The Reality is: Crypto Can't Succeed without Open Interoperability

Transcript

[Music] Thanks for having me. Um, glad we're all here today in the beautiful city of cans. But, uh, we didn't come here for the beautiful beaches, as wonderful as they are, right? We came here because all of us collectively and individually were all trying to advance and grow crypto. It's because we want the future of finance or as we used to say the future of France to move on chain. We want it to be global. We want it to be open. We want it to be as permissionless as possible. And that's really what we're here. And that's what we're going to be talking about today. So global finance,

if we're successful in this effort, it will move on chain. It will be open. It'll be global. And it'll be as permissionless as possible. But, you know, let's not kid ourselves. We all know where we're at today and we know that if we're going to be successful in accomplishing this transformation, there's still a lot of barriers to walk through. We know that where we're at today is not a sufficient state for global finance to move on chain in any form of material scale. So, we're going to examine why that is, how to remedy that, and really just how we get there. So, I'll tell you that I believe firmly that crypto is going to win out

when the experiences that are offered on top of crypto rails are superior to the off-chain alternatives. It's not going to win out because we think it's more fun, because we think it's more cool, because we think it's more fair. It really is just going to come down to are we offering the world an experience that it can't get anywhere else. And that can happen, but obviously not there just yet. And so this world where crypto becomes the home of global finance is one where we have a vast and expanding array of chains.

All of those chains connected seamlessly through single points of access. not the fairly messy, the fairly fragmented and uh innavigable morass that we have today full of these uh unfortunate and very visible bridges. I'll tell you that we think that um connectivity is at its best. It's at its most beautiful when it is invisible when no one knows that it's there or that it's even necessary. And so let's get into it. So all of us are here again because we care about advancing crypto because we think these internet computers, these blockchains are really transformational. And why are

they transformational? It's not because they move information around, right? We've been able to move information around through the internet, through these computers for decades before we've ever heard of a blockchain. What they do that is really really special is their ability to transfer value to settle value globally across the internet. That is really the killer app and that is what makes them purpose-built for accommodating for global finance. That is without a doubt their killer app. And so if we're going to do that, if global finance is going to move on chain, I'll argue to you and I think many of you already know one chain is just not enough.

Let's take a practical example, right? One of the most active EVM chains in existence, Bass. Base just had its single day transaction high. It just happened a few weeks ago. It's just about 15 million transactions. That's over a span of 24 hours. Well, global finance is what we're talking about, right? So, let's talk about one exchange, the NASDAQ. The NASDAQ on any given day its estimated average transactions, this is between all the orders that are submitted changed unfilled and filled. It's 1 and a half billion transactions.

That's two orders of magnitude. That's about a 100 times more than the single day high that one of our most active EVM chains has done to date. And in case you somehow don't know this, the NASDAQ really is only open for about less than 7 hours every day from 9:30 in the morning Eastern time to 400 p.m. So one chain, it's just clearly not enough, right? No single chain will be the home of global finance. It's going to require horizontal scaling. It's going to require a vastly larger number of chains than we have today.

Now in fact today onchain finance is uh growing. It's growing rapidly. Again in just the last few weeks we saw the single day high for onchain activity in um onchain trading of crypto represented its largest share ever surpassing 30%. That means that of all crypto traded globally more than 30% of it actually traded on chain not on the centralized exchanges that we're using to that we're used to. Now, if you examine this activity, well, a bunch of it does not occur on a single chain. As we said, one chain is not going to be able to cut it. Today, the majority of that activity, it's not only scattered between a number of chains. If

you just take four of the most active chains, for example, in Ethereum, B, Solana, and Hyperlid, not just four chains that you're crossing, you're also crossing three virtual machines. And now if you're any developers in the audience, you know that simply crossing between chains of the same VM adds a lot of complexity to your operations. Add a new virtual machine and you've just decided to play on hard mode. It just becomes a lot a lot more difficult. So this trading activity again not happening so solely on a single chain.

It's also crossing different VM lines. Well, more and more chains are coming online. each one representing many new venues for trading and finance to occur on. And if you've been exposed to some of the chatter recently, you've seen that there's many more high performance order books, high performance chains that are coming online, whether it's Paradex, Fogo, Bullet, Hibachi, Dango, you name it. All of these are coming online and representing again new venues and more challenges through their new VMs. Each one of these venues wants to become a dominant venue. Each one wants to grow its market share. So as you think about

the fragmentation that we're facing as this industry wants to become the home of global finance. Well, I'll argue to you that the incentives are simply not there for fragmentation to slow down. The incentives are for fragmentation to increase. Because if you're a new player in the market, well, how do you differentiate yourself? If you're new, you're not going to be able to just win on the basis of your distribution. You've just entered the market. And in fact, we all saw the announcement yesterday from Robin Hood. You're going to come to market and you need to compete. Well, distribution is not going to be your edge, especially not with players like Coinbase on Robin Hood coming on chain.

