SotN #48 - Arbitrum LAUNCH, w/ Arbitrum Team

Transcript

god bankless nation welcome to another state of the nation episode this is our opportunity to talk about something big that is happening zero in on it and relate it to some of the big picture themes we talk about in other places on the podcast in the newsletter david

nothing bigger than layer twos at the moment and in the layer two scene nothing bigger right now than the launch of arbitram on friday our guests are going to talk about the launch of arbitram there from arbitram david any thoughts on what we're going to cover today the launch of arbitrary and optimistic rollups is kind of one of those ground-shaking events in the world of crypto right um and and basically because there has been so much just regardless of ethereum the concept of l2s is being proven out here right l2s are a technologically independent piece of technology that can be on any blockchain that can support it and now

it's just happens to be coming to ethereum so the fact that we have uh blockchain independent blockchain agnostic code that is kind of the original thesis or a vision of what how blockchains can scale is now arriving in this cryptocurrency industry it's also happening thrive on ethereum and so arbitrarum is has launched its developer main net last friday and it's just it's just a big deal uh and so i'm really happy to get into this conversation as to why this is such a big deal and what this means for the future of ethereum and crypto at large yeah we're going to go through the task of explaining what arbitrarium is and the context here is we've called for layer 2 summer i think it's coming layer two is actually here on ethereum and this is ethereum's scalability path so super important dave

let's get to some announcements really quick we are looking for an editor of the bankless newsletter somebody to help us write somebody to edit articles somebody take ownership of that if that is you we will include a link to a job description in the show notes bankless editor position really excited to uh to see some applications um david we also released a podcast with eric wall on monday do you want to give a quick preview of that yeah i've always wanted to get into a conversation with eric wall so really happy that we actually got him on eric wall is what we have called a a lone wolf contrarian in the world of crypto has his own opinions has his own mental models uh and isn't afraid to have sharp corners about you know his just disagreements with other

people uh eric wall talked about uh we actually went down a rabbit hole that i didn't expect which is the concept of like blockchain and crypto economic systems as organisms so that was really interesting uh and then also his conflict with the bitcoin maximalists and and how he and he also had conversations about optimistic role or thoughts about optimistic roll-ups back in 2010 very bullish 20 very bullish very bullish so a really just overall well-rounded conversation touching on a number of different things that i think can let you know how to think for yourself and how to think independently in this space we also have a defy panel coming next tuesday next wednesday rather i believe and this is like almost a i don't i don't want to say a makeup panel but apparently david i haven't

seen it yet the video is not public released i just missed i was doing other things but you did a d5 panel at coindesk consensus and uh it was a little controversial um and uh you know you want kind of a redo so give us some context on our defau d5 panel next wednesday yeah yeah there was a panel at consensus that i was part of on thursday called uh defy do we need who needs banks anyways uh the current state of decentralized financial technology and there was this uh a guy who's like uh part of a bitcoin uh he's a it works on the lightning network for bitcoin and he itself described what his project was as a neo crypto a neo bank that runs on top of bitcoin and it's quite literally the

opposite of what in my opinion the ethos of d5 is so it was it was very to me it was very much oil and water is like why are you bringing a crypto banker onto a defy panel so who else is is best suited to actually do it the world's best defy panel ever and that's what we're doing and so that's next uh not this coming wednesday next wednesday we got vance spencer uh spencer noon and and also santiago from parify capital literally i don't think there could be a better defy panel out there so really excited to really get to the crux of do we actually need banks anyways is that what you're going to call it why do we need banks anyway because i feel like that's every single episode of bank list ever that we've ever produced well

why would we change a good thing okay why do we need banks anyway next wednesday guys tune into that also want to let you guys know that kyber has released something super cool particularly for liquidity providers so this is something they call a dynamic market maker i'm going to show you what this looks like really quick if i can but basically providing a dynamic way to adjust volatility and get liquidity providers the best possible fees i really love this riff on market making in d5 of course uniswap v3 has its has its own version its own riff but you should definitely check this out because what it adjusts is it sort of adjusts the the levers for a liquidity provider in real time based on pricing

so if there's additional volatility there's ways to increase the fees and the kyber dynamic market maker will increase fees during periods of high volatility so what's the net benefit of this if you're a liquidity provider more fees that's what liquidity providers want after all the other cool thing they're doing the reason they wanted us to share this with the bankless community is uh they're actually doing some yield farming coming up dvd i've heard people like that but soon yeah so yield farming for the knc token kind of cool we don't have information about that today but what i recommend you guys do is check out becoming a liquidity provider on the new kyber dmm we'll include a link in the show notes you can also go to bankless.cc

kyber and check that out just test it out um and uh see what you think and get ready for the uh the liquidity program coming up mm-hmm kyber's one of the oldest liquidity pools and oldest defy teams in ethereum right they were they were defy before it was called before it was called d5 right and so i always optimistic to see what happens when when kyber you know does something new and and and cool and they kind of have that that's is kind of the benefit of kyber it's a lot more expressive than what like a well now all these apps applications are becoming really really expressive these days like what is unix about v3 other than a more expressive unit swap but you know every single application kyber included becoming more expressive i just i like the model of optimizing for liquidity providers because liquidity really is the product

for these automated market makers it seems to be what they're doing all right david we're gonna get to in a minute but i'm gonna ask you the question i ask before every state of the nation which is this what is the state of the nation today sir uh this one's a good one so for those that read the market monday piece yesterday which you totally should really great context for this conversation that we're getting into right now we are speculating the state of the nation is speculating and we are specifically gold speculators we are moving going out west california gold rush time we are speculating for gold uh and there's a number of conversations uh and questions i have for the arbenstrum team here in a second about what it's what is it like when just a bunch of new real estate gets unlocked out of

ethereum all at once which we already like are speculating that is going to be in really high demand uh and so what happens when like a bunch of d5 teams really want to claim some real estate from themselves uh you know speculating nice speculating on like what happens next uh and and i think if you have been paying attention to the banquets program we have been speculating as to a defy summer 2.0 layer two edition uh and uh and we have some questions for the arbitrary team about how this is gonna work oh dude this totally feels like new property new real estate has just opened up new land to explore has just opened up that's what these layers and there's gold out there there's gold out there that's one analogy the other analogy which i like which is also from the market monday

piece is like think of this as a theme park you know i think you've ever been to disneyland disney world uh you go in and there's kind of the the main street disney opening well each of these layer twos are almost like sub parks within the wider theme park that is ethereum right and they're all kind of coming soon so some of them are open polygons open not quite a layer two it's a side chain we'll get into that but like on the theme there's product market fit people loving polygon a lot of traffic being driven there now what does arbitrarium do it's been under construction to this point and now we're at the point where it's it's going live in mainnet which means developers have access to it and they're getting the park ready for defy

users that's the theme here super exciting i like that one david west bankless graphic designer is just like killing it right now it's just you did this this is me it's 10 seconds in photoshop i love it i love the theme park theme all right guys we're going to get back to our guests in just a minute so stick around but before we do we want to thank the sponsors that made this bankless episode possible synthetics is ethereum's decentralized derivatives liquidity protocol what does that mean synthetics is a platform for creating and trading synthetic assets which are assets that are priced via an oracle rather than bids or asks traders can use the quenta exchange which hosts

and trades all of the synthetic assets created by synthetics traders on cuenta can trade synthetic tokens like sbtc s oil or sd5 because quinta is powered by synthetics traders experience zero slippage on their trades no i didn't mean low slippage i meant no slippage because that is the power of the synthetics platform no slippage on your trades you can also easily short assets with isynths which are synthetic assets that move inversely to their target asset synthetics isn't just for traders developers can build on synthetics to access the infinite liquidity offered by synthetic assets or investors can stake collateral to the protocol and earn fees that the protocol collects if you're a

trader and you're looking for a trading platform and not found in the legacy world check out cuenta.io if you're a developer or you just want to earn yield on your collateral go to www.synthetics.io where you can stake your snx or ethe and earn fees from synthetics ave is a borrowing and lending protocol on ethereum and just recently released ave version 2 which has a ton of cool new features that makes using ave even more powerful with ave you can leverage the full power of d5 money legos yield and composability all in one application on ave there are a ton of assets that you can deposit in order to gain yield and

all of those same assets can also be borrowed from the protocol if you have deposited collateral here you can see me getting a 200 usdc loan against my portfolio of a number of different defy tokens and eth i'll choose a variable interest rate because it's a lower rate than the stable interest rate option but i could choose the stable interest rate option if i wanted to lock that interest rate in permanently one of ave's v2 features is the ability to swap collateral without having to withdraw your assets trade them on unit swap and then deposit them back into ave ave does all of this for you all in one seamless transaction so you don't have to repay loans in order to change the collateral you have backing them check out the power of ave at ave dot com that's aave.com

all right guys we are back uh super excited about this arbitrarium just launched to mainnet and we have the perfect people to tell us what is going on what is happening we have stephen goldfeder is the co-founder chief executive officer at offchain labs this is the company behind the technology of arbitrary heels a phd from princeton we also have a harry kladner who is also a co-founder he is the cto at offchain labs he leads all of their engineering also attended princeton guys welcome to bank list it's great to have you thanks for having us super excited to be here you know here where we want to start here is you guys shipped like you made it

