What's Next For ATOM 2.0? | Youssef Amrani, Sam Hart

Transcript

there's a lot of people who like don't really understand the impact that liquid's taking or Med or like the combination of these things together is going to have welcome back to another episode of zero X research the show hosted by analyst for analysts where we dive deep into the crypto ecosystem this show is made possible thanks to our incredible sponsors chain analysis and Flipside today we have a great interview with two authors from the atom 2.0 white paper Sam Hart and Yusuf amrani given that the 2.0 proposal didn't pass and failed with a no with veto in in governance that we know there's a huge discussion around you know where the cosmos Hub is today what the vision is for the future and

how how the protocol proceeds from here so we have a great discussion with that but before we get into it we're joined by Xerox pibbles and Westy from the bwr research team here to discuss all the market happenings my friends how are you doing well man how are you doing doing well doing well it's been a ton of craziness to talk about right with the the unwind of the FTX and uh the subsequent uh contagion that Spilled Out of that you know I feel like we could have a whole podcast episode uh doubling down on all the information we've seen since just last week uh but we do have a pretty long uh interview today with the atom 2.0 guys so I want to kind of jump right into Hot Seat cool Throne uh and I feel like we're going to hit a lot of

the uh the hot news in the past week during this session anyways so uh Sam you want to start us off yeah for sure for the hot seat I've got Bill Ackman he's a prominent tradify investor and he was tweeting about uh uh hnt which is helium's token and touting a partnership with lime bike but it wound up being a fake partnership so obviously he wasn't super well informed and then helium's moving to Solana and obviously we've talked about Solana a lot in the past a couple episodes and and they're struggling a lot and he also deleted a quote tweet um praising SPF for taking responsibility on the whole situation so that was absolutely brutal it's it's rough to see these big names just kind of like acting like they know what they

talk about when they they really don't know what they're talking about so Bill ockman got the win there for me yeah helium's like the perfect protocol that sounds nice and paper and so you know when someone brings that up is a great example of crypto that they have no idea what you're talking about because when you dive in deeper I think well the revenue numbers for last year for like were like six thousand dollars like something ridiculously low and so it sounds good on paper like having um 5G like anywhere you want in the world and anyone can set up their own device like it seems awesome in theory but then when you actually look at the the the money involved it's not not very good at all I actually have um the helium V2 which is Hive mag Hive

mapper it's the dash cams um I ordered one of those so I'm going to be putting it in my car and driving around from back helium what's the uh what's the lead time on those like I'm curious if you've received it yet nah I want to say I ordered that thing like February or March I haven't heard anything so I don't know I'll be here by 2025 okay that's what that's about what I expected Westy he got in the hot seat this week yeah this week I got I guess Shark Tank crypto players and so the first guy I have to call out is Kevin O'Leary who was um bitty pretty big into crypto and a big investor into FTX

um and then this past week after the entire FTX collapse he's actually been helping Sam bakeman freed raised money um for FTX right now and was was asked like if he were to do another venture would you uh help fund him then and he said yes as well which is absolutely wild given all that FTX has done given that all the equity that he put into it went to zero like it just spells uh disillusionment and it's just not good to see um that anyone's helping us be off at this point and then Mark Cuban this week there was a bot on Twitter that picks up the people that he falls and unfalls and it found him basically spam on following any crypto County fault before like

uniswap um any other protocol Etc and so we're seeing capitulation from him despite him being a pretty big bull in the bull run I know he was on Bank list for an episode really in the youthful as well and so yeah seeing capitulation from one of the most outspoken investors in the world is uh I guess a good sign for bottoming but we'll see yeah that's pretty cringe you hate to see someone chasing their bags to zero and that sounds like exactly what uh Kevin O'Leary's doing how about you Pebbles he got yeah my hot seat is uxd protocol they were a delta neutral stable coin on Solana that saw like zero adoption proud investors included Alameda multi-coin

CMS they actually had a token unlock on November 14th and the price plummeted from like 1.8 cents to 0.007 basically overnight and what's funny is they raised like a a fair launch it was 16 per token after launch so they they just like cash grabbed a ton of money from people building out the future of defy on Solana turns out seed investors got it for 0.003 so there's still a little over two times right now but the sweetest part of it is

so it was 460 million tokens we're circulating before the cliff unlocked and then they just injected 1.1 billion more tokens so it just freaking like the market cap is more now than before the unlock even though the price Tanked and the best part about it all is basically the biggest Mev trade on Solana happened on November 17th and we don't know who it was but it was clearly one of the seed investors and they tried to dump like seven hundred thousand dollars worth of tokens and got slipped to health like 98 slippage or something and it got eaten

up so they actually took a major L there which is I know it's kind of sweet Karma I hope it was I can't say who I hope it was but you know that's you love to see that you have these Venture investors who think they know everything about crypto and they put on this this huge front and they don't know how an amm works and then they go in there try to dump their tokens which they're supposed to be good at and they just got wrecked so uxd bad project yeah since the start of this uh podcast we've had the uh the hot seat has been very unkind to Solana it's it's um figureheads in and around the protocol as well as the protocols

themselves built on top of it so if the day ever comes where we see Solana in the cool seat uh it'll be a very interesting change of pace and it'll if it'll feel like we've come a long way since the start of this podcast that's for sure Dan who you got in the hot seat this week uh the hot seed for me spills out of this FTX drama and the uh the ensuing contagion so uh gbtc Arbors are in the hot seat for me this was like the the touted solid trade of buying gbtc shares and shorting Bitcoin just to capture that ARB uh you know is trading at like a mid to low double digit discount um when this kind of started becoming like a really popular trade and you know highly talked about on CT uh today the

the discount is down to 40 45 so massive uh swing there and it's a little bit painful to see that that trade still coming alive uh especially because you know uh so we see we saw Genesis in the news last week the end of last week they paused their earn program they paused withdrawals and there seems to be a balance sheet issue there so the parent company uh digital currency group dcg was rumored to be on like a a pushing a raise to try to get some capital for them and there's also been about one billion dollars of authorized repurchases from gbtc's so the company that started gbtc is grayscale and grayscale's parent

company is also dcg and so if they have a rough if they've executed all of their authorized purchases they'd own roughly about a billion dollars of gbtc and so Nick Carter actually had a great uh a great pitch on this of you know well here's an easy way to solve the GC dcg's balance sheet problem is you know say grayscale said all right in two months time or sorry it's about two years time let's say uh gbtc was eligible you could take one chair of gbtc and redeem at nav or you know maybe take cash on delivery at the same net asset value um and that would actually like since gbtc or excuse me since dcg owns such a large portion around a billion dollars

