DeFi by Design EP#116: The Resurgence of Cosmos with Sunny Agarwal, Founder of Osmosis

Transcript

welcome back to the rollup High Roller Community as always nothing on the rollup is to be ConEd as Financial advice we are just an Educators in the defi space toss us a quick like give us a share a repost send it to a friend who may want to watch this and finally give us a sub or a follow it means the world to help support credibly neutral educational content in def5 we're here to educate Empower and enrich you and let's jump in welcome to D5 by Design where we talk all things block chain cryptocurrency while striving to educate EMP power and then R what's going on guys welcome back to episode 16 def5 by Design podcast we just got hyperlane pilled about an hour ago we're building

the modular future we are just adding Stacks to the modu stack at this point we got our boy sunny in here osmosis is is gonna be in or is should I say the defi Hub of Cosmos Hub um Sunny GM sir welcome thanks for having me on excited to be year hell yeah brother hell yeah brother St osmo when STK osmo coming soon brother so we had liquid staking coming to colos not just with Stak Adam we're gonna we're gonna liquid stake the entire Osmos ecosystem it's gonna be osmosis you could say what's the Vibes with that how's that going yeah there's a you know I was very uh you know not the biggest fan of lsds for a long time

but at some point I learned to just accept it and give in and this is the way that for steak Works uh and you know let's liquid Stak everything now so yeah you know we have St osmo obviously stride is currently the biggest one but but like you mentioned STK osmo from persistence should be coming soon um we have a proposal up from the white whale uh folks so they have two new ones they have the backbone LSD and the ays LSD so you know lots of different lsds I think it's good I think it's good and health to have like sort of multiples to make sure that there's not any one overly dominant one yeah what why do you why why were you a bit hesitant uh on your

first approach into lsts and then we'll kind of get into like what kind of put you over the edge and kind of like settled settled your concerns uh I don't know if I would say my concerns were settled it's more that I just uh you know my my my biggest issue was that I feel they to an extent somewhat undermine a lot of the like security properties of proof of stake uh they kind of un remove a lot of that but then you know I guess what happened was I eventually just like gave in and was like okay maybe like I I felt like there's just too much emotional attachment to like you know I I was helped develop like proof of mistake at you know before osmosis I was working at the core tenderer team and we

were sort of I would you know I say some like the Front Runners of like or leaders in like proof of stake mechanism designed like we invented the concept of Slash it like that was J Quan's and Bin and like we had all these like mechanism designs we did to make proof of stake secure and then it felt like lsds to sort of like come in undermine all them a lot of them and then maybe at some point it's like okay maybe we just had too much emotional attachment to these like this idealized version of like proof stake economics that we had in our mind if we just like you know let go of that and like accept that this is how it works um I you know I had this tweet a few months ago that went more viral than I expected it to I just said like you

know proof of stake is broken like something like that and like uh that got picked up by everyone like all the proof of work the Bitcoin Maxi started picking up like see look this guy like you know who's been working on Pro of stake is like thanks proof for steak is broken um I don't know I think I'm hoping one day we'll find something better than perer steak but you know I think right now we just need to focus on like making per stake work with the in the face of the reality that is lsds yeah yeah a bunch of D Jens come on and uh and and throw some throw some interesting Tech and all of a sudden the hard work's been been smash you must not

like the idea of reaking either on the ethereum side because oh boy we'll throw it I actually love reaking reaking uh so we came up with the idea of reaking like kind of in parallel with uh I layer folks so like we have this thing called mesh security which is very similar to reaking but it's meant to be like well why should it only be eth for reaking why isn't everything usable for reaking I should be able to restake osmo and Axle and uh anything and there's there's some things I don't like about the IG lir architecture like it actually uses lsds like baked into the protocol which I think is like the wrong design I think there's you know it should have

been there's like layers of the stack there's proof of stake there's like lsds there's reaking I think reaking one level below below and then lsds come on top rather than the other way around but otherwise I in in general I'm very a big fan of reaking interesting good to know and and and I think perhaps part of your bias um comes from the architecture of IBC and Cosmos is very much Kepler dashboard stake in a validator do the governance there's the unbond it's just part of the part of the the tribe if you will and so some of this some of this kind of liquid sticking you know kind of breaks that upart as you're saying but on the flip side what you get is well you get a ton of upside a ton of