it's mainnet now super exciting um you know with with so many of these layer twos being pushed back over the years right like dates pushed back and like there's been quite frankly for people who've been in this space for a while particularly in the ethereum there's been a lot of disappointment with with layer twos right it was like when's raiden coming do you guys remember this 2016-2017 state channels they're gonna scale ethereum right and then it was like no that's not the thing plasma is the thing right and they're like okay we'll investigate that and now it's like no that's not the thing roll-ups are the thing but it's taken so long for us to get to a mainnet solution now you guys are here you made it to maynet how does it feel it feels i mean it feels awesome

obviously it feels really really good and we've been working for for quite quite a long time you know you speak about these other solutions i remember when we were forming the company in like 2018 and we've been working it for years before that uh we were raising funds and people would say hey uh are you state channels or are you plasma yeah like oh yeah so eventually we just round with it we call ourselves state channels um yeah i know it feels really awesome and it feels like you know despite how long you've been it's like this is the beginning like friday was the beginning and like uh you know not the finish line by any means like we just started and we're doing it and now it's like you know bring the savings to the users and the l2 experience that's hot harry how are you feeling

damn good i mean it's it's it's i'm really happy that we had a test net for a long time yes we felt like we really cared about like really having the tech out there and having users using it and like developing experience running the test net like getting developer feedback like look at that for a long time since october right um yeah i think steven october yeah so i think that's the reason why we're feeling pretty good right now because like we you know we put in the time before we got here that's the reason both here and rather than fighting fires is because you start you started in october really oh yeah there were lots of fires we fought since october but the good news is you fight those on test that and you get angry users on discord and but you

don't actually you know that's that's the time where you want to learn what's wrong with the system and and get future requests and you know um at this point you know we're obviously open to lots of users but was really the early users that their future requests got in and they helped us really turn the product into what it is today all right guys so we're going to spend just a minute or two talking about what was actually launched so we're going to get into the why like what is arbitram in a little bit a bigger picture but i think uh since th this launch event you guys managed to launch on friday i think folks want to understand what was actually launched i'll just provide some context for bankless listeners you guys are all familiar with here david and i talk about layer twos uh the difference

between a side chain and a layer two is basically this a layer two is secured by the layer one in this case secured by ethereum the economic security guarantees uh transfer over to the layer two so this is a pure layer two solution that's one distinction also the second is that it is evm compatible close to it so all of the cool defy apps that we know and love on mainnet can be transferred to arbitram but let's talk about what exactly was released to mainnet on uh friday because i know it's not like the the theme park is not completely open defy users can't access it's mostly a developer launch uh let's start with you stephen what was launched on friday

yeah so i guess on friday we uh sort of opened the theme park um but there but there are no rides yet so we opened the theme park and we brought in the builders and said hey uh come on and like launch the rides uh the thing is you know when we put out our announcement uh maybe two and a half three weeks ago now that we were going to do this on on friday i expected maybe 20 projects to want access to it and we had now growing over 300 projects uh you know have applied for access at this point so uh we couldn't exactly you know we it took us a bit of operational time to let everyone in we're still rolling rolling allowing people in um um and but yeah so we obviously we opened up the theme park people are are building the rides and you know when

those rides are ready we'll let in the people um letting the users so it's it's right now it's a developer only launch is that correct yeah right now it's a developer only launch it's a it's a wide developer launch and we're doing a fair launch what that means is so operationally it's taking us a few days to roll out to everyone you know we're doing things like we're seating people's wallets for them and you know it just there's just some operational uh overhead with every everyone who bring on board at this point but what we're guaranteeing users is that that even the last person to be onboarded assuming that they applied before we launched and they filled out that form in time we'll have enough time so that no one no one will will have access to users before anyone else so everyone will have

time to build everyone will have you know at least a few weeks to build and then we'll let users in and they'll get to choose which ride they want to run to but there won't be some to have this advantage and i think there's a really important through line to talk about why you guys are doing that uh because it's part of the ethos of ethereum to not make like a king maker right um and so you guys don't want to like allow like sushi swap and ave to get in before like unit swapping compound right there's this is supposed to be some sort of like fair launch type of mechanism by not giving any specific party some privileged access to this new real estate right and so when you guys are launching arbitrum the the way that listeners should should really like mentally model this in their

head is like you guys are like cutting the cutting using the scissors to cut the the red like you know we're open now but there's just empty land right and so like all these users like people like me who can't code like arbor trim isn't really interesting to me right now i need to wait for developers and you know defy app makers to build the cool stuff right and so i'm still as a user i'm kind of still sitting on my hands waiting for like whoever whichever developer development team can move the fastest and start to build out the rides and attractions right and also important on to keep this metaphor going the rides and attractions that all these defy apps are going to to build those are going to be like you know users going to have to pay fees to use those right like you use

sushi swap you pay the fee uh you know you use ave you use compound you pay the fees so that's the incentive for all these uh defy apps to build really as as fast as possible because there's so much demand to use these new rides these new attractions because they have very like low all the scalability that we've always been asking for since like the beginning and beginning of time uh and so i kind of wanted to just put that mental model into people's heads about why the credible neutrality of a fair launch uh that you guys did with uh with your your guys with a fair launch with arbitrary is really really important right because we don't want we want everyone to have equal access to like all of this new real estate um and so uh maybe you guys can illustrate like to

what degree like how when you guys opened up arbitrarium like and i'm assuming we're talking about like floodgates opening how many like development teams are there like who's chomping at the bit to get in here like what's that that all of that activity like yeah um yeah that's that's exactly right you know uh basically the mental model is projects will execute their business models just like they're doing on ethereum on arbitrary but they'll have significant advantages but it's we're not going to be giving those advantages so if you're a project that's winning on ethereum uh layer one you'll hope you may you'll likely win on ethereum layer two but it's not because we're giving you priority access you know the the little guys are having the same access and if they can outpace you on layer two then then it'll be it'll be there's to

win um yeah basically um it's really uh you know i don't want to steal the thunder from from from teams that want to do their announcements in one quiet but like a lot of teams have announced already so obviously unit swap sushi swap are well known um uh as are a bunch of other of others uh you know the ave team has been pretty vocal as well and really down down the line uh you know lots and lots and lots of teams building on us and um yeah we have like i said about 300 teams or request access inc including some like individual developers that are again that are working on projects in their in their garage and that's okay some of these teams will some of these developers depending on when they fill out the form they'll get access before before the before before the largest teams but

they'll all be on the same footing they'll all have time so to build before it before the parking gates open so uh do yeah they will take through the uh you know i would say through we're working on it now uh it will take into this week but all those teams will be on board this week so um uh every unless all teams that will get access meaning there are some users that try to like get in there to apen early or like hold up just uh you know hang on um but everyone that you know all the legitimate teams uh will will get access this week uh or either have access or we'll get access this week okay so these are the ride builders they get access they start building the rides i'll also let add uh some infrastructure projects i've noticed have joined uh chain link

for one uh also etherscan block explorer so we're not only talking about defy apps we're also talking about infrastructure but harry could you give us a sense of like um so so again like a question about layer two is you know even layer twos that have launched in the past the problem is it's taken so long to get actual apps live on them if i am a uniswap or an ave i've got some evm code it's written in solidity right what how do i get it into arbitram and how long is that going to take because the question is like when is the park gonna actually open for d5 users i think we're trying to figure that out yeah i mean i think the the teams that started deploying on on friday are

already i think basically done um and like wait wait wait what i mean it's not like open but the contracts are up there i think there are a lot of like internal uis that are that are up on top of them there's not much to do which is like the really cool thing of evm compatibility is like i yeah like the conversation with like these teams has basically been like you know and this is i'll say like there are some projects that need special features there's additional testing to do so right now what i'm talking about is like the core like is you know can you do the bait can you do the basic interaction or the contracts on chain can you do swaps can you do that um yeah like we we asked for addresses we whitelisted them and you know we we funded them with some

initial heath because the we hadn't enabled bridging of eve publicly yet and then they messaged back and said we're deployed and that was kind of it had been on our test net so they had gotten kind of some experience but i think that um i think that they didn't i don't think the major i don't think kind of either between unit swap and sushi spot but i think basically required no code changes some tiny changes to the front end but basically very little to do so when you guys say evm compatibility you really mean it yeah you know there are some small there are some edge cases but there are edge cases you have to look for um so the vast majority of

dapps are are not really going to hit any of those um and it's also like it's it's any version of solidity it's viper or fey like it's kind of any of the tooling basically that works on ethereum um is is kind of gonna is is working on arbitrary as well and and you know the the initial wave of gaps are mostly kind of ones that don't have a lot of interdependencies and so for instance kind of like some people are going to be blocked for some amount of time on like chain on like you know chain link getting up and running fully um so there are kind of part of the kind of coordination effort of this period of time is kind of like making sure that like we have this like crazy network graph of like who depends on who backed out and can like make sure to make the

connections the right way and and got all of that working so like the things that are easy to do are the ones that don't sort of that are kind of the base player of the d5 system and it's glowing ecosystem and then we're basically going to build our way up from there but at least at each level it's just kind of making sure that everybody knows the right addresses for everybody else everybody's talking to the right people the actual effort is is pretty low and i think you know anybody who's deployed on our test net would agree and anybody who's gotten the opportunity to deploy on our main net so far would also agree i think so i think this does a fantastic job illustrating why people have been so excited about optimistic roll ups right just because you can copy and paste your code on on main