you're going to try and innovate and differentiate and that's going to lead you in the direction of uh differentiating on experience. So that means either offering new product or new product features and so inevitably you'll find yourself trying to innovate at the VM layer. You'll find yourself trying to innovate and move the state-of-the-art forward. So you're a new chain. You're trying to focus on a trading use case. Of course, that's where you're going to find yourself ending up. So, as we accommodate and become more scalable uh through the addition of new chains, we're going to find ourselves dealing with an increasing bout of

fragmentation. So, barring any changes, our world as it becomes more able to accommodate global finance at scale in a different way becomes less less able to accommodate as fragmentation increases. So we have to do something about it. And so inherently this means that we have to have a way to connect between all these chains and mitigate this fragmentation. And how do we do that today? Well, today we do it through the forms of bridging that I'm sure all of you uh have been exposed to in one way or the other. But I'll tell you, nobody likes bridging. I don't like bridging and nobody cares about bridging. And this might be something that's weird to hear from someone who's been working on a protocol for a few

years where one of the main things it does is bridging, but I don't think it's going to cut it. I don't think it makes any sense. I certainly don't like it. I can't find a lot of people who do like it, but a lot of people have been kind of waved into complacency about this topic of bridging because it feels like it just sort of works. But really, think about how unpleasant that is. Think about the last time you bought something online. Well, if you had to do something akin to bridging to buy something online, like let's say if you bought something on Amazon, what bridging would look like in that instance is sort of think of it as like you have your money in your bank account, call it uh, you know, JP Morgan Chase and you have some money in your

bank account, maybe it's diamond dollars, you know, some uh Chase stable coin, and now you need to get over to Amazon. So you use some bridging app, your Visa card. It's sort of like a sort of like a bridging app and you need to get over to Amazon and maybe in that process it'll swap your diamond dollars for Bezos bucks and all of that all of those interactions just so you can go and buy one thing on Amazon. Well, today you can oneclick buy on Amazon. In the crypto world through bridging you need to do four or five steps before you can ever do that thing that you really wanted to do, just buying that thing. So, it's not going to cut it. Nobody cares about bridging.

Nobody likes bridging. We have to kind of sort of put an end to it, right? Um, and I told you before, right, like we're not going to overtake and bring global finance on chain unless we're offering a superior experience. So, we're faced with a real barrier here. There's pretty good user experiences to be had in the off-chain world. We need to be able to mirror those and improve on those in crypto or else we're just we're not going to be successful in our quest to bring uh more and more of global finance on chain. So how do we do it? I think we can. I think all the tools are there.

They're just not being put together. Not yet at least in a way that would make sense. in a way that we would have superior experiences both to users, builders, businesses, and institutions of varying size and sophistication. So, what are these things that I'm telling you exist but are just not being used? Well, we've spent the last three years at Hyperlane building a lot of this a lot of this foundation and now things are starting to come to market that'll put all of these to work to create single points of access uh for the entire world of onchain finance and improve the experience dramatically.

So what are these components? At the foundation there's a m a messaging layer a sort of any to any architecture that allows you to pass uh function calls arbitrary data between any chain any VM line. Then there's the concept of an interchain account. A construct that allows a contract or an account on one chain to own, manage and control as many accounts on as many chains as necessary. And to top it all off, there is a liquidity layer built on top of these rails.

And so what does it all mean? Like how does it all come together? Let me go through these three components in a little bit more uh length to give you some more color. So today, Hyperlane is an open framework for interoperability that connects over 150 chains, connects over five different VMs and more coming. completely open source and usable today. Actually, as we're speaking right now, any one of you can go on the Hyperlane docs, you can download the Hyperlane CLI, and you can deploy it yourself to any chain you'd like. If it's already on the chains you want to be connected between, you can just use the tooling to connect your app, connect your business to it, and do any type of

interoperability that you need to. Now, as a framework, you can use it for a simple integration at the edge, meaning just moving around your asset or just connecting your chain to be able to bridge some assets, or you can do something far more complex and weave it deep into your stack. If you followed Veladrome's announcement yesterday of their new super swap features that create seamless liquidity between all optimism super chains, that feature is built on hyperlink. If you followed what Calera has been doing with their metal layer connecting all Calera chains in a seamless way that is built on hyperlane. So that's what an open framework allows you to do.

Then we have this liquidity layer that we're talking about. The idea is to no longer rely on market makers and solvers. Now recently just in the last week a lot of people for the first time realized that the engine of um of intensebased solutions the solvers many of them are struggling to maintain a tiny semblance of profitability a lot of them find themselves in the black every month. Now in the research community intents have long been kind of viewed as a sort of panacea for all fragmentation problems.