capital efficiency you get rumors of tons of modular air drops coming for Stak Tia holders wink wink and you get tons more you get tons more opportunities to like use Osmos basically osmosis becomes more valuable because liquid stick tokens like the opportunities on osmosis are going to be like extrapolated so so much because of of liquid sticking and I see you guys are kind of getting ahead of that Trend trying to be more like a defi Hub um yeah where do you see SDK osmo sdkt SDK dydx or St version from stride or persist how do you see that fitting in with uh with osmosis yeah so you know I think like you mentioned I think that lsds are

going to be a bigger and bigger portion of our of like the narrative especially as we move towards like more collateral based things so like you know obviously on the I I think there's always been this like a little bit of a thing where on the amm on the decks itself on the spot decks you know obviously trading St osmo and St atom is more efficient but this is like user thing that people don't know what this is they want to just buy osmo they want to just buy Adam right it's like it's a huge user education hurdle to get them to that point like oh this is what s means and there's just like time delay and all this kind of stuff so um but once we start to you know you know osis is working on a per STX right now and in

that world it's like I actually think that people would like to use like St atom as collateral not atam like if you're if you're putting down collateral you want that collateral to be you know yield generating so that's why I think that as we as we do that we're going to see more of that um and yeah we have you know we very close partners with triy we actually uh internally incubated a project called Milky Way uh so they're building the uh you know we saw that there was a market opportunity that because of some of the architectural decisions that Celestia chose it's hard for like you can't use interchain accounts on Celestia so we saw that and we're like okay look if we can actually architect it this way we can you know uh introduce the fir you know be the first

mover advantage on Celestia taking derivatives so you know we came up with the architecture for this and Corral the validators and then we reached out to a a Dev team in Korea um you know he used to be the founder of co co uh the CTO of Cosmo station so um you know knows the cosmo stack inside out and he it it's funny he like just started a job the day before and then we reach out to him he's like okay give me two days I'm quitting by job I'm gon to work on this whole time and so yeah so you know excited to see how Milky Way comes along so yeah the more the more when sir when hopefully by end of next month so like you know our the plan was to be

like by end of November you know obviously times things take longer than I expected but I think by end of this month we'll see we'll see MTL live little Christmas gift yes Merry Christmas boys happy New Year cool man um what's your what's your Vibe on the um overall uh growth trajectory for uh IBC and Cosmos um I guess for for our audience like the you know the the downfall of Cosmos in the bare Market was obviously us the the the entire ecosystem has bounced back significantly now it feels like this this uh this atam inflation

proposal is like a a little canaran the cold mine to set off kind of a a whole new direction for Cosmos like what are your what's what's the vision like what's what's the thoughts now with regards to um that inflation proposal and um how do you propose the ecosystem moves forward yeah so I mean I will say I do think that that it's worth this like separating like the growth trajectory of Cosmos from that of Adam and Cosmos Hub specifically I think Cosmos is like I don't know my opinion a foregone like it's like it's happening right like I think the success of Celestia the success of you know the dydx I like I think Cosmos usdc is about to flip

optimism pretty soon um you know Thor chains like has been like crushing it recently like I think Cosmos is is working and happening and it's G to be you know it the more people that use the stack the stack is only going to get better and better and it's going to like grow the network effects Adam on the other hand yes you know that was definitely had it there was some questionable moments like what is the purpose of this thing and to an extent there's still some of that right now but for me personally what I think is that the goal of this is to become this like interchain money and I I I think like today in crypto there's this like there's only two real Capital assets right now like high value Capital

assets it's Bitcoin and E right nothing else even comes anywhere close like not even like within a magnitude um and so how would we get a third Capital if you wanted to build the Third Capital asset my belief is you can't just copy the same game of Bitcoin e right like Bitcoin started off with this idea of like like unchangeable monetary policy 21 million Bitcoin that can never ever change that that was a unique like way of building a digital currency a lot of people triy to copy that but no one will no one ever got the same successive Bitcoin eth comes along it says no no no that's stupid we're not doing this like fixed Supply we're going

to let just follow our own route and through iteration they landed on this like you know they have EIP 1559 pulling in One Direction you have like the staking roage pulling in the other direction and you have this like somewhat more Dynamic monetary policy but still like static in the sense that it can't it like you know there's no way for governance or something to change it it's like ricking into the code and you know right now so many people just start to copy that of ethereum right like you know salana is doing great and everything but like there's no unique there's no nothing new about the monetary policy of salana right like why would I want to bet on that instead of I think that Adam has this unique