chain ethereum put it on the optimistic rollups maybe it works right off the bat maybe you do some checks make sure everything's running but like most likely scenario is that it is going to work as a copy and paste except for the the dependencies that you guys just talked about yeah it's it's um it makes our lives a lot easier because there are a lot of teams that we're coordinating with and if each one required like a ton of time right what would you say so we in on the main chain ethereum we have this very like i would say like hardened structure that has just gotten used to like ave's used to make her doubt being there maker dao is used to you know to uni-swap being there everything has gotten used to chain-link being there with all of

these dependencies and and money legos that you guys need to recreate on on uh arbitrage what would you say is like the tallest obstacles that you guys are really trying to overcome to really allow that defy money lego ecosystem to flourish as we've seen it flourish on the main chain yeah i mean i think um you know things really just started coalescing when we announced that we're launching like until then you know we we've been uh you know we're a small team we have a dedicated business lead and myself i've been like you know talking with teams for months and months and even longer and um but it's sort of you know it's it's sort of a snowball right so team team i know there's this dependency graph and you have talked to teams hey i really want to come but i can't come

till they're there i need a decks i need a lending platform i need this specific uh and then sort of once uh teams start announcing there's a snowball effect so i think at this point uh you know that's really um uh behind us it's really just getting the team's access which we're doing and allowing them to deploy and i think we're really just going to wake up one day when we turn on and and basically everyone's going to be there um which is like i didn't expect that a few weeks ago but that's just sort of how where we are today so understanding the trajectory that you guys have seen thus far like how fast you think this whole like user experience is going to come like when can i when can i put money into aveo on arbitrary or any other lending protocol like does it do you think it's coming

faster than you guys originally expected it um yeah so i don't have an exact date to commit to yet but you know from our from our from our things are going relatively fast like harry said there are without naming teams or teams that uh said hey i need you know this much time you know i need a little bit longer to test things and and you know these are teams that you know uh you know you know that other teams depend on like we like like we said we need our oracles up before and we need many price feeds up before uh before you know users can use those and that's just an example all right there are lots of dependencies so building up the dependency graph uh unfortunately sometimes it's as slow as the as these as the slowest player uh for very important ones but

we're not gonna wait for everyone right so we're gonna wait for the uh we're gonna give everyone enough reasonable time and uh wait until the you know the big infrastructure pieces are in place so um i i would really look i think mostly to the teams building on us for for that information we're coordinating with them but we're not we're not really calling the shots on that anymore um you know my hope is obviously sooner sooner than later um and i think we'll be relatively you know relatively soon but um the first thing that we're doing is you know we're going to give everyone enough time to deploy so that's something we're guaranteeing but that's a matter of weeks and then certain teams are going to need a little bit more um but you know i think um i think will be pretty uh you know i i think it's

i'm still pretty confident that will be the first live layer two with apps on it because you know the process is unfolding and this is a process that everyone's gonna need to go through right um you know you can launch in this way so you guys have just like opened pandora's box and now you guys are just like balls in your court defy developers like you guys go figure it out pretty pretty much and uh you know obviously we're doing like a a large coordination effort you know putting people in touch with other other people uh putting different projects in touch and so we're obviously manning that coordination coordination effort but fundamentally um a lot of the balls are not in our court anymore that's super cool super exciting all right i want to put because a lot of d5 users obviously listen to this we're all

we're all in in the process of going bankless and becoming more bankless i want to get a sense from you guys of what the park is going to look like uh when it's open so a lot of people who listen to bank lists they've of course have experience with ethereum main chain so that's one model of operation like you have meta mask and you can use hardware wallets you have ether scan and these are the tools that you use and you have the the the d5 apps that you're familiar with uh some have also gone to other sub theme parks right i think like um polygon is maybe one example of this so this is not a pure layer two this is a sidechain but what's cool when you travel from ethereum to polygon you walk across the bridge as it

were is all of the tools that used on ethereum main net and a lot of the user x experiences the ux experiences like it's the same so it translates over so you just get to use your ethereum disneyland tools in this new sub-world um can you talk about maybe the similarities and the and the differences with maybe an arbitrarium and a a polygon so first of all we talked about the d5 apps so i can imagine a a uniswapper a sushi swap is waiting for us over there maybe nave and then i think there's compatibility with like metamask and maybe hardware wallets and is there also like a bridge so with polygon you have to walk you have to actually go across the bridge can you

talk about that maybe uh steven you start sure yeah i think um it's a very similar experience um from the users and um uh and first thing i'll say you know i have tremendous respect for the for the polygon team you know they're really killing it now with adoption and you know only good things to say to say about them uh but i'll speak about some of the differences and some of the similarities so the similarities are the experiences we'll have a bridge um we're an optimistic roll-up so we derive our security uh from ethereum um so um when you escrow your contracts in the bridge uh when you escrow your funds in the in the bridge they show up on the l2 and uh but they're again there and then you can move them from the l2 to the layer one uh we have this withdrawal period

because we're an optimistic role but fundamentally you can go back and forth over our bridge and all the tooling will just work like we're by code compatible that's what i like to say so there's sort of this you know people um have this oh you know side chains have the ethereum experience because they just use death l2s are much more complicated the thing that the thing about arbitrary that i think is unique is they give you the experience of a side chain because we accept evm by code directly all the tooling works and but we give you the the security of um of of of of a layer two right the security of e3 and you know i think that's i guess that's our differentiator differentiator um but fundamentally yeah the experience is the same you go over the bridge and your funds just work you

know and there's protocol level bridge there will be faster bridges we have a a relationship with ok x i'll deal with okay x they'll be enabling fast deposits and withdrawals directly onto the arbitrary chain so wait i want to pause right there so we're talking about uh fiat going directly from a crypto bank crypto exchange fiat directly to arbitrary as well as another way to get into the theme park you don't have to go through the ethereum front door main chain you'd use the side door from the traditional world and bridge that way exactly right which i think is is super critical and you know one of the things people don't like so much about optimistic roll-ups is the delay period to get to get back and you have projects like that are that are building bridges to ethereum to solve that like connext and hop and seller and you also have

projects like and you also have these these like opx uh relationships uh and these okay collaborations that will also uh make that point pretty much so i think the user experience is going to be pretty excellent and and uh you know that limitation will be like a small a small detail that doesn't actually ever show up to users and by the way there are other i'll tease that there are okay x is the first but uh there are others that are coming quite quite soon hey gemini if gemini you're listening coinbase if you're listening uh really excited guys we the reason we're so excited is because dave and i've been talking about this for so long and we've kind of like said that this stuff this sort of thing was going to happen and now here it's happening since the beginning of nicholas we've been talking about how

this is going to be coming here it's here player 2 summer is here all right harry i want to get to maybe some differences so stephen was talking about some of the similarities we've got here right so like similar experience to maybe something like a side chain like polygon but let's talk about the differences because there are a couple of i picked up on i want you to validate whether this is true and then talk about some others so one is if you're on a side chain like polygon right your uh there are still fees transaction fees but those are denominated in the polygon token matic i think with arbitram they're denominated in ether but there are still transaction fees yet also i think with with uh users should expect those transaction fees to also be higher because you are

paying for a post a portion of ethereum's economic security uh maybe let's start with with that is that uh a difference that um you would say is accurate yeah yeah absolutely um no that's that's a that's a that's a good description so i mean essentially there's kind of two main categories of of a fee that you pay on arbitrage now it's it's kind of to the end user there's just a single fee but essentially it goes goes to two different places um the first is paying for l1 feeds every arbitrarium transaction gets posted as data to ethereum and that's essentially the way that we that roll ups achieve the high level of security that they do is by kind of still heavily leaning on

ethereum um but essentially kind of using it to um using it in order to kind of come to agreement about what's going on in the chain uh but in a much much cheaper way um than you would be doing if you were interacting with a traditional smart contract because essentially we're only agreeing on the input data we're not agreeing on the outputs um and arbitrary and the optimistic protocol roll-up protocol is what kind of brings us all to agreement over the outputs and so that was a little um so essentially we have can you quantify that for us harry it's like how much of a gas fee reduction is that how much compression we able to do here right yeah um so i think that kind of roughly speaking um simple transactions um well transactions with a relatively

low amount of call data so they could do a lot of execution but with a relatively low amount of call data um are currently coming in i'm going to give a wide range because i don't remember the exact latest numbers somewhere between kind of 1000 and 2500 gas um l1 gas for kind of like the l1 cost of kind of just posting the call data um and so that's kind of like the and that's kind of one factor where sort of there's this trade-off um with with kind of systems like uh commit chain systems like um that sidechain systems like um like polyglycmatic uh on polygon um where essentially kind of they don't require data for each transaction they just post kind of very short summaries with the trade-off being that ethereum

can't actually validate whether or not what's going on in the side chain is correct it's instead kind of independently secure and so essentially what you'll see is this kind of trade-off where there's a higher level of security but also higher but also higher fees in relation that you are paying in order to get that level of security and so kind of we end up on this spectrum where you have kind of ethereum as the most secure and the most expensive arbitrary is close close to as secure almost as secure and less expensive but still you know not not completely free and then paul and then matic the manic chain as kind of significantly cheaper but with its kind of own independent security mechanism