Then how can it be the case that this is such a good solution if the engine that drives it, the solvers, if they're barely staying afloat? That's not going to work. And if you remember years ago before we had AMMs, the thing that led to onchain trading happening at any type of scale was the AMM that allowed you to leverage passive liquidity to facilitate this form of trading. I'll argue to you that we have to find a similar solution for crosschain liquidity. So through Hyperlane's liquidity layer, idle deposits, those that are just sitting in a bridge as people are going to any new chain while they're sitting idle, those

are providing the liquidity needed for cross-chain transfers. But that in it of itself is still not enough. You need to be able to make sure that withdrawals are able to be had whenever users command and whenever they want to leave their funds, settle up and go home. So, we built an onchain rebalancing system to make sure that no user is left wanting when they need to make their withdrawal. And the final piece is those interchain accounts. You can use these today. Today they work very well across the EVM and being expanded to the SVM and are going to be brought to more and more different virtual machines. But what these do, these are a single account or a single

contract on one chain, any chain of your choosing that then is the owner, controller and manager of as many contracts and as many chains as necessary. All the signing actions, all the approvals, all of those happen from the parent interchain account and are seamlessly transferred over to all the child accounts on the different chains. So you bring all of this together. This is how you arrive at what I would like to call an access anything from anywhere. A sort of onchain prime brokerage account. Something that offers a true single point of access for the entire world of onchain finance across this vast array of chains and crossing

the different virtual machine lines. Now it's, you know, you hear me talk about this and it's kind of all still really abstract. So let's make it a little bit less abstract. Let's talk about a case study and a product that's about to be launched for the Bit Tensor ecosystem by the Towi team. There's a lot of excitement around Bit Tensor lately and in particular around what are known as alpha tokens. The tokens that are created by the growing expanse of Bit Tensor subnets, but those are kind of hard to reach. If you wanted to own one of these, you need to set up a Bit Tensor wallet. You need to bridge into Bit Tensor. Then you need to go through the process of buying one. What Towi is doing is using the combination of these three components to let you

connect your Solana wallet, connect your base wallet, or connect your Ethereum wallet and then in one simple action get exposure to any of these alpha tokens that you'd like. And what's really happening under the hood, you'll go on the TFI app when you connect your wallet from Ethereum, from Salana, from Bass, an Interchain account is opened for you as you sign your first transaction. That account is opened on Bit Tensor and again it's now completely under the control of your original wallet. When you make your first trade, the funds are transferred through a message through that liquidity layer that we were talking about moving over into your interchain account on Bit Tensor where that trade is culminated. All of the signing, all of the transactions

happening from your initiating wallet on Ethereum. So no more switching chains, no more managing different wallets, no more dealing with different balances. everything from your home wallet. And at the end of that, you're now the proud owner of any Alpha token you'd like. And this is going to be the single point of access for the Bit Tensor ecosystem. But in the end, this is still a sort of narrow use case. We're talking about three different chains to access one single chain. But this is the sort of narrow scope that you need to to create a sort of MVP for this invisible form of interoperability for the single point of access to all chains. Over time more and

more chains can be added as your origins more and more chains added of course as the primary thing of interest like where you get to do things. And over the next six months you'll see more and more of these cases coming into production. TFI will be the first but certainly not the last. And so say if you're, you know, if you're here today and you're a developer trying to build a new app, building a new chain, if you're on a wallet team and you've been thinking about how do I create this type of experiences for my users, everything exists today with Hyperlane to allow you to facilitate this. So feel free to reach out to us. Um you can contact me here, uh Twitter, on Telegram, whatever

is convenient. We also have uh EDA here from our uh from our team, one of our uh Devril superstars who can help you uh navigate this and understand how you can use this to bring this type of single access point experience to your own user base. So, thank you for having me. Uh I know we don't have a lot of time left, but come find me later if you have any questions. If you have a question, please raise your hand. Yeah, I see. Hey uh thanks for the talk. What's your vision on long-term economical incentives for crosschain uh solvers,

swappers, etc. Thanks. So for solvers, I don't have a good vision for it. Unfortunately, they're operating on such thin margins because they have to bring their own inventory that I just don't think it's sustainable beyond on a small handful of chains. You know, we've tried to make this work. Uh we first tried the intent approach with solvers like most people did. We spent months working with the Ethereum foundation on the open intent framework. And I don't unfortunately I don't think there is one until uh onchain activity needs to rise on a vast more number of chains by a m you know by several orders of magnitude for things to be sustainable for them and that's why we

think it has to be in the form of passive uh liquidity where you're leveraging the desires of well I'm a user I want to go to this new chain over there and I was just going to bridge there because I need to be there I need to trade something there I I need to, you know, deal with some of the apps there and while I'm deposited, use my deposits for elsewhere. And so my uh desire to earn a yield on those deposits is much lower than if I'm a market maker or a solver who needs to has an economic incentive and an economic imperative to earn a return on my inventory.

Thank you very much. Thank you so much. [Applause]