opportunity where at the moment I would say like Adam is the most decentralized governance token in all of crypto like I don't think there's anything else that like you know let's say we in like top 100 top 200 assets I don't know maybe there's some like random coin out there that no one's ever heard of but like and this is this is valuable right because you know and I mean decentralized governance in many ways like one the token holder set is actually extremely distributed right like uh in the initial Ico of Adam they gave away 80% of the supply to Ico participants which is like relatively High compared to most projects right like nowadays you hear of projects it's like oh okay you know 30% to the team 30% to the foundation 20% to

investors like and it's like you know the The Wider community gets like 5 10% of the supply and like you know I I love Celestia but I actually just don't think it's going to be able to replace Adam as the money just because of it is still very like VC centralized fact on on the supply distribution Adam on the other hand is not and it just has a culture of decentralized governance right and this kind of comes into play where we've had many like very very contentious government proposals sometimes passing on like razor thin uh margins but that's like the sign of a healthy governance uh like uh Community right where there is actual debate not just like one Foundation or someone dictating what

happens and everyone just follows along so that's kind of what I think is about and so if you have a decentralized governance system I think being able to control your monetary policy is important right like you can do things like well one modify your monetary policy you could do things like protocol owned liquidity injections you can do things like you know incentives for driving the usage of it as money like there's a lot of things that like if you add in a governance system a a like the US dollar didn't just become the global Reserve currency by accident right there was like active like intervention and like policymaking that had to happen to make that possible and I think that

something with a governance system has the ability to do that in a way that you know a governance list system like e doesn't and that is the opportunity for Adam to like step now the question is will it step into that role TBD and it's up to the community to decide but this happening proposal was the first like look the the community said hey we are going to use government you know the the white paper of Adam and the founder of Adam don't want this thing got inflation schedule to change but governance was able to you like vote to change it and that is like you know the first Triumph of like this governance back money and I'm hoping we'll see more such uh

proposals coming soon very cool so as as part of the the like founding team of tenderman which obviously is very like embedded into Cosmos like how how do you like what what's your personal take obviously like we want like tons of involvement and participation from the overlying community like we like more proposals I think I think that is really great consensus is a big part of this network and it helps to build consensus just like soft consensus at the governance layer across all the token holders like just as a generic token holder with your

you know kind of like your your journey through the space what is your take on like where the like essentially like where this is where this is going and what you you think about this ongoing proposal um yeah so so which ongoing proposal so so like what which one you essentially what's what's your take not just like in the sense that there's like more of these proposals to come but like the this this proposal around Adam inflation like what is your personal take on the monetary policy that Adam sees to be going right now yeah so I mean I was actually uh I was in support of the happening um partially this goes

back to like you know going back to where we started with LSD tokenomics where we had this like interesting situation where out of inflation was too high and it's causing it to be it okay so you know I I gave this talk uh six months ago about like a one-year retrospective on the terror collapse and one of the things I like note in there is like one of the big problems like the really nefarious thing that like anchor ended up doing was it cannibalized the Tera ecosystem itself right like the job of Tera what the thesis of Tera was build a real economy around the stable coin and that that demand for the for the stable coin

will help is what actually keeps the peg at the end of the day problem is you had this like anchor thing that was coming in and providing 20% yield which was you know one that wasn't real Demand anymore that was like fake like there was nothing actually back to that 20% yield so that that's fake demand but two it also cannibalized the rest of the economy so if you know let's say you had a real lending protocol like Mars they had to compete with the 20% yield of anchor and they were struggling to get deposit so you know it it was cannibalizing the thing and so it's funny because and then we actually had the same situation happening with Adam in uh the cosos ecosystem where if Adam

is this like meant to be this interchain money and at the moment it is the highest Capital highest value Asset in the ecosystem the problem is it with its 15% staking rewards is actually cannibalizing the usage of atom in other places in the the system right and so then you might think like okay the first order answer is like okay staking derivatives fix this right okay let's just like Drive usage of stat which is good that it is the first step but the problem is that actually doesn't fully solve it because you know St atom you can only use it as collateral if there's a deep enough St atom atom liquidity pool but the problem is to get liquidity in an st atom atom pool there has to be

you you know people have to be whoever's lping in that pool they're basically depositing a bunch of atom with like no uh and that atom is not earning any of staking rewards and so you have to cop and and these are obviously like people are lping in this pool are like you know uh pretty knowled like knowledgeable participants in the market and so they know that they're getting losing that St that the staking staking yield and so you have to compensate them for that in ethereum the staking the LSD staking rewards are roughly around like four or five% I think for SD eth um and so eth they're they're able to build up liquidity for St eth because it's a