that kind of doesn't have the same kind of confidence levels in theory love it okay so that's the one source of fees is basically the cost to secure a subset of of data on ethereum and we're talking like a 90 95 percent reduction versus doing this on gas reduction versus doing this on theory main chain something in that magnitude in that order what is you said there were two sources of fees though what's the second yeah absolutely and i think it's even more than 95 i'll say i'm not going to remember exactly like it depends a little bit on the transaction but it's like a crazy amount um and the other source of fees is basically l2 computation and state so essentially the same reason why ethereum needs to needs to charge fees also applies to

armature um that you need to make sure there's kind of not an infinite supply of capacity on the chain because we still have nodes that need to be able to run user transactions um we can we can have more capacity and we will have and we will have more capacity than ethereum but there are still limits to it um and so they're kind of and they're still kind of people who need to actually run those transactions and so kind of there's two sort of major um kind of reasons why they're kind of there are fees in l2 one of which is in order to actually kind of support the the costs of the chain um and the cost of upkeep including kind of the cost of state growth because state growth is something that we think a lot about just like is kind of a serious issue that that's kind

of thought a lot about in the context of ethereum and i think that kind of the solutions that ethereum is looking at are also kind of very similar to the solutions that arbitrage will pursue over time um and the other is essentially a kind of the arbitrary chain with its own um gas market um that kind of once enough demand for arbor trim has come up um there's kind of a mechanism that was very heavily inspired by um by eip 1559 um that we'll be using on arbitrage in order to kind of when there is so much demand which i think we're pretty confident at this point is going to happen to kind of even fill up all of the supply and arbitrage if transactions were free um the the

prices the kind of l2 fee portion will kick in and i think kind of still be significantly less than the lp1 fees but it will be there in other words if the if we didn't have fees on l2 the users would never get off the ride right so you'd have bad scenario that's what that's what i guess a spam simple attack is user's not getting off the ride okay so like and both of these fees are denominated in eth is that correct yes and both of them are kind of it's a single it's a single fee that the user sees in metabolic right and our block explorer there'll be a breakdown where you actually see like well this is the total fee paid and these are the different kind of places it went and is it correct so i know the the fee to settle something on uh

ethereum and roll up that obviously goes to ethereum miners validators in the future but the the fee that is arbitrary specific does that go to validators within arbitram or who gets that fee yeah so uh fundamentally um yeah that fee is gone is going to pay um we have this notion of invited validators we can't because of like civil attacks like you said uh the current economic model doesn't allow us to just like say okay you pay everyone uh you know uh this fee because um because um yeah then there's just not enough to pay people for their costs so validation um you know right now we're we're whitelisting the developer period validation once you open up we'll be permissionless uh anyone can validate

and there will be um users validators will be on board to uh basically uh that we as invited validators that can also uh you know share fees and and and get some of that fee revenue as well as you know we're also operating the sequencer and we'll be taking some of that some of the revenue for us as well but fundamentally that's where that's where it goes it goes really into the operation of the system and you know over time you know our goal is to move more right now it's kind of bespoke uh you know we we have these uh we we're going to be working with validators over time our goal is to move more and more of this on chain so validators get paid directly on chain and the fee revenue um you know gets uh mostly right now it's sort of going through us

but like uh the goal is uh to move as much of that on chain as we can so um layer two operators um layer two development is something that you know we think should be funded but it should become you know directly on chain and you know exactly where that's going so with ethereum the way that we meter resource consumption is we constrain block space and then with eip1559 the way that we meter resource consumption is by just increasing fees to make resource consumption come down you guys said that you guys have a mechanism heavily inspired by eip1559 but what is the actual resource that needs to be metered is it is it uh just data and the state of arbitrum and then how how is that different from ethereum and and also can you guys like

kind of measure out how much more resources that we have available on our on arbitrary which is basically a roundabout way of asking how much more scale do we have yeah so in terms of kind of like the the first part of the question um for kind of what are the resources so we have kind of a um a slightly different system than ethereum although it's kind of very similar which is kind of there are two different resources on arbitrary that are kind of both paid in gas one of which is state growth the other which is computation um when kind of like designing the system and sort of figuring out like how to best sort of control its growth for instance kind of computation can be kind of can remain relatively cheap for for kind of long term because

computation doesn't make the system any more expensive to run a year from now whereas state is something that i think we're kind of you know there's significantly more concern about because this has kind of been a problem for quite a while on ethereum and it's something that kind of arbitrarily operates within a similar model of um and so sort of separating out those two quantities to be kind of thought of as pretty distinct gives us sort of the freedom to for instance weigh kind of way different like have different weights to like how expensive we want to make state growth versus how expensive we want to make computation and i think that kind of part of the kind of system over time we'll be sort of adjusting these in order to kind of find the the most sustainable long-term path for the system um because kind of

most of the concerns with sort of ramping up and kind of increasing the capacity is basically this question of how hard are we comfortable with making it be to run a node um and and there's kind of this interesting feature of rollout switches that we need way fewer nodes um because we don't need 51 honest nodes we need one honest node but we want to make be sure that people who don't want to trust the current people running nodes can run their own so uh so correct me if i'm wrong but i just wanted to get this in my brain and also listeners brains is that the reason why uh arbitrarum is scaling ethereum is is is twofold one you just said which is that you need a a lower number of uh you know honest active participants and that

number solo that is just one and we can because of that because we only need one honest participant then we can scale a pretty decent amount and the other reason is because we are actually using the power of cryptography we are able to just compress more transactions into smaller little packets that's what a rollup is uh and that just takes up less space on aetherium did i get that right yeah i mean there's kind of like there's these interesting kind of two different questions there's like how much load roll-ups themselves put on ethereum and how much load that roll-ups can handle in ll2 and so on ethereum there's this kind of like currently like by rough measure ethereum can support somewhere around like 4 500 transactions per second through all roll-ups um and so

kind of like that's because that's the amount of like that's how much call data we can put that's how many transactions we can actually post the data of and then there's the separate question which is what will kind of a single individual roll up um what kind of capacity will it have um and that's kind of an area where we're kind of i think it's going to ramp up over time i think we're kind of going to be relatively cautious at the beginning and then sort of as demand grows also grow capacity um in order to kind of make sure that the system is as long-term kind of safe and sustainable as possible i'd rather have kind of the system be a little congested for a short period of time until we kind of increase the capacity then be wildly off base and allow the

state to grow a huge amount and then it becomes impossible to run nodes and so we're kind of we're going to be we're being cautious about this but i think that kind of as we adjust up the capacity um we're gonna kind of keep ahead of demand for for some amount of time this kind of opens up to be like what is the eventual future look like sort of question which is a really interesting one which is one kind of that i've talked about a lot which is that like five years from now there's not gonna just be one roll-up even if and i don't think this will necessarily be the case but even if kind of arbitrary is the roll-up tech there will eventually end up being multiple arbitrary chains because one cool thing that are that that roll ups let you do is they let you parallelize

so a single arbitrary roll-up is very similar to a single ethereum whereas multiple arbitrary roll-ups are very similar to chardon sharding is hard we haven't figured it out for each 2.0 yet exactly that's still open research and so kind of this is like the direction things are heading in rather than the direction they're going to be anytime soon but that's the way that we reach kind of a billion users rather than kind of where we're going to be at for the next kind of period of time where we're still sort of just figuring out the process of having one roll-up chain that's really solid and a really good user experience this is also the reason you guys called this thing arbitrary one so the technology's arbitrarium but we're talking about the the land that's been opened is arbitrary one there could be an arbitrary ii there

could be an arbitrary there could be a bankless arbitrage i'll use the same tech notes absolutely and so like the decision to kind of start with one is really the decision around like multiple chains being way too confusing the technology is ready for it but the coordination challenge is not i think what's really interesting and what the listeners should take away is that you guys are facing some of the same core battles that ethereum has been facing right like state state road growth and resource consumption you guys are just dealing with this in a as in my mind like a microcosm right you guys have slightly different parameters as to like how you guys have to deal with this issue ethereum has 51 attacked attacks to deal with you guys don't have to deal

with 51 attacks you guys just have one honest validator as like your consensus protocol and that's kind of where these differences come in but it's the same problems through and through and the through line that listeners should really take away from is that let aetherium tackle the 51 or proof of state consensus issues that's hard uh there's a reason why like a native currency of ether is is important for those systems arbitrary doesn't have to fight that fight it has to fight similar fights but the main fight of just like 51 native currency consensus is taken care of and that lets you guys focus on what you guys core competency is and that's where a lot of the scale comes so a decent amount of arbitrary scale comes

from the fact that ether is securing ethereum under a proof of work and a proof-of-stake network and you guys just don't have to deal with that already you guys are kind of writing on those writing in the wake of ethereum and it's super strong settlement guarantees just want to throw that out there exactly yeah couldn't have said it better so we're we're off to talking about the differences we talked about the similarities and that was all a discussion about like actually gas fees which brought us there so the difference between something like polygon and arbitrarily is that if i'm in arbitrary i can expect to pay a bit more in terms of gas for these additional security and settlement guarantees right um let's talk about another difference which i think is the case withdrawal

period there's been a lot of talk about a withdrawal period in optimistic roll-ups uh a one-week withdrawal period has been floated and the way i'm envisioning this in my head is like so once you cross the bridge i send my ether my tokens over the bridge like we know that works and i'm now in this this other sub theme park right if i want to get back it's going to take a week to get back now maybe i can exit via uh okay x gemini coinbase like in some sort of the side door that we were talking about earlier but if i want to go back to the ethereum main chain there is a delay period that something like a polygon doesn't have can you talk about that and maybe stephen uh give us your take on this withdrawal period