of gbtc uh it would make a ton of sense for them to say hey if this like let's help close this ARB and then um you know maybe that would give us the potential to solve this hole in our balance sheet while also you know benefiting the broader market so yeah it's been a terrible trade for a while but you know it seems like the the we're going to get a resolution here um you know how that gets resolved will be interesting but it's bad day for the gbt so gbtc Arbors that started back at you know a 10 discount to see that get blown down to 45. yeah that's a funny proposal from Nick Carter too it kind of reminds me of steth how it's going to be redeemable in probably a year to two years for the underlying eth at stake so kind of funny to see Nick Carter being a

proponent of a current mechanism in D file already but in terms of a cool Throne we can get over to that section now I've got lens protocol they are seeing highs in daily active users there's no token incentives yet so it seems to be somewhat organic I mean I'm sure there's some people who are trying to game a potential future airdrop but for those who aren't aware lens is basically basically the back end of decentralized social media and anyone can kind of build a front end for it so it's going to be really cool to keep watching that and see if we can actually transition to like a decentralized social media that everyone can kind of own a piece of and not be monetizing their own data to the likes of meta or Twitter um yeah so they're definitely on my cool

Throne this week any thoughts yeah I think that makes a lot of sense especially when you saw like all the teams stepping down at Twitter and then the rumor that like Twitter was just about to like quit working it's like well we got lens I think there's huge irony around like uh you know we saw oh this is the end of Twitter um but in reality you know like elon's been tweeting about how Twitter's been doing record numbers recently and it's like is the threat that firing 90 of your staff will break uh will break Twitter or is the threat to everybody else who you know sees Twitter working with 90 uh a smaller of a Workforce so that's I definitely don't own that quote I saw it somewhere on Twitter but

totally blanking who it was but it was a great perspective right that just totally shifts like what we what we think we know about modern tech companies I also think it's a very low probability that Twitter shuts down although there were a bunch of Rumblings about that but even so like think about all the conversation on Alpha that gets shared on CT like if that were to migrate to some decentralized social media with the token involved like you could imagine that gets a lot of value um if something like that we're gonna go down yeah 100 agree that's kind of my thought process for putting them on the cool Throne this week and it's also not a very easy week to try and pick out a cool Throne uh recipient here so Westy

I'll pass it over to you to give your take yeah I definitely agree with that um yeah my cool thrown this week is uh flashbots um so essentially they have we've explored before how they have a really big sort of Monopoly over the the builders Market uh in MVP boost and as a result they they open source their relay at first but they they found out that they still have the centralizing force so they just recently open sourced their Builder as well and so that should help alleviate a lot of the concerns around censorship since flashbots relay has a majority of the blocks go through them and their block Builder um specifically builds blocks that are

of that compliant and so now that they open source their code for their block Builder which is often building the highest value blocks now we're going to see more people be able to get into that field and I can imagine they open source their Searchers as well and so we're going to see a lot more diversification when it comes to Mev boost um building in the markets so what does that mean for manifold is manifold just dead now that they open sourced everything um kind of I don't know if that has to do with open sourcing but I know Sushi swap is exploring other Partnerships besides manifold their tokens down 90 in

the past two months and the the founders kind of M.I.A at the moment along with the fact that their relay was lying about like blocks block rewards that were going through the relay and so I think there's a super low sentiment on manifold at the moment but in terms of block building I mean the not a lot of blocks go through their relay anyway at this point and so yeah there I want to call them dead but it's not looking good for manifold yeah I can go ahead and close this out then uh I got index Coupe in the uh in the cool Throne they actually are working they actually posted a governance form a couple months ago back in September to launch the Diversified staked eth index which a quick background on index coup is

basically they create on-trained on-chain strategies where users can hold one token that reflects like a basket of goods on the back end and so there's Diversified stake teeth or DS eth as they're calling it would basically hold a basket of steak eth derivatives and then allow the user to just hold DS eth and take like the combined risk profile of the the backing for like the the steak deep backing right so you could hold like Lido steak teeth rocket pool eth or like a steak wise eath or a fraxied as well um and then instead of that would allow the user to not have to pick like okay maybe I'll use this back end technology like whether that be you know Lido Rocky pool or any of the others the user just gets to hold one asset that is accruing

the rewards of the combined basket which I thought it's a really cool idea to kind of like diversify away and some of that smart contract risk I mean I guess depend on how you look at it maybe you're introducing but uh you know the optionality of crypto is really one of its core components and it's great to see people innovating on like these basket good products does that work like reth where it um automatically rebases yes it'd be interesting to see how that goes but in the original proposal right they did mention staked eth and arith within the same basket so I think that would definitely need some tech build out on the back end right just because of how those two pro the assets themselves are constructed like maybe you'd only have to hold baskets of re-basing tokens together uh yeah I

don't know that'll be interesting to see how that goes but this is this gives like a uh a nod to the frax model right where they broke apart the the rebasing token and then like the stable coin Peg token right so they have like s frax East which actually accrues the rewards uh where just regular FRX eth is basically like a wrapped eth um so yeah it gives it gives a little nod to that that model up being like a little more uh tangible and can work in different protocols but I'm not sure exactly how it's going to work on the back end yeah also reducing the slashing risk is probably a good thing and then anytime you can make something more accessible to a wider group of people is is always a positive but Dan I might have to throw you on my hot seat next

week because you forgot Pebbles we got to get pibbles to take here yeah so let me come in with the cool thrown I have titanium dollar T1 Dot Money anyone who got in that early is just absolutely printing right now uh tvl is about to hit 20 mil um apy single side staking is at eighteen thousand percent annualized and then if you bond that it's at sixty three thousand percent annualized by the time this podcast airs it will have probably collapsed but if you got in like pretty early I mean you're printing it looks like one percent every 30

minutes each Epoch is 30 minutes so you have the greatest algo stable Fork of all time and you could just be sitting there on your ass making uh generational wealth I apologize for uh forgetting about you there Pips but I I'm really happy you brought this up because I I found this on Friday and brought it up to Westy and Matt and I let them talk me out of this by providing rational facts about why this is a terrible idea little did uh I let myself realize you know it's maybe Ponzi seasons are back yeah of course they're not good ideas but that doesn't mean we shouldn't be in them uh at early points in the cycle I mean running the numbers this is literally Olympus Style

on steroids like the supply is expanding at a ridiculous rate there's probably one person with a very large amount of Supply that's just farming this and just waiting and waiting and waiting and we'll finally dump on everyone and So eventually it'll collapse but the question is sort of when and obviously we timed it not very great but I still think it'll definitely collapse pretty soon the curve pool was really healthy right now it's like 40 percent titanium money and then it's like 30 percent tether ten percent die ten percent usdc and they're sitting at like I think like 4.5 mil tvl in that curve pool so right now it's pretty healthy which means if

we would have gotten in on Friday we'd be sitting pretty and probably exiting right now I will say using a stable swap is definitely super smart because it'll keep the prices in line for a lot longer than something like an xyk so I'll tip my hat to that if they really wanted to get carried away and thought they had some some longevity in this Ponzi they would have used the frax base pool and uh thrown back some incentives it really kept that flywheel kicking yeah we're gonna have to Fork titanium and do it all with Frags we'll run it back pre-sale on the ZRX research podcast I just like it how you call it t1.money

it sounds like a rapper name or something like that that's definitely something I can get behind then you want to pull up the flip side chart of the week for us yeah so right now I'm looking at uh some stats on GMX and gains Network and uh as Westy pointed out last week in the in the hot seat these protocols have been absolutely dominating because of all the the drama that's been happening with centralized exchanges and people wanting to custody their own funds the charts show uh basically all-time high and the weekly number of Trades and then the weekly number of active users the amount of volume so it's really impressive what these Protocols are are achieving in lieu of all the FTX Alameda drama and uh yeah it's it's great to see that kind of

adoption on the decentralized exchanges going forward Flipside has some of the most comprehensive on-chain data in crypto to get you the insights you need to work smarter you can instantly query the data yourself for completely free or even just browse other people's dashboards to find some Alpha and give you the edge that you need to win in trading check out flipside's data for yourself and earn some usdc and complete Xerox researches exclusive bounty to earn up to 75 five dollars of usdc it'll be linked in the show notes so be sure to check it out and then lastly before we hop over to our interview with Sam Hart and Yusuf amrani I just want to take a second to thank you analysis you know they're one of the leading crypto analytics providers that help legitimize our industry and they enable investors to track funds on chain with ease they

have great tools designed exactly for this purpose and they also offer some great research that's free on their website so if you're looking for some market research maybe D5 research definitely check out chain analysis and we'll definitely put a link in the show notes to make that a little bit easier on your behalf but without further further Ado I'd like to uh you know get ready and strap in for this awesome interview with two of the cosmos Hub core contributors all right today we're joined by uh two co-authors of the atom 2.0 white paper Sam Hart and Yusuf M Ronnie thanks for coming on guys thank you very much for having us yeah happy to be here yeah so I want to jump right into it obviously the the elephant in the room is last week's prop 82 failing which was basically signaling uh the

support for the the 2.0 white paper that you two co-authored and it failed as a result of one-third of Adam voters voting no with veto NOAA veto allows like I said one-third of Voters to kill a proposal do you believe that's the intended use of the NOAA veto function yeah so um I can speak to this um the let me just give a little bit of background on the Node veto like uh architecture so um or the the voting architecture in general is to kind of understand what's happening with veto so um the governance system the gov module and the cosmos SDK which is common to

all Cosmos chains um has a um uh there's basically a quorum system so a server of a certain amount of the staked assets need to vote in order for a proposal to be valid and then of the staked tokens um if 50 percent or more um is voting in favor then the proposal will pass unless there is a veto in which um uh 33 or more of the the staked tokens uh sorry of the

voting tokens are voting no veto um there's a couple options in in the voting module so or in the gov module uh yes no um abstain and know with veto so um the you know to now answer your question like is you know well actually before I before I even answer that question what is the kind of intended use of know with veto uh well it's supposed to be a mechanism for uh protecting minority rights effectively so um there's

a couple ways to come at this um I've actually previously worked with a team um Haifa who's also represented on on the paper to kind of like um go through a kind of detailed semantics of of you know when to vote with no veto um and the idea is basically like okay there's a minority population within the chain that strongly dislikes something and really feels that their interests are um are disproportionately being infringed upon I mean you can

analogize this to like voter disenfranched disenfranchisement in you know U.S electoral politics or something like uh having making sure that minorities are enfranchised is like a really important important part of a legitimate voting process and it's hard to achieve in a decentralized setting so this is trying to make sure that that a minority population was able to have an outsized voice there's some challenges with implementing a um mechanism that is able to um kind of enfranchise a minority

population and that is um the creation of what's effectively a filibuster so um if a minority is able to um to block proposals or block progress without um kind of sufficient disincentive then you end up with what looks very much like a filibuster in like the US Congress and Senate and it's a you know an impediment to its progress there's some debate as to um you know the value of that um now I can finally answer your

question you know was this uh Noah veto used correctly and um I there was certainly quite a bit of confusion around how this was supposed to be used and I had spent a long long time discussing with different validators like you know their decision making around it and there's definitely a lot of confusion um but I do genuinely think that a lot of people were using it correctly and you know at the end of the day it's a mechanism for people to to express their interest or Express their their opinion and you know a lot of people had some issues

with the paper and you know decided to to make that known um so we're happy to talk about why yeah that segues me into the next question I'm curious why do you think it was uh rejected well I can maybe uh answer uh this one so I think there are a few elements uh the first one being that the the scope was very large of the paper uh you know we had a few core products uh that were not uh necessarily easy to understand and so we got a lot of feedback from validators that it was just too big for for one vote

um the second element within the white paper I would say was that was uh concerning for a lot of people a lot of atom holders and dedicators and vitators was uh the the new uh minting uh that we wanted to uh that were that was supposed to basically create and fund the treasury so the issue was doing the minting and the size of the the meeting um atom holders were scared to to lose control they were scared that we didn't have enough guarantees on the on the future governance uh of the treasury and you know there was also some concerns about

uh um the way we basically prepare that white paper um some people said there was a lack of transparency that was that we worked uh kind of you know in a closed uh room and so that was I think a big uh uh point that uh that hurt us and uh and lastly I think also there was a a cultural Gap that was an issue uh because it reduced inclusiveness inclusiveness sorry and some validators not only some from for example France or North Korea they were they felt they were left out

because of the the language barrier so I think that would there were a few other areas maybe some ones to uh to expand more on the other element I mean just want to correct South Korean dollar there's not much validated yeah important distinction there I appreciate that uh explanation and Sam you mentioned that you had talked to a couple of different validators like do you know who was Voting no on this proposal and like was it similar to the situation back in May on Prop 69 where you were trying to get cosmomlasm on the Hub and then you know Jay Quan kind of forced his his number in there or is it a kind of a different setup this time around um there's a lot of similarities

um notably Jay was also against this proposal um and we can talk about the of Jay's influence and his relationship to some of the other core teams in a moment but my assessment is that there was kind of two camps like one is a a set of constituents that were were pretty kind of aligned with Jay or like just kind of respect his opinion um even though it just kind of yeah and and that opinion you know is kind of swung to being opposed to the proposal at the end

of the day um and then the other is is kind of the camp that um Yusuf is is touching on which is basically people who um felt like you know there's a lot of changes it was happening fast there was maybe um I mean it was like hard to digest felt like there there was some loss of control potentially and um uh you know there's potentially a couple like uh minor changes that they'd like to see to to make sure that it was really working in their best interest yeah I think that makes a ton of sense so I guess this you know now we reflect on

like the situation and where we are right so Adam 2.0 um you know it was a signaling proposal to really uh push forward what the white paper had had laid out uh kind of signaled to the developers and the community like hey this is the direction that we're going to be building in so the ultimate question really boils down to uh so you know you know what's next Where Do We Go From Here uh you know there was four or five like really key elements within the proposal right so such as interchange security liquid staking the economic Engine with the schedule and the allocator as well as like the revamp monetary policy for Adam so you know it's the process now to like take each of these into their own uh into their own proposal and try to push them through one at a time and then is

that like the best way to hone down and say hey like all right so let's take interchange for or maybe let's say liquid staking for example what are the risks here and like do we push this through one at a time um yeah I guess as is the next step really to push these things through one at a time yeah I think uh the proposed path going forward is basically to uh like you you talked about slice uh the atom 2.0 Vision into uh smaller uh pieces uh and so what I think one important one important thing to note is that um intuition security is going live uh in January so that's uh almost done and liquids taking is already available on

on multiple protocols in in Cosmos so it's really about uh the two other pieces which are which constitute the the atom growth engine which are the allocator and and the scheduler so about the next steps I think the um we just like in the immediate term uh there is a discussion to increase um the tax on on staking rewards and to uh direct them to the to the community pool so right now the tax is at two percent uh and so there are discussions to

increase that to possibly up to 15 probably it's going to be 10 but we don't know yet the proposal is not live yet so it's just discussion on the The Firm but just that gives us an idea uh so that would be I think the first step and uh and the fruit the second step in the immediate term as well is to enable uh interchange security because we need to whitelist it with governance as a feature uh and then as soon as we have ICS whitelisted uh on governance uh there is a bunch of uh subsequent proposals for to whitelist each individual consumer

change so right now I think we have like seven or eight that are confirmed so we will need an individual vote for each of those of those chain and then in the immediate term you know once the community pool is properly funded uh we can think about uh funding the allocator and the scheduler so first White list them like have you know a proper uh debate uh provide enough documentation Financial projections on the allocator and scheduler and then you know go go go on chain so it's really mostly about uh pacing uh ourselves spacing the the the

the atom 2.0 vision and you know in the meantime also ensure uh better alignment with the with larger validators prior to voting uh and I think also one thing that is going to be critical that we can learn from what happened with prop 8282 is is to reduce the the cultural Gap to to Foster more inclusions and governance so we're going to read a few maybe translations of the of the different documentations and of the of the uh the the unchain proposal so I think that's what we're dealing with in the short to uh to medium term the just like growth engine piece people you know there is

very little resistance to to those ideas um just to summarize like the the main idea there is like the allocator um there's two pieces the allocator and the scheduler the allocator um is uh basically an instrument for um forming collateralized Partnerships with other chains or or token projects and um and those that could take the form of like early investment um uh you could do something like a token swap where both of the the tokens are are locked up for a year in NLP together

so you're kind of mutually offering liquidity um it's it's just kind of a general purpose system for for you know creating Cooperative relationships between chains and this is really like already a core idea to the cosmos Hub like the cosmos Hub and Adam is the primary you know it's the primary vehicle for funding the public goods in the entire ecosystem be like and you know everybody wants that to continue so the the kind of Core Business of the Hub like needs to be ecosystem aligned so that like that's a hard requirement

um so yeah that allocator basically like helps new chains grow and you know provides Capital liquidity partnership um and then the scheduler is is a kind of um shared block space Market which we think is uh you know again ecosystem aligned basically the the business will grow as more chains are you know developing economic relationships with each other and um uh uh you know it's also like a a pretty complex problem that um we really think there needs to be kind of like

A diversity of solutions for and um and it it kind of fully young trust minimized secure solution um seems like a good option for uh for many chains to to have kind of in their tool kit yeah absolutely and I kind of want to take the uh you know just as you mentioned the next steps forward for the cosmos Hub itself is to kind of like take each uh each element of this proposal and slice it up and and kind of work through them one at a time so that's exactly the approach I'd love to take throughout the rest of this podcast and so if we if we continue on with this this growth engine right the scheduler and the allocator loved the the explanation you provided for both um and the original uh thought was to

build these directly onto the Hub uh you know is it does it still make sense to try to push forward that path or in that direction or it took in order to like stick a little closer to the the credible neutrality theme as some of the communities still really appreciates does it make more sense to build uh the scheduler in the allocator out into like their own consumer chains and and kind of uh bring them to Market in that way plan was always to have them as consumer chains I was uh it's not like specified in the paper maybe we should have but it it was you know the idea is like it shouldn't um really matter for the core business

proposition like it's a little bit of an implementation detail if it's like on a consumer chain or on the core obviously it has significant security considerations that that go into that decision but um yeah I mean it just makes more sense to build these on consumer chains at the end of the day like the it's easier you can iterate faster it's more secure like yeah those kind of the plan from day one right and then you mentioned that there was no uh no real pushback from the community on the uh kind of like creating these things and implementing them uh into the cosmos Hub right because this is you know the scheduler really helps align uh the growth of the broader ecosystem with the growth of the cosmos hub's revenue and

the allocator kind of does you know works in the same direction right so this is kind of help helping building out a more scalable way for the cosmos Hub to actually kind of sit you know in at the helm uh in the in The Interchange ecosystem and so I'd love to dive a little deeper if you don't mind on the scheduler itself I just find you know you know that that whole landscape of cross chain mvv is so fascinating and right and so and for the listeners just a quick reminder Mev is the profit a privileged entity can extract or create by including excluding or reordering blocks which makes the right uh to order these transactions in a specific block valuable and so the interchange scheduler itself would create a Marketplace for tokenized Consumer consumer chain block space so any consumer chain that is taking its

security from the cosmos Hub it would then have the ability to sell some of its block space in this Marketplace and so ultimately the way I view this is the this is like a way of creating Revenue off of consumer chains right so because the scheduler can only if I have this correct you know the scheduler only works for Consumer chains if you're not a consumer chain then it doesn't have the ability to sell the block space on this Marketplace and so I just want to make sure we have that piece right and if so then you know how so this interchange security really does sit at the the center of this whole growth plan it's mostly correct uh the only um thing that we need to to um to

specify is that at first it was supposed to be consumer chains so Mev for all the ICS consumer chains but later on if the product if we see that there is a strong product Market fit then we can expand that to any Cosmos chain that wants to uh to opt in in the system so I can let Sam consist more experienced you know in The Amity space that's really nice for the question yeah that's exactly right um I mean at the end of the day it would be kind of including a specific module into your chain um and making some some adjustments to like the the end block or something along those lines so um you know conforming to

uh to like a an interface that that allows you to interact with the the kind of central auction um yeah so the like you said there's very little pushback on both these systems the scheduler um there is like Market risk involved in this thing like the and I you know to be perfectly honest I think there were there were a couple people who expressed some you know confusion or you know concern largely just because

um there's just a lot of unknowns in the MEP market like it's just really really new um and this is a pretty like radical proposition the kind of value proposition for these chains is like you can actually charge a premium on the box base and so you can you can get more money for the space that's being offered than than you would otherwise you know just offering it in in your kind of fragmented you know Market on on each chain if you can't sell we love data here at block reach research and chain Alice's the leading blockchain analytics company shares this passion with us we use data to extract Alpha and find the next thing coming in D5 but chain houses is doing

the gritty work and building trust in blockchains to onboard the next trillion dollars of capital into the industry we need to grow safe consumer access to cryptocurrency and promote more Financial Freedom with less risk chain analysis has some of the most comprehensive and reliable data in the space and they use this data to power a full Suite of their solutions that can be utilized by industry professionals Best in Class training and certifications are also led by Chain Alice's and some of the brightest Minds in the space if you haven't heard of chain analysis you gotta check them out and we'll link to them in the show notes can you talk a bit about what the Mev Marketplace looks like or The Interchange I mean Marketplace looks like today you know in the white paper discussed a lot about how a lot of that takes place off chain today and it uh

you know within that as well I know there's some different risks that that are the case when this Marketplace so I'd love to hear you kind of like dive a little deeper on that yeah um so he if you actually look at Med and Cosmos today like the only player is osmosis yeah today so like there's a lot of kind of projection going on um there's osmosis schools osmosis pool and then there's like osmosis to to like centralized exchanges like those are the that is where Meb is happening um

but uh of um yeah so the and osmosis like um does not have uh a lot of adoption there's no adoption of like third party um any of the relay services so the two prominent ones in Cosmos are skipped and MC tuck um they so all the the kind of Mev that's captured there is is just the kind of priority mempool like priority gas

auction um games uh so yeah we you have to do like a like think a couple steps ahead to like understand the you know what the Market's gonna look like and you know why something like this might capture value the core assumption is that there will be chain to chain um Arbitrage opportunities and uh and liquidations and and such that that will be kind of critical and and we'll be kind of uh contingent upon precise synchronization between those

different domains and this is really what the you know the core offering of the scheduler you can basically schedule uh the availability of block space on different chains um in a in a way that kind of matches those up properly so you can you can capture a an arc for instance right yeah and you know uh a lot of Med opportunities uh we see like in in other Landscapes such as ethereum a lot of those are generated uh from D5 to D5 protocols right and so uh that does make sense that like osmosis would be the one that's kind of like leading the market in medev creation today and you know with things like Mars protocol coming to the ecosystem uh you know a lending

protocol built uh in and around the the osmosis ecosystem uh yeah it does make sense that the bets that would be making make sense to place is right we'd see an increase in Mev opportunities as more of these D5 applications make their way into the cosmos so yeah I'd love to kind of change directions a little bit and uh um kind of talk a little bit about liquid staking you know it sounded like a lot of the contention or maybe not a lot but a good portion of the contention around atom 2.0 and what's next really came centered around this liquid state taking and it doesn't make sense for the cosmo sub to create an in-house solution and so I'd love to hear about why that some of that pushback was there and you know if the presence of liquid staking in in the tenement uh proof of stake

block genes kind of changes the risk assumptions with the chain yeah I mean this is another one or it it's it's tough like I I stand behind like pretty much everything that's in the bottom 2.0 Paper but I feel like we were kind of thinking five steps ahead and there's there's a lot of people who like don't really understand the impact that liquid's taking or anyb or like the combination of these things together is going to have so like I'd I spent a lot of my time just like trying to educate people on like the basics of liquid sticking and

and the impact that's going to have on the validator business um so I I do think like a a lot of the reaction to the vote was really kind of like a there's a lot of things here that I don't like really understand and like I need more I need more time to to kind of equip myself to even make food the decision um liquid sticking is definitely one of those I mean I um speaking of validators like there are very very few that understand that one that liquid sticking is going to happen just it's is already happening

um it's kind of imminent and that it's going to impact their bottom line like this is not an out and two-pointer thing it's just like there are multiple liquid sticking protocols that are at some phase of deployment and that is going to make staking rewards go down um so uh that's like just not well socialized at this stage um and so yeah I mean we're kind of like watching validators like you know go through that thought process like in real time during the vote and it was kind of interesting um

so uh I mean in my view liquid sticking is you cannot liquid staking all you can just kind of internalize it into the protocol and try to you know make sure that it's as risk mitigated as possible and so what you're referring to is like uh I believe the addition of the liquidity staking module on the Hub um is that right um yeah so there's this module that was developed developed by occlusion and um it basically allows a Staker today to

forego the unbonding process the 30-day for 21 day rather unstaking process and directly convert into a delegation share so it's a fungible to semi-fungible token that's specific to the validator that you stick to and um and then those tokens can be combined uh by a third-party provider like stride or slido or quick slide Quicksilver and uh you know pooled and and

one can issue a share of those equivalent to the number of underlying tokens that is the liquid state asset so that would be like St atom or whatever um and in my view and in addition to that there's a kind of safety mechanism incorporated into the LSM module which is uh what we call exemption so it means that the validator um so they're basically there's a a cap on the amount of staked assets that validator can or there's a cap on the amount of assets staked to a specific

validator that can be issued as a um as a delegation share and that that cap is a function of the amount of self-bonded or Exempted tokens that the um that the validator is electing to to exempt um and the main purpose of this is just to solve a principal agent problem between the um so that the validator has get in the game um and uh you know so there are kind of like intrinsic interested parties that um

that you can use to kind of backstop the system so uh without something like that it in my view liquid sticking is uh kind of in in all ways like more harmful and more dangerous um so it basically allows for uh immediate interconvertible inner convertibility which is important to make sure that the the um price discrepancy between the the underlying and the liquid sticked asset is kept in line and this um you know this a principal agent system that make sure that there is a kind of backstop actor

right so the idea I guess is then to kind of you know because we see a lot of other uh Solutions coming to market now you know we have stride that's alive uh you know Lido's discussed with Quicksilver as well to come in and and provide like those staked assets um and so I I guess I guess my question would be you know is the idea of putting uh the LSM directly on the Hub then to like I guess the like right changes like how the risk assumptions break down but uh you know given that it foregoes that uh staking period uh with the idea then for like stride let's say to like use the LSN themselves or is this only for you know individual users or validators themselves

um so I guess an important thing to understand is that um the you know if you're a Staker today and you want to go into stride well what do you do at you know at this moment you basically um you basically unbond move the tokens to stride and then and then give them the stride and stride bonds them for you like restates them back and they move them back to the hub and state them and then they issue your share so you need to you know loot you need to unbond in order to get into the system

uh and people are doing this like stride has incentives on osmo pool is like there's a lot of atom in there like that is still happening no matter what um the LSM module basically allows you to do something very similar except you do it immediately and this like Direct interconvertibility means that um they're you know people aren't going to get wrecked or less likely to get wrecked because of the um you know the liquid States version of the asset running away from from the underlying um

yeah so uh but the you know the other thing to kind of understand is that the I mean stride is basically accrediting your assets for you in both cases you know whether you're using LSM or not stride is acting as kind of a decentralized custodian that's then pooling and issuing these shares and um and the end game here is like if you're going to own liquid state assets you're like the primary entities that are going to be directly staking are the liquid staking protocols so like there's actually going to be way fewer stakers

because you're going to become a user of stride or user of Lido or user of quicksilver not a user of the cosmos Hub directly so you're you're being kind of intermediated right yeah and that makes a ton of sense and I like the focus on uh you know keeping effort on on the staked derivative asset uh staying one-to-one with the underlying asset right you know while that's never really a problem in the in the up only bull market environment is the past you know six 12 months have shown us you know when the market does turn down in liquidity uh you know we start to see a liquidity crunch you know people are willing to pay a premium to get that liquidity and have the instant solvency so love to see the focus there uh and just to kind of like recap on you know

what we've talked about so far right so interchange security is uh you know it grants the ability for working super chains to lease security from producer chains and which really unlocks the scalability of the cosmos ecosystem and we plan to see that live sometime in q1 2023 and then liquid staking of course as we just discussed really uh you know unlocks what Atom can be and it's kind of inevitable and and the you know the Hub has an obligation right to make sure that the security assumptions of its chain uh stay in line with with these the current strong security assumptions today and then you know as we discussed we have that economic Engine with the scheduler and the allocator that helps scale the cosmos Hub with the growth of the broad ecosystem but lastly you know one thing we haven't really touched on

yet is the revamped atom monetary policy and the idea to kind of like push Adam towards being a reserve currency of The Interchange uh you know so there's a lot to unpack even within this one topic and we kind of hit on earlier one of the bigger contention points was well you know we need to fund these these ideas we have right and a lot of that would come through like the community pool so if you want to talk about how you know there's some contention around making a one-time mint uh into the community pool as well as the creation of the treasury uh and and the tax that goes along with the both of both of those I'd love to hear you dive in deeper there yeah sure I can take this one um so basically the ID the general ID for the new issuance policy uh there was

there were two items so the first one was uh to be able to fund uh the treasury uh and then once the treasury is founded uh you can work on on the you can bootstripe uh ICS interchange security and then you can also found the the allocator and uh and the scheduler so that's the first uh item the first objective of the new insurance regime and then the second item uh was basically to move uh from almost a hyper inflationary atom to uh almost zero inflation atom if everything was going uh according to plan so to the

plant so there was two um steps so the first step uh was about increasing like have a one-time bump of the of the of the minting to from the treasury and then uh progressively um reduce the the emissions uh and that was mainly because of uh liquid sticking because with liquid sticking what's going to happen is that the stacking sticking ratio is naturally gonna Trend toward 100 possibly like 55 then 95 sorry uh and then one once you have that there is uh basically no more need uh

for for inflation because in the current system how it works is that we have a target of two-thirds of staking ratio uh staked atom uh and so when that ratio of two-thirds goes up uh closer to 100 than the the the staking uh rewards go down and and vice versa and so with liquids taking there is uh there won't be any more that need um and so uh the security subsidy uh basically uh we won't need it anymore uh if we assume that liquid sticking is taking that weight uh closer to 100 so

those were the the two main components uh and reasons behind uh the change of uh of issues yeah in speaking the validators um you know I think they were right before you like President about making a monetary policy change that uh it's going to impact their bottom line um again I I think that there's there was a kind of slow motion education process that happened like uh after the paper was released and the proposal went up um

I mean one of the rationale and and to be clear like the the paper actually excluded some of the monetary policy changes like after some of these discussions that we had not to say that we don't think that it's kind of where we want to go eventually but it's like okay we'll hold off from this conversation until people you know get more comfortable and and um you know we have kind of more direct evidence but the the rationale is basically like okay well today where does your staking yield come from well it's actually a value transfer from unstaked assets to staked assets like that's that that's

where money is is coming from so basically the people who are unstaked are using the Assets in the ecosystem and they're basically saying okay I can get a I think that I can get a higher yield for this free atom than I can on the bonded atom liquid's taking eliminates this competition between the unstaked you know yield seeking and the state's asset because you can do both you can now seek yield and accrue staking world and so the expectation is that the the bonding ratio is gonna is gonna dramatically increase I mean

theoretically it should go to 100 I I don't know that it necessarily necessarily we'll get to that stage but um it should increase dramatically and if you're if you're close to 100 percent like even if you have a let's say that you you have a whatever it is like 15 inflation rate will there are no there's nobody unstaked you know the value transfer that was happening previously like doesn't exist anymore so like what what are you actually doing the you're basically just plating the mods

so you're paying yourself you're you it's kind of like a stock split like you're just you know you have the same amount of value but you're just redenominating what you have already so that doesn't make any sense really and so you you should allow yourself to just cap the supply at that at that point yeah that makes a lot of sense I'm I'm curious this is like a really ambitious roadmap and I like a lot of what you're doing within it but is there like at all a timeline that you expect for all this stuff to get implemented I know it's pretty fluid situation but I'm sure a lot of people are wondering what the timeline looks like well um I mean the the veto definitely like throws a wrench in some of this like we

there are teams I mean the informal team is really interested in the scheduler and I've talked to other teams who like want to build you know now that they've seen it they actually want to build something similar like you know so and I I've actually had conversations with other teams that want to basically build the allocator that you know the ideas are sound or like at least you know there's there's interest in developing them um but I don't think there's kind of like uh a fully you know we don't have like full consent from the the cosmos Hub community at this stage that these can be deployed so I think it's you know the funding is going to happen

first um I would hope that some of that can be um can be kind of split off to at least uh you know continual research process or kind of early experiment for for both of those um the work streams but it's it's very challenging to to give projections you know without that consent right yeah and also what might happen is that we end up implementing some aspects of the white paper and not others so if we decide to

to take the the route of slicing everything and I think there is some consensus around that then you know it's possible that one product like the educator gets accepted by the community and then the scheduler for example would be not accepted by the community and so so that's the the first element and then obviously it's all gonna uh delay the implementation because at every stage uh we need governance to uh to step in and uh and uh and and decide so that that makes it you know that gives that's another uh variable that we we do not

have uh control over hurricane and liquid sticking are you know kind of on the immediate Horizon and um there's like they have a kind of intertwined go to market that does need to be capitalized and so that's kind of why the community pool Community spend is um is the priority at this stage right and and I guess the last piece that really uh encapsulates what Atom 2.0 is is um you know the the cosmos assembly right where uh there's an assembly governance structure that is made up of smaller councils uh similar to like a

metadata structure that we see in some other D5 protocols on ethereum um and so I want to talk a little bit about that and as well as the the the charter itself that kind of like outlines exactly what this is is there still a plan to push forward on the cosmos Charter and and kind of uh you know ratify some of these these more governance related decisions I don't um I'm not sure I'm not sure about the charter uh because the charter was you know deeply linked to atom 2.0 uh but we need I think further further discussion uh around the charter I don't know some if you want to add something on the charter itself I I still think it's a good idea and it likely should happen

um I mean I've already been in touch with consumer chains that like kind of want some you know more social contract about the relationship between the consumer chain and the and the provider so um I do think that there's that should continue regardless um but it's it's going to need to be kind of Revisited and it's not the first priority at this stage as far as this the kind of notion of like the council is um I mean I also

I still kind of stand behind the like General design everything I've worked with Hypha quite a bit to like develop that um the plan now is to to expand the community pool I think it's gonna become apparent pretty quickly that the community pool is not equipped to allocate uh you know yearly budgets in in an effective way and so there will need to be additional kind of controls put in place and once you end up doing that you just get something

that looks like the assembly Council system like maybe you're calling it something else but like you're going to end up arriving at at kind of the same conclusion so uh just by the nature of like electing to go down this path of like okay the The Hub needs to be allocating capital in some way either to Consumer chains or or various kind of strategic initiatives like now you need to increase the the amount of atom that's able to be capitalized well now you need a kind of control system in order to do that and so yeah like you're

gonna you're gonna get to something very very similar yeah I think it's a fair statement to make that no one in crypto has cracked the the nut of governance so I uh I praise you guys for actually trying to implement something new but we've already taken up about an hour your guys's time so I want to let you go but thank you guys so much for coming on uh hopefully we can do it sometime again in the future thank you very much guys all right it's quite a bit to unpack there Dan but that was a a good a good interview and I'm excited to get your thoughts but uh first can you give us a quick little rundown of of kind of atom 2.0 white paper just to summarize it for the listeners yeah if we can just like I guess repackage basically that whole

conversation into a couple sentences right so you know there's like four key areas within the item 2.0 proposal we had interchange security liquid staking uh the economic or growth engine and the revamped monetary policy uh so if you look at each of those individually right so we had interchange security slated to go live uh in q1 of 2023 so just a couple months away uh there's 10 chains lined up to be users or consumers of interchange security uh seven are like independent team projects and three are more Central to the cosmos Hub right so we have the the scheduler the allocator and then also the rumored Circle chain uh will be a user of interchange security and so that's really like the the scalability feature for the cosmos

ecosystem you know one of the hardest barriers to entry of launching a new consumer a new Cosmos ecosystem chain is building a reliable and uh consistent and secure validator set that's just like the hardest building block but it does a lot create a bunch of option optionality you know we've seen chains like Thor chain or osmosis create unique uh structures based on the being able to like remodel their validator sets so being able to still have the the functionality without the the lift of like building these more complex groups of individuals and users should increase the number of chains we see and and that's a huge unlock because that kind of if we feed into the growth engine piece of this more chains creates more

Mev opportunities which is like the my personal most interesting uh Innovation within atom 2.0 right so this this scheduler that creates like a Marketplace for tokenized Block space is super super interesting and as somebody who's like not a huge bull for pfp nfts this is actually a very very interesting use case of nfts right so if we think about what blocks like each block is different than the one in the one preceding it and the one coming after it so if we have all these different blocks we need something that represents them that's not they're non-fungible right so nfts or non-fungible tokens are a perfect way to say Hey you have the rights to ordering block number 2004 and that's different than the or ordering the or the transactions in Block 2005

and so on uh so really excited to like see the evolution of nft Technology be used in this but more importantly like this is a great way to be generating revenue for the cosmos Hub and also providing like a service to the broader interchange ecosystem and the allocator kind of Falls right along these lines as well right so you know we see like the allocator coming in and building Partnerships with new chains and helping bring them liquidity and kind of like furthering Adam as like this Reserve currency of the ecosystem uh of course an issue with the allocator is they need to have like um smaller teams like councils that would sit on and be like the allocator Dows that like uh help pick which teams to project with and how that benefits

the the chain uh the best and and that's kind of one of these big issues that you know we still see we're very far away from solving uh even you know hearing Sam talk about the charter and Yusuf be like yeah we don't really know if that's like something we're going to continue to pursue for now um that that brings me some questions around whether or not uh this the speed at which the allocator will be implemented um so moving on to liquid staking you know this one I think when you you know you break up this proposal and start trying to pass each piece individually I personally think there's gonna be a ton of pushback on liquid staking and it goes to exactly what Sam said um you know he mentioned you know when liquid staking becomes very prominent that's going to ultimately hurt the

bottom line of validators and so you know as a group of the community members that has a ton of uh stake in in the chain it's very hard to pass things out their approval but liquid state liquid staking is definitely inevitable we've already seen the immense uh popularity on ethereum that's sort of like normalized it and I think that's going to come with strength into the cosmos ecosystem as well so his the creation of like the LSM module that will basically uh you know go around the the unbonding period to help keep a one-to-one peg uh with the staked asset and the underlying acid I think is a great Innovation um you know biggest concern is I think like just broader education around what

that means for the risk assumptions of a tender bit proof of stake blockchain so you know I think there's like a huge education period that needs to go on uh before liquid staking really is gonna get validator approval and then lastly on the revamp Monastery monetary policy the big takeaway is building these new Innovations like the scheduler and the allocator takes funding and right now the the atom community pool is quite small and every new piece of approved funding has to essentially go through uh full community governance approval which as we've seen is not always like super efficient right like we got to know with veto vote here uh you know ever since prop 69 with the we've kind of seen like

the normalcy of using noeth veto to uh you know vote against or filibust as Sam mentioned and it'll be interesting to see how that goes going forward right like I don't know they want to break up this proposal into like you know a couple different pieces which I think is the right way to do it that way you can like pass the things that everybody wants past and you know discuss and innovate on the things that don't uh or that are causing contention but you know all in all I think my biggest takeaway from this is it was pretty disheartening to see it not pass I was pretty bullish on the idea of it passing um personally because the Adam like the cosmos Hub needs a direction right it's just like this early piece of infrastructure uh that funded so much of the success that we

see within the uh interchange ecosystem yet now it's like stalled out it needs a new vision it needs Direction um and now is the perfect time to be building so I don't know uh what's your take on this love to see you try to like poke holes in in some of the thought process around 2.0 yeah I can give you some of my low IQ takes um I I guess I'm just a little bit concerned about the change in monetary policy like I see on crypto Twitter I know there's some good rebuttals to that but I guess I just I'm still trying to understand how the high initial inflation and then eventual move to near zero inflation will change validator incentives like you mentioned um I really don't love how there's not great timelines around this entire proposal I feel like they really need a

concrete roadmap and I know there's a lot of stuff underneath the hood that needs to go on both in r d and implementation so I would just love some more concrete dates I know interchange security is kind of a core pillar of the economic engine actually running and there's really no guarantee it sees adoption so that's kind of a worrying Factor you'd think it would be because it makes it so much easier to spin up a chain but uh you know it still remains to be seen and I think the number one takeaway for me is actually just the the struggles in decentralized governance like we see this with the prop 82 not even passing and you know for the allocator to work we really need like competent governance and efficient governance not just one token one vote like clearly that model doesn't work

incredibly well I also think creating a Futures market for Block space demand is a really cool and novel idea but it's also still just an idea implementing that's going to be pretty tough but if they can and you know they've they've implemented technologies that are used throughout the crypto space today by other projects so if there's a team that can do it I think it's the cosmos core team but yeah those are kind of just some of my concerns and I'm sure there's good rebuttals to everything I just said but uh just off the surface that's definitely my main takeaways I agree I mean the timeline thing is probably the biggest concern here right like we're in the depths of a bear market and now is the time that you'd want to see a project uh have a solid plan and just be like building in a direction it feels

like the cosmo sub is this great group of community and intelligence but like the aim of the community is still so broad if we could really like narrow that in which again was what this proposal tried to do uh you know I feel like it just needs to like get a kick start in the right direction and start grinding away um and then on the inflationary piece you know the the reason why I was so uh inflationary up front is because a lot of that funding went to the treasury in the community pool so that's why like it looked like this massive inflation but in reality and like how those tokens would be distributed I don't think it would have like this huge negative effect that you would uh if you just like minted tokens and you know let's say you just distributed them to stakers

for like a one-time reward or whatever and just as an example you know that would be a ton of cell pressure right but if I'm uh using these tokens to fund the creation of new chains and like uh you know these tokens get like used as salaries for developers I think they'd be like a much slower bleed in terms of like true inflation effects um plus you're also like funding the creation of new uh pieces in in your ecosystem so like I feel like it's a net benefit but it is definitely like when you look at that that chart up front it's like okay it's a little alarming seeing this massive spike in inflation um but you know if that if that's like enables us to beef up interchange security and allow the revenue from that to offset the ultimately decreasing inflation you know then I feel like it's

like a like a situation we have to pay a little upfront to get to a steadier state in the long run yeah Sean agree there I definitely think you know if there's a team that can do it it's a cosmos team they're one of the few teams working on kind of like an ecosystem architecture that's actually like really interesting to me but yeah time will tell but I think that's a good place to wrap it unless you got anything else Dan uh I think there's like closing note for me would be I thought it was really interesting that they the charter kind of just got not thrown to the wind but definitely put on the back burner right so because of the know with veto vote it's like okay well let's take this one at a time and like in what order do we act

now and it just feels like the revamped governance will get put on the back burner which is a little disheartening right like you know you mentioned it earlier that one tote one token one vote model is definitely not perfect um and even in the interview you know we we discussed it's like the golden bullet hasn't been found yet right so I would love to see more Innovation on this and it would have been nice to see like the charter kind of getting pushed in a direction in like just more discussion around what protocol governance should look like but you know time will tell couldn't agree more all right everyone we'll see you next week on uh the next episode of Xerox research thanks for tuning in