combination of trading fees curve incentives and Lio incentives those three together are able to get it like get the uh eth s LPS to like you know uh be as profitable as just holding SE itself that's only 4% that they have to make up how are we going to make that make up 15% staking reward and so the problem was it's very hard to get liquidity into an st atom atom pool we kind of started to solve this a little bit via these protocol owned liquidity injections so the cosmos Hub basically you know they put 450k into Neutron they put 900k into osmosis so basically the the chain itself is pro acting as the

like LP of Last Resort almost um but at the you know that's that's why we were like okay that that works but I don't think that's a sustainable long-term solution in my opinion so that's why we have to drive down the staking reward rate so that we can drive more Dem man for Adam and STD atom in uh defi systems like osmosis lebana Etc makes sense I mean the opportunity cost is is now um of of being in LP is now uh dramatically HT for those who want to be have uh whether that is is is the end all be all or more proposals come to be determined right at least we've gotten there where where these

protocols now don't have to emit you know osmosis doesn't have to theoretically osmosis could then emit half the amount of liquidity rewards which then puts osmosis in a better position From toomics perspective now we scale that out to every protocol in Cosmos what is the what is the result over the next three to six months in your mind of this metamorphic event where now all these protocols don't have to give as many free tokens they don't have to incentivize so much harder what what what what happens now number go up but like what else like what is a result on the economic side that you expect to see from this yeah I think uh we're going to start to just see a lot more usage of St in a lot of these systems

right like now with the LSM now it's just a matter of getting the proper projects to like be the sync for all this liquidity now right I think Lana is going to be a big one I think like uh membrane and margin Mars uh you're GNA see like a lot of these projects start you know part you know there's this meme right now like Cosmo like the product Market fit for Cosmos is per dexes and the thing with per Dees is like you need collateral and I think statom is this like asset that there's you know multiple billion dollars of collateral just sitting there and that's how we bootstrap a lot of these uh new per Dees so like you know for us what we're going to do is like when we launch our per decks we're going to build a vault that

people can just deposit stat into and it will Market make uh on the on the order book uh for people so that's kind of what I see and then the ni thing is like like you said um a lot of these projects are going to be able to start to flip profitable right like today osmosis spends a lot in incentives uh we finally just turned on protocol fees and protocol Revenue so we have uh trading fees coming in we have protor rev soon the uh Meb auction revenue is going to start flowing in pretty soon as well so okay like Revenue has turned on but we still got to drive down down the cost of the protocol and so that's going to come

via being able to decrease these incentives yeah that's another uh phenomenon that we've continued to see like this pattern of uh fee switches um and there's there's like a there's a great article out there maybe you've read it's called hyper structures um and it talks about like the threat of the fee switch but how M like maybe that is sustainable for someone to for for a governance token to be valuable um just by the threat of the fee switch um because when you turn it on theor and then there's you know a bunch of different considerations there so kind of looking at some other examples Unis swap on on evm um and how they've handled their fee switch kind like what

what were the considerations that you had when thinking about whether or not to turn it on and then you know you mentioned it was just recently turned on like in very like in the short time frame the sample size that you've seen it on have you seen any difference in the data that you're collecting either in order flow or or like the types of users or volume um as a result of now the the switch being turned on yeah um [Music] the I think what we just saw at some point was that like fees were like volume was pretty consistent regardless of like the fees that that that that were being charred even like in a when we have like different we notice

something like okay part depending on what swap Fe pool that we create like is it the 0.1% the. 3% things tended to be pretty stable like the volume came regardless partially because for a lot of the assets osmosis is the primary market for and then for the assets that we are the secondary market for yes Arbitrage volume goes down just but in times of high volatility which we we have been in for the last couple months right we it it actually has been pretty negligible so you you know you lose volume when the Market's moving like very sideways there's less arm volume happening anyways but like right now it's it we barely noticed like any real effect on volume volume has sort of only

been going up and I think it's uh it did just finally like bring in a lot of attention for osmosis right I think you know there was this narrative that osmo is this like just you know farming dump token only right but it's like okay well now that they're actually is real protocol Revenue it's like no this isn't just a farming dump token this is actually you know it owns the revenues that the osmosis protocol build so that just brought more attention and excitement to it so I think in the last two months since we activated it's already earned over a million dollars in Revenue uh and you know we expect to see that just continue continue to go up and oh the other thing that's nice is once