yeah so so one thing to say is you know the reason we have it is because we have a protocol level bridge that gives you the security of ethereum right we can build an escrow type bridge and arbitration 2 that has no delay but then that you don't get the security of the roll-ups so it's fundamental to the security of this bridge it's not that we can't build a fast bridge it's just that you know you won't have the security right we could build a multi-sig bridge for example to arbitrarily uh that's fast both ways it's just if you want the security of ethereum uh you have to use this bridge and the reason why you have this delay is because optimistic roll-ups rely on fraud proof technology and you have to give everyone the ability to uh basically post fraud groups right so uh the the

the failure case here is i say hey look this withdrawal is valid i'm taking all my money to um to ethereum and it's invalid and someone knows that's invalid but the period is so short that they can't get they can't get the you know the the multi-round process on chain so that's why um this period exists but the thing i want to focus on is two things number one is um as the ecosystem and arbitration becomes much more and more more vibrant um they're going to be users that just want to stay there so this i'm not saying this is not an issue i'm not saying users won't want to go back back to ethereum or want to go across roll up but uh there are a lot of users that are just going to stay and park their money in arbitrary because that's where the

cheaper d5 is going to be and and lots of you know most of the big d5 products are going to be there so um this is again this becomes less of a problem over time and the other thing is like as i alluded to before um this is the protocol level bridge your application layer bridges like connects uh hop um seller seabridge and and a bunch of others in this space as well um that are that are that are um basically using liquidity um what's called um liquidity exits to to get around this issue and the core idea here is uh you have an ethan ethereum i have an ethan arbitrom i could put mine over the bridge that will take me a week or i could we could just swap our assets quickly so you get my youth i get your wreath i just got a quick exit and yeah

i'll pay you a small fee for that and a lot of people are building out technology along these lines which means at the end of the day uh to users um to users this won't come up at all and and a typical user might just want to you know just again go on and off the okay x2 so that's another path right i'm on aetherium i want to get the number yeah i think that's such a nuanced um much more nuanced stake of how it's eventually going to evolve because there's not just one bridge over to arbitrarium like there is one protocol supported bridge that is secured by the ethereum military with the most secure bridge that's never going to go down right but we also have all of these other bridges then you know some of them might pay like there might

be a toll to use it if you want to get there fast you know uh others like but but it would be much shorter there's also going to be like sideways to get into arbitram too directly from the fiat world traditional finance and exchange so in your mind i mean i know a lot of people talking about this like oh the withdrawal period it's like a long arduous process but it feels like it's not going to impede ux it's there in case we need it right but um there will be all of these other ways to get liquidity in and out of arbitrarium that don't like require that bridge is that the case yeah that's exactly the case yeah it's the combination of that that uh there are lots of really really smart teams building application level layer

solutions that just get you in and out quickly and the fact that i think that yeah you know you it's a really great park we're building and users for a long time what other what other drawbacks are we missing guys so gas fees there's it's a bit more expensive than a side chain there's this withdrawal period for the primary economic security are there any other drawbacks i think those are the you know the the the main drawback i don't know if you've mapped these as the drawback because any system that tells you they don't have gas fees no it can't work right for the gas you know some metering some fees are fundamental to a system just to uh you know uh resource control and resource allocation so i think the main the main drawback is the is the delay period that we have um but again i think you know

really smart teams are working on this the one thing i'll mention um you know just to to round this out uh the one place where the all these solutions that i mentioned don't work for uh withdrawing are nfts so if you want to withdraw an nft you're actually going to have to wait for it wait for it to go over the bridge um generally you don't necessarily need such fast liquidity over your nfts that you keep your nfcs there maybe you want to move to ethereum but it's not like uh you know this generally people don't need to do you know i think the the delay is not going to be that much of an issue considering what nfts are used for but that is something that you know i should mention which all these solutions are really really focused on fungible assets i guess the other the other thing that

could be mentioned here which you know is it depends on how you depending on how you think about it is you know i think it's a short-term downside long-term doesn't matter is essentially kind of all roll ups are are significantly more complicated than than side chains uh like this is just kind of what what they're trying to do is more complicated this is this is why we wanted we were on test that for a long time because like that that's what it took in order to i could i could launch a a kind of simple side chain tomorrow with a couple hours if i wanted to um like kind of like that tech is just sort of like simple enough and kind of been built long ago enough that sort of with

things like tendermint it's it's like really easy um roll-ups are you know are as as kind of a pure l2 are are doing something kind of much more interesting and much more complicated and so like you know it's like this is the reason why kind of we we've taken a long time to build on test that why we're kind of like going to be sort of like grad great kind of gradually decentralizing the system more and more until it reaches kind of its final fully decentralized form um and that's kind of like you know it's it's a necessary it's a necessary journey to go through basically in order to kind of really hit the uh the kind of full promise of it guys in the future deploying an optimistic roll-up chain will be as easy as what

you just described a sidechain to be um yeah absolutely yeah sick we got a break for sponsors harry but it's like one quick question on that so where is the complexity and give us like the really short like is it in this fraud proof game is that where the complexity is with optimistic roll-ups and basically optimistic roll-ups and zk roll-ups the the complexity is in like how you're actually proving to ethereum that that what you're doing off-chain is actually correct for zk roll-ups it's like fancy cryptography for optimistic roll-ups it's fraud proofs that's like this magic thing that like all of the roll-ups have to have to do in their own way

um that kind of you know is is where sort of like the added like the added complexity is compared to side chains all right guys and i think that arbitrary like has like a pretty good form of this that the what where the complexity kind of is controlled is mostly in the node and i think is kind of like in a pretty good place where we can get where we can be pretty confident in it all right guys so if any of the bankless listeners have read my uh my market monday piece yesterday it was all a speculative version of the future about a possible defy summer round two where all these defy apps come to these l2s and they start liquidity mining incentives to really uh entice users to come to their default app so that is the conversation that is coming next in the

state of the nation but first before we get there we have to take a moment to talk about some of these fantastic sponsors that make the show possible bankless is proud to be supported by unit swap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans unit swap is an autonomous piece of software on ethereum which is what ryan and i call a money robot no human counterparties or centralized intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to buy something brand new in the uni-swap ecosystem is the uniswap grants program is now accepting applications for grants we have been saying this for a while and we'll say it

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of your purchases but paid to you in your preferred crypto asset when i get my gemini credit card i'm going to make sure that i get my cash back in east so whenever i buy something i get a little bit of eth bonus back to me at the same time you can open up a free account in under three minutes at gemiini.com go bank list and if you trade more than a hundred dollars within the first 30 days after sign up you'll be gifted a free 15 bitcoin bonus check them out at gemiini.com all right guys we are back we are here with stephen and harry we're talking all about arbitrary that was a a fire first part of this guys we are going to get into layer two season whether you think

that is happening but first i want to run this analogy by you because so i was listening to the uh zero knowledge podcast i think you were on that stephen with maybe ed right and uh it's fantastic podcast but by the way bankless listeners you want to hear the history of arbitrary some of the more technical details go hit up that podcast we'll try to get it included in the show notes um but i was also thinking like all right how do we make this thing easy to understand if you don't know much about blockchains and cryptography and like the terms that we throw around like layer two and roll-ups and optimistic stuff and validators and all of these things so i wanna see if this this analogy kind of lands with you so

we we've often talked on bankless about ethereum being almost like a a digital nation of sorts so the analogy is it provides defense it has a currency it has an economy like what is defense that is the economic security of eth as an asset right that is the crypto economic security that backs the entire system has the military miners validators in the military has a tax system you know you consume blocks you get charged attack gasses it has the supreme work law ethereum code is law right it has to compile somewhere it has to be code on mainnet that is the supreme court of ethereum so ethereum mainnet as i know we said it was a theme park but it's

also almost like a digital nation state right and where i see roll-up chains going with arbitrary is arbitrary is just like an economic zone like that uses that nation state to provide its economic security so it's not completely independent i almost think of it as you know sort of the the us if you think the us has a federal government and then it has these state recognizable the states don't need to have their own military force they they don't like they don't we i live in virginia we don't have a military in virginia we rely on the fed for that um but it does have a court system right and so i think arbitrarium does and optimistic rollups do have like a court system but if there is a dispute in the

economic zone in the state court system in kind of the state-run circuit courts then what happens is that eventually gets all of the way to the the federal court system and that happens at kind of the nation-state level if we're talking about a a nation a crypto nation right so with with arbitrary that happens in ethereum so arbitrary as this um economic zone doesn't have to bootstrap its own security because it gets that from its parent nation state but it is connected to um the ethereum nation state as this and here's the cool thing like so we know how courts of law work on you know circuit court in in state court but i think with arbitration what you guys are

saying this is a gleaning from the previous podcast is all it takes is one validator one defense witness to say hey here's our evidence in the circuit court right um this code like somebody cheated here there was some fraud detected here the code didn't run as it should have and that just gets escalated if that happens that gets escalated to the nation state supreme court on ethereum and then the the court just decides on the theorem like whether that's true or not right anyway it was a helpful analogy for me to try to understand this i don't know if it works if you guys like resonate with this but it was my way of explaining how how how arbitrarily and ethereum are

linked and how these systems work without using like uh cryptography words that people don't understand how does it land stephen i think it's great and i really do i like it i may actually start using it to be honest um i'll credit you don't worry um but um actually it's funny because one thing this this you know reminds me of is the arbitrary name so arbitram uh actually this dates back to the days where ed was in the project and i was before even where i was back in you know early 2014 days and arbor trim it comes from like latin for like arbitration and this is what the idea right so you have these sort of economic zones that sort of set up their own rules and they basically do this arbitration and you don't really need to fall back to the federal and the

state you know the larger systems but they're there and the reason they the reason this works is because you know they're there because it can fall back to that and because you have that enforcement um if you need to so yeah i think that that that that's exactly right and um and and you can have many of these zones that all rely on the on the same federal military and the same federal supreme court resources and it can scale out this way and um and whether that's many arbitrary chains or whether that's um other roll-ups as well we can all basically use those share resources and set up our zones our own zones which will able to scale uh in ways that uh one larger operation sort of just wouldn't be able to do so i think it's really awesome uh i don't know how are you

yeah i totally agreed i mean my only worry is about word overloading like now we're talking about economic zones but then there's also like cosmos has their notion of zones yeah i know i know well we're all trying to come to consensus about with the right like ways to to use these words in this space and and and so at some point we kind of just have to make a mess of it all to to really figure and settle things out i'm reminded of the podcast that we did with uh joel monegro where we talked about how like you know the consensus inside of the united states when i swipe my uh my credit card to get my morning coffee ultimately the reason why that works is because there's f-35 jets you know somewhere that will enforce me to do the right things no matter what uh and at

the end of the day like proof-of-stake ethereum with staking ether is actually way more efficient than f-35 jets and ultimately that's what arbitrarum comes to be settled by is proof-of-stake ethereum with ether the asset uh and so um and also importantly like if there is a dispute about my coffee transaction that goes all the way to the supreme court thinks oh my god i hope not david think about like how many just like money you're ordering complicated think about how many like just months and like jury members and lawyers and litigation and think about how crazy expensive that is in both dollar terms and time terms versus a settlement of a dispute on arbitram which can happen in theory like atomically because of the

power of cryptography we are moving into a much more efficient much more powerful world that is no longer secured by you know guns and militaries and rather just proof of stake ethereum absolutely i totally agree there i also have another quick uh question for you like with that that metaphor one interesting design of the arbitration which i didn't realize until you guys had the announcement post is that you're actually planning to use the currency of the federal government as it were ether within your system which is kind of like federal versus state why that decision right so why why adopt ether as the the reserve currency of this economic zone i think the basic answer is our goal all

along was and you know it's taken us a long time to figure out what this means and how we get there but our goal all along is to reduce friction not add friction and fundamentally if you're a roll-up you get your security from ethereum which means you're posting transactions on ethereum right for every transaction on the roll-up there is something denominated in each because that's that's the currency of ethereum so if we were to introduce our own uh currency here to pay those fees we basically just need an oracle brief because that's the real that's really what's happening underneath the hood there's also the l2 fees which we can dominate natively in a different currency but fundamentally um it's that and also like you users want to use a system do they really want to get hold of another coin that could be volatile to use a system absolutely not and and

one of the things you know and trust me there are many many people along the way you know we when we start we started arbitration before 2017 we went through all the cycles there were many people along the way um when we tried to make fun raise funds uh early on uh you know for our seed round there were people that were trying to get us to do different things and you know i'm happy we really stayed uh stayed where we are because i think today that's one of our major advantages the fact that we can be eth native and you don't have to you're a user that has your user that loves you you just that's what that you have the tools you need uh whether you're a developer whether you're a user you have the tools you need to use arbitrary and yeah and we believe you know

fundamentally and that's you know obviously it's volatile enough we don't need to introduce another uh new asset here the users have to have um to sort of interact with our system i think that would be uh pretty bad for ux so it's exactly the opposite of what we're trying to do we were always um first um you know everything else second was the design destination always ethereum as a as a layer uh one so definitely not because as you know if you mentioned the zk podcast as we mentioned our arbitrary predates uh you can look on youtube for the first arbitrary video and it wasn't me i was in that class and also doing a different project and threshold decent psa uh which i did some work on back there on my phd um but this was a leading this project and uh this predated ethereum um

uh being live so this was you know the videos from early 2015 was it was a 2014 class and and you know these ideas have been percolating in ed's head for free for years before that so uh ethereum wasn't a thing and it took us time to really to really you know watch ethereum grow and understand hey this is the ecosystem where everyone is where all the mind share is we're you know and this is where we want to be and this is the thing the experience we want to improve um you know again like we were raising funds initially you know right after the 2017 hype the best and easiest thing we would we could should have done back then was i ico but i guarantee you we wouldn't be here today if we did that so um no definitely it took us a while to

understand that like we wanted to build an l2 i mean we've been doing this for years for years at this point that's a crazy thing it's like it feels at some level i think to some people that arbitrary just came out of nowhere but like really you guys have been skating to where you thought the puck was going this entire time it just happened that like we got to roll ups right you were doing roll-ups before it's called roll-ups absolutely and and you know and one yeah absolutely we've been in this relatively early and i'll also say you know credit to all the other great teams building out there uh the competition brings ideas and you know it refines our idea so our ideas are definitely refined over time and and you know other you know really the community ethereum community as a whole uh take out take down the competition

for a second because we're all working towards the same goal the ethereum community has a goal has basically gone to you know the design goals we've bought as you mentioned we've gone past the like initial scaling solutions and understand this is what we want and i think we've been pretty close that all along we've definitely refined our vision and understood the for example the importance of evm compatibility like 100 that's something which we understood you know it took us a few more years to understand and we've definitely been skating along for a while uh i think yeah a lot of people probably didn't hear about us so quite recently but we've been uh you know building uh building you know this is one of the benefits of you know i've seen this in ed ed as you know a 27-year princeton professor he's not now full-time in the

company but this is and i've seen you know i've had the ability to interact with many such types and one of their one of the things that these people have is the ability to see the future basically and to realize what's going to be hot and you know ed really um has been very visionary in this and i credit him for a lot of of seeing and scaling way early on as an issue so you guys have uh read my my defy l2 summer post and i've already been citing it a bunch of times so far in this podcast but now i want to uh go and attack this question directly uh we already we've already heard that like there are a ton of uh defy apps that are trying to like move into arbitrary because it's it's theorized by these defy apps that the real estate that

arbitrarily offers is really really valuable because of the low fees and scale right and so all these defy apps are like rushing and rushing out the gate to start building their attractions their attractions are going to charge fees towards the defy apps that's why they want to be there because they are assuming that all of these users are also about to become following the defy apps uh and so my theory about this this summer and maybe it's longer than the summer maybe it goes into the fall but like the whole d5 summer round two or l two summer round two is kind of an attractive meme we like memes of bankless so i want to get your guys's gut take on this uh do you think that there's going to be like a rush towards extreme not maybe not extreme but like awesome liquidity mining incentives by

defy apps because you know sushi swap is really aggressive with their integrations and they like to build build build build build and they also like to do liquidity mining off a always doing the same thing like same sort of like ethos like build really fast incentivize with liquidity uh do you guys think that we're like on the cusp of like an l2 defy summer hmm yeah i think uh you know i i i totally think we are and and to without leaking any specifics i'll tell you i'm aware of of a number of teams that are planning on doing liquidity mining directly in arbitrary and again these are teams that are going to introduce new tokens um that are arbitrary native and these are also teams that are you know have live ecosystems and already have lots of

experience here and they want to bring uh usage to arbitrary because again it really comes down to the economics for the teams and that's what's going to make the system work if they believe that there is a better market for them in arbitrary and and they'll be they'll be well served by being on arbitrary as opposed to some other ecosystem um they're going to attract users there so uh yeah i can't spell any of the details today but other than to say is uh i have we have knowledge of of of lots of liquidity mining programs that will uh come online uh once arbitrary opens up to users um you know what you mentioned the summer or the fall i think the big question here is and the one which you know we discussed before but um still some uncertainty about is exactly when we open up to users um you know i don't

uh um but i think once we open up these these liquidity mining programs are going to be ready are going to be ready from day one and um we're going to see a rush of liquidity there's just also a lot of excitement about it which is you know if there's even forgetting about these these these like you know obviously this helps and we'll bring a lot of users but there's just so much excitement you know we get pings from people all the time that just want to put liquidity into arbitration it's like first let's put it in and i'll figure out what i'm doing if then why it's there so um yeah i think there's going to be a a gold rush so like 10 projects with liquidity mining 12 15 like what's the what's the ballpark number that we were talking about so uh you know i i i'm aware of a

handful um i i'm sure there are more but i'm you know i'm i'm personally we're aware of a handful yeah because they don't even have to tell you if they're going to do it or not right like maybe you they've told you but like they could do it without telling you regardless because that's what it is yeah these are like matter-of-fact conversations i'm on the phone with teams like hey by the way um you should know uh uh thanks for giving us access because we plan on driving lots of q of users to users to arbitrary and then they you know this is not something we ask this is not something that they have to tell us this is just you know some you know we speak with teams all the time and and and you know some teams have to have told us this and of course

we're not going to say today who those teams are because we don't want to break into his confidence but we're talking to enough teams the anonymity set is large enough that i'm comfortable saying that you'll see it you'll see at least at least a few of these and likely more there's one super interesting kind of thing to throw in here which is that there's kind of like two reasons you might want to do liquidity mining kind of in this way one of which is to bring users from ethereum to arbitrary the other of which is to have the users who are coming to arbitrary come to your come to your dap over your over your competitors and so i think that like oh i think the users are coming i think there's gonna be a lot of kind of like where who becomes who becomes dominant in the

new l2 landscape and i think there's kind of going to be a lot of fighting over that so i think a lot of kind of the reason for for doing all of these new programs is kind of fighting for predominance kind of in in this l2 landscape where people are going to be what do you think about that that fight for dominance is it going to be about like the protocol design of the individual l2 or like optimistic rollup or do you think it's more about this uh coordination game that you said was particularly difficult how do we get all of these uh you know protocols to kind of migrate uh over here so i i even i was really just talking about within arbitrary that you have kind of a lot of the ethereum ecosystem deploying in arbitram and there's gonna you know the the same the same fights that have

played out or not i shouldn't say fights even but the same kind of friendly competition that's that's played out on uh on aetherium by you know i would expect to you know also very similarly play out on arbitrage that fundamentally that's the place where kind of the users are going to want to be the liquidity providers are going to want to be it's going to be cheaper it's going to have fast transactions and the dapps are already planning on being there and so kind of getting getting a strong hold on that landscape is going to be very valuable for for the dapps that are deploying there i hope people are ready for layer 2 vampire attacks it sounds like that's what the prediction is go ahead david uh so so guys uh i the chain link army will have my head if i don't ask about chain link and i do

know some that there's something intrinsic about the relationship between arbitrary and chain link that i'm unfamiliar with can maybe you guys can explain like i'm five the relationship between chain link and arbitrarily and why the the why the link army is so excited about this yeah definitely uh can they you you've done them a favor because i i keep seeing my twitter notifications begging me to uh to speak about this and we've done it before but here goes uh uh uh yeah so well i'll first be i'll speak about the history of our teams um i i did my phd at princeton as you mentioned but i also did a postdoc at cornell and i was fortunate to be advised by ari jules who is chain link chief scientist and uh advisor currently they're a chief scientist uh while he's

on leave for the year but also uh uh you know a long-time advisor and really just an amazing person to work with and uh and chain is so fortunate to to have him and um so that's like the initial tie of our themes to j link and and through that you know through over time and events i got to know sergey as well uh as did about my co-founders and the rest of our team and um i would say that uh both the chain-link team as well as the chain-link community really were like uh early early early believers in us uh the shanley community uh on twitter has been has been really uh fantastic and um you know now we're sort of many many other people are aware of us as well but if you go back to like uh go back a year or two and like you

know look who's retweeting our tweets and it's like it's like all chanting folks and it was it was it was encouraging and you know when they're super they're a super uh valuable part of our community and we really really really value them uh very very much uh in terms of the technical integrations uh and how we're kind of working with chain links so um there are lots of uh collaborations that we're working on or exploring some deeper than others and i'll i'll give them a um i'll give you some some insight there and number one is the most basic uh changing price fees on arbitrary and uh with the fees lower uh the demand for these fees for these fees with the fees lower the demand for these feeds is going to be higher so uh i expect to see lots of them on arbitrary and i know

um you know this is one of them mentioned how do we get to the point we open up to users you know chaining has to be on the ground floor right this is one of those pieces of infrastructure that so many teams want and so many teams are are relying on so so um you know they're they're they're a critical piece of infrastructure um there's also something else uh and this guess i don't wanna open up another can of worms here but it sort of needs to be set to answer your question there's all there's this question about mev uh transaction ordering and how that works on layer two so uh when i was at cornell tech uh working with ari i had the privilege to work with phil and ahri uh i was a co-author on the initial mev paper and uh together with all right the flash

boys paper we just had phil on so i asked yeah you didn't know that wow that's cool i was uh i co-authored that paper right now primarily phil's work but i was a co-author with re and phil and some others and uh and then arie and i and a few others led by a really uh great student uh cornell mahinda kalkar um worked on another line of work called fear of um fair fear ordering consensus right consensus systems that that um uh guarantee fair ordering and and um you know there's lots of i'm not going to wait into these debates now there's lots going on you might have seen how we had an op-ed and phil responded and you know my thinking is is is along the lines of you know i tend to agree with with this uh notion of as much as we can we should

design protocols that don't have mvv or don't increase don't increase mvv to the extent that mev is there i think flat you know flashbacks is awesome we should democratize it like for sure but we should also try to minimize it as much as possible so um how do you do that in an l2 in a layer two so i don't want to lose lose users here but just to say uh so ari and i and some others wrote i co-authored this paper uh led by mahimna on fair ordering and ari's building that out at chain link this year and there's definitely a use of of of this service and arbitration to decentralize the sequencer to make a the sequencer is the one in the layer two and the one in orbit that gets to choose the transaction ordering right now we're running it and we won't reorder

transactions but to get it to a good guarantee uh you need a system a system like this so there's definitely points of collaboration that we're exploring there as well on how to introduce this really new technology you know it was an academic paper last year um and they're they're really building it out and and how do we introduce that uh you know this is not finalized yet by any means but i think there's there that's another collaboration point uh there okay so steven since he brought it up we got to talk mev for just a second all right could just because like two weeks ago we had an mev episode that came out with phil and some others we talked about mev is kind of like we're just squeezing the balloon now we're squeezing the balloon and like the mev problem is is on uh roll-up chains um so

i i want to ask you this question so like there is this role this task kind of like a sequencer in the roll-up chain as you said and arbitrary might operate that my understanding is like and this might be uh a distinction with optimism versus arbitrary which i'm curious about because as i understand it optimism might be trying to sort of auction off the value of mev and if anyone listens to mev episode they know mev is super valuable but you're talking here about potentially decentralizing the sequencing function not to get super geeky like we don't we don't want to get super geeky but like what is kind of your take on mev and arbitrary's take for on mev versus maybe optimism because i think

they're different yeah they're quite different this is you know a not one of the differences that people like to focus on but this is a pretty critic core difference in our vision so uh to my understanding the last i've seen uh you know of their writings and their thoughts on this is just like you said they plan to auction off miva or mev auction auction off the right to um to collect this mav we view that as a bad thing because uh that increases on the mev right so the question is who's who's the sequencer so uh you want to if you want a benevolent party and again this is differences and whether mmv is good or bad we think that you should try to limit mdp but if you auction off fundamentally if there's a million dollars of mvp to be collected uh and

there's someone in the world that's willing to collect that then they'll pay 999 000 for the right to do that and you can basically guarantee that the maximal mdd will be extracted um if if you auction it off right because i as a person who don't want to extract that mvv simply can't compete with the person who will i'll lose the auction unless i'm operating at a loss um so so that will basically in my view not only um it actually makes me be worse than than ethereum layer one because ethereum layer one is sort of uh a miner can control maybe for a single block in layer two the sequencer can control only across multiple blocks also a minor doesn't even know that it will have the ability if this blocks mine then it gets this right for this one block whereas the sequencer can win the auction and

then it gets you know i don't know i've seen them talk about 10 minute periods or who knows but significant periods maybe even longer where the sequencer can go ahead and basically um just reorder transactions within that period and we've used god mode we talked about that it's it's like god mode yeah and we view that as dangerous so the way that we want to do this is we say hey right now we're running the sequencer and you got to trust us on this which is not something we want to do long term but we're not going to reorder transactions we're just we're not looking at content to transactions we're just going to post them but we don't want you to have to trust us long term we also don't want to incentivize mdv extraction to the point where like you know people are auctioning paying

for the right to get every last dollar out of it so how do what do we do we use a fair sequencing where we distribute um the sequencer or not so it's not just us running the sequencer it's many people running this sequencer including potentially chain-link oracle chainlink nodes you know as part of this coalition uh and and the idea is that as long as the consensus uh uh uh property holds up they won't be able to order transactions traditional consensus algorithms care about one thing agreement so if we agree on the order and it's the exact opposite of the fair order it's the exact opposite of the order they came in traditional consensus is satisfied we've agreed on an order we can produce a block everyone agrees that's the block doesn't really care about ordering is this fair did we leave something out doesn't reorder it doesn't matter uh the

innovation of the paper that i mentioned uh with our second paper was designing a consensus system that um can reorder uh transactions okay that can guarantee fairness that if enough of the nodes are honest you won't be able to reorder transactions and just so we don't confuse users we're still using ethereum consensus we're talking about replacing the sequencer with this uh with this thing just just for ordering and the fallback case the worst cases so i've heard the argument oh this might not work the worst case is that it just falls back to to maximal to maximum reordering if if if this consensus doesn't work but the best case and the case that i think is if you get enough parties in this decentralized sequencer um you'll have a situation in which you really can't reorder

transactions and mdp is is all but eliminated basically on the layer 2. super cool guys i'm so glad you guys are thinking about this and like the thought going through my head is wow these guys are smart i'm glad they are working for a decentralized money system i'm glad they're in the ethereum ecosystem um super cool all right well we got to talk about like uh future predictions so it seems to be the case that uh we've seen experiments like binance smart chain we've seen experiments like polygon evm with some empty blocks that is called product market fit once you add the right defy apps the defy apps are coming to arbitrary they're coming to other roll-up solutions how fast do you think this is going to play out now remember the intro context here is like

we've been waiting so long for ethereum scalability in layer two um what's the total locked value gonna be like what's the liquidity going to be like take us through three months from now and then maybe a year from now you want to start yeah yeah and i'll start and yeah that's a good yeah so the answer is of course i don't know but i'll play this game uh you know and then take some guesses i think it's been very much a game um i like let's start with three months from now because you know um i'm very confident that three months from now we'll be live and open for users with significant liquidity um you know with quite some with quite some time and for quite some time um that i can say with you know um everything i mentioned before about who goes first you know

three months from now is is for sure you know we'll be we'll be doors will be open and the doors will be uh you know um well oiled already you know people have gone in and people have already had enough time to go out with that seven day period um so um fundamentally i think we're going to see a lot of a lot of value locked uh very quickly um i think you know like i said this is the beginning um um i think we we might start seeing um some of the limits of of of really like you know congestion in our system and we have to work on you know increasing the performance and getting the you know the the cost down because right now we can run several ethereum's worth uh and we're keeping that you know pretty um we're keeping the speed limit pretty

conservative um as harry mentioned because of state growth but i think we're gonna have to confront these issues quickly and say hey how fast uh you know how fast we get to that world that harry mentioned we have multiple roll-up chains uh i i know a week ago i would have told you you know at least one to two years away but um you know i think it might actually come come sooner i don't think that's three months i don't think it's six months but i think in a year from now we'll be thinking about hey maybe we separate and have the nft chain and the d5 chain or whatever new uh vertical comes up because the idea is hey if i'm a d5 project right and i don't really need a um synchronously composed with the nft project some of them do but if i

don't need to why am i paying for their estate growth so let's uh sort of you know shard in some sense you have to be a multiple chain so i think that's my prediction that will come sooner than later i i do think uh you know this year we'll see billions of dollars locked in in uh in a roll-up uh chain which i think will be uh arbitrary and um and i think we'll see um a massive massive uh onslaught of users right users will just be coming and for the first time and we're also going to think about how do we how do we cater to these new class of users right we love evm um but fundamentally you know the main reason why we're using evm you know people argue all the time hey this thing is better than evm as it maybe it is but

all the developer and all developer interest now is an evm that's what the developers know that's what they use you might have a system that's better but no one knows how to use that so step number one is getting evm the full evm compatibility step number two and three is saying how could we go beyond that even if we get authority can we cater to a larger class of developers that are that are entering the system for the first time and have traditional uh language skills and that's something which we're going to be thinking about uh on arbitrary as well um but i think uh yeah sort of just rambling i don't know those are some some predictions that will come super good what would you add to those predictions um yeah i mean i think i think i'm pretty on board with that i mean i

think the the one like kind of prediction that i would add to this is i think that like we're gonna i think we're gonna see the number of ethereum users grow a lot that kind of one of the the roll-ups solve a number of different problems but the one that at this point i'm kind of most excited about isn't even lower fees it's faster transactions having made a lot of ethereum transactions on friday when deploying a system and like staring at ether scan and refreshing for long periods of time you know ethereum is awesome but it's not exactly like the best user experience ever and and you know i think it's you know daunting to a lot of users that like haven't really kind of

you know once you get once you truly understand the value it's totally worth it but until that point and without the ability to really kind of dip your toes in the water and get a feel for it there are a lot of users who are just being kind of pushed away right now by by the fees by the slowness and kind of it's going to be a huge opportunity so i think like total value locked and total value locked has obviously been going up all over the ecosystem massively but the thing that hasn't been going up that much is user count and so i think one of the really interesting things we're going to see is a lot of new users coming into the ecosystem which to me is so exciting and you know a big a big part of getting to that thankless world

bankless nation is about to grow i think got a suspicion this is going to be layer two summer as well david you feeling like it's late to summer after this conversation oh it's it's around the corner i already got my uh my beach hat and beach towel ready to go [Laughter] oh my god i'm just feeling like literally moving to california because i want defy summer yeah it's happening like it's happening not guys uh super exciting stuff um man thanks for working on this for as long as you have i know a lot of hard problems needed to be solved to to get to this point uh you know it does feel like we we have some of the smartest folks in the world engaged on helping to create a bankless

money system and get it ready for the billions uh and trillions of value and the millions and hundreds of millions of people who want to go bank less so thank you for spending some time with us and for your contribution on these tough problems yeah thanks for having us and for all the amazing work you do and helping building out that nation and really really great to be here gosh yeah it's a lot of work ahead a lot of education work ahead hey can i can i ask so if a developer wants to start building rides in the arbitrary one theme park what what should they do and where can folks find out more about arbitrary in general sure so um if a developer wants access uh in our when arbitrary post we had a uh a link they can come to our discord

and we'll share it as well for uh for a google drive forum and they should sign up again we're onboarding teams uh um for those that sign up now it might take you know a few days or you know us to get them on board um you know but uh they should sign up and we will we will accommodate them and get them in the system and uh to learn more about arbitram my favorite resource is uh you can find it in develop in our developer docs which is developer.opchainlabs.com it's called inside armature it's a really deep dive uh into arbitrary that's i think pretty accessible uh and also just join our join our discord join our community um you know we're happy to answer questions and we have a vibrant community that will answer questions as well and really um you know get involved and if

you really really want to get involved in arbitrary hey fill out an application dm me we are hiring for every position that's all that so i actually have one last question that i want to get to before we completely sign off here because i i was about to thank you guys for just con contributing just really important knowledge into the public domain as perhaps free open source software developers but i actually don't know if that's true and so that leads me into the question is arbitrom kind of how does arbitrary view itself as like an open source software development team or as like a commercial uh commercial team that is looking to have like a business model uh where does this conversation go yeah it's it's a really uh really great great question and you know fundamentally i think uh our we really

view ourselves as part of the ethereum ecosystem um you know like i said this is the beginning so um you know funding ourselves and making sure that we continue to remain funding funded it is important you know and this isn't something i realized early on some people shy away from having a business model in this space but when i speak to teams sometimes and some of the most sophisticated teams the first question they have is how do you make money and i say they say because i want you to make money because i need to make sure you're going to be here and this thing doesn't go away so you know like i said the ltcs are are are something that's important and something that uh you know it's for l2 operators generally but you know we're part of that we're operating the sequencer and we're developing the

protocol so i think um there definitely is a business model there uh i think over time we'd like to like to basically disappear um you know as the technology i love to see arbitrary become an open source project right now it needs a central team essential team pushing it my dream would be that like um you know i can go on vacation and like there's just like a uh i haven't done that in a few years but there's just that um there's just a uh you know a team you know an open source community right if we have like uh you know the the guest team or whatever pick up the arbitrary node that would be like my absolute dream and um but there's also the other thing i should mention is another thing of this bankless nation um something that people might not know is

we see all this like enterprise money flowing into bitcoin now it's like the big story influences potentially ethereum as well but what but what i see and talking to teams all day long it's not only the d5 teams they're talking about it's a fortune 500 companies that are reaching out and they're also like how do we get into ethereum right so whereas the money's flowing into bitcoin uh and other assets the enterprise engineering lots of it is flowing into ethereum and i think you're gonna see uh and i know you're gonna see um lots of uh um big big big companies move into and offer services on ethereum as well and uh and so you know these are things these are models where you know these companies like to have support teams and teams that they that they that they work that they work with you know uh sort of

more enterprises so we view ourselves as pretty native um yeah i hope it's become an open source project but i do think that there will also be an enterprise story to this as well again bringing them into the ethereum ecosystem not as a separate offering not as becoming you know a hyper ledger but really bringing them into the ethereum ecosystem no offense to hyperledger and that's and that's probably going to be like the the first place we see sort of more arbitrary chains is because that's kind of like the that that's kind of the the first the question with more arbitrary chains is always like who wants to have a fiefdom um and that's kind of like and that and the answer is the first people who want to feed them are going to one are going to be sort of the the you know the court

the companies that kind of want to have sort of that that that landscape to themselves and kind of then invite people in as opposed to kind of this like very shared landscape which is the armature one chain and it makes a lot of sense also right because you know we mentioned the beginning we have etherscan supporting us with alchemy supporting us you know if i'm just a user that wants to um uh to speed up my own rollover chain so there's a lot of work to get to get the support from the infrastructure you know changing chain is not going to support if i you know if if random user decides to launch on arbitrary chain chaining is not going to support that however if like fortune 500 company um you know has it supports their chain they'll be they'll have they'll have an easier job

getting the infrastructure on board which is why i think those will uh fundamentally i think will be community driven long-term but i think some of the next arbitrary trains you'll see are are really um some enterprise chains well said guys this is an open financial system for the world if you are wells fargo jp morgan a big bank you can get involved by spinning up a roll-up chain why not we just don't want our core protocols base layers to be corruptable but you are certainly invited to the party as well hey you just have to swear fealty to ethereum and ether but why not spin up a central bank digital currency on something like roll up there's a really interesting canvas of opportunities in front of us stephen harry thank you so much for joining us and exploring this with us congrats on

the on the launch we're looking forward to cutting the tape on that theme park and having defy users enter soon likewise thanks so much for having us thank you thanks guys all right recent disclaimers of course eath is risky crypto is risky those rides we were talking about defy they're risky as well you could lose what you put in but we are headed west this is the frontier it's not for everyone but thanks for joining us on bankless hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get

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