizing crypto protocols working on solutions for securing internet protocols and and sort of kind of like

there I got to the point where like I was more excited to go to the ITF than to go to an academic conference and at that point I said to myself like okay maybe I need to really be an industry and building something because I'm just more excited about really getting products out into the market now and getting my technology used and so that's how I ended up in this in this place now you know after about I know 15 years in academia so here I am and here you are cliff thank you so much Sharon this was pretty fascinating thank you so much for coming on thank you for joining us on this week's episode we released new episodes every week you can find and subscribe to the show on iTunes Spotify YouTube SoundCloud or wherever you listen to podcasts and if you have a

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