you start charging fees so currently uh I think OS is charging 10 bips per trade which is online with centralized exchanges right that's about uh you know I think we kind of just looked at What binance charges charge something in the St ballpark for now but now you can actually start to do fun things where you can start to do systems to reduce it right you can did like you know uh trading tiers the more you trade the fees go down or you can do referral bonuses right so we can say like hey if you invite someone to use osmosis will'll give you 25% of the tra of the trading fees that they do so now that you have this like stream of Revenue that the exchange is making we can actually use that to do um you know

instead of pocketing it as protocol profit we can actually use the like package those into growth techniques instead for sure yeah affiliate marketing other kind of uh um gamification even through um nfts or quests or all different Ty types of things are possible um so yeah yeah I think that's a very much a an a middle to end of the bare Market uh schema that we've seen here amongst different dexs and it just makes sense like especially if market leader Unis swap does it Cal swap does it osmosis does it it's just going to be a thing in the future and users don't care users pay for the security they pay for the

trust they pay for like the brand and you know it's you look at anything in the world you pay to use it uh which brings you value if osmosis or insert decks here brings you economic value you pay for it just life as Switching gears Celestia just rocket into modular narrative like it just freaking put Cosmos on the map um and I think Rob had something but real quick going into this kind of modular narrative because I think it's slightly bit a bit more exciting than Dex fees um the the the idea of this modular narrative is taking Cosmos and IBC and like it's really opening it up I think to the rest of the ecosystem system with these different interrup uh protocols so

from a base level we'll start here how does osmosis fit into the modular narrative yeah um I I feel like the modular narrative is a little bit underspecified of what it means to be modular uh you know okay the feeling like Beyond just like the hype Narrative of modular like what does that actually mean um I think you could describe modular in multiple ways right there's you know I would say horizontal modularity which is something Oso like Cosmos has always been Pro of of like this app chain concept of like okay you know one chain doesn't have to do everything we can

have different chains function focus on different parts um but then there's also what I call like vertical modularity which is like you know the how vertically integrated is a system so like on one hand you could say the oo stock is actually extremely modular like the way we architected it was like the consensus engine is separate than the like State machine and like uh the Costa T is very modular system L we call them modules uh instead of contracts um and so in that sense it's modular but I I think maybe the part that I actually disagree with the modular narrative a little bit is that every one of these components like from a technical

perspective yes they are modular but from an organized ational perspective I actually don't think that things should be overly modular uh I'm a big believer in like extreme vertical integration like I think the best products and best companies that made by vertically integrating so you look at something like apple right like apple builds these like amazing products because they build the software they build the phones they build the OS they build the chips right like they build everything from like top to bottom and I think that allows them to build a more cohesive product experience than if they like you know you see other you know Android on the other hand you know they they Outsource

a lot of things right like different different company builds the phones you know Google builds the OS like you know different companies build all like the chips like it and it works right both strategies work the modular system and the and in vertically integrated system but like I think the vertically integrated system really let you like squeeze out the last bit of performance and of cost right like you know uh SpaceX like became so I don't know if any of you have been reading like the Elon mus biography I've been reading it recently and it's like you know one of the things that SpaceX does really well is by vertically integrating everything they like squeeze out the last bit of cost from everything because if you have

this like and that's that's kind of my worry with this whole modular take it's like okay if a different Pro chain is doing the da layer a different one is doing the consensus and sequencing and like oracles and like everything is being done by a different layer it's like everyone needs to build a venture back business and charge their own fees and I think that's actually just going to end up looting towards the costs uh to users spacex's going drop build Ultra cheap Rockets because they don't need a profit at every layer of the manufacturing stack um so that's kind of my I hot it doesn't fit in it's it's fullon vertical integration from a Dap perspective especially with Cosmos

because when you think about it Cosmos and ethereum did their their approach opposite and now are trying to converge whereas ethereum started as one and is now going into rollups with l3s and app chains Cosmos started as a horizontal stack is now trying to figure out how to bring it all kind of together so I guess from your perspective it's more of like it's not like let's try to build you know osmosis for example as as a chain with all these different parts it's how do we bring together this horizontal stack of Cosmos kind of all these different app chains together uh into a more seamless experience which is already natively modular yeah I I I will say like on on the other hand there are times where you do need to Outsource

right some things are just so like challenging or you know or not challenging but like need such Specialized Care that it's worth Outsourcing to work to someone that specializes in that so in osis is case we made the explicit explicit decision that like bridges are too complicated right like the amount of bridge hacks and everything we've seen they need like extreme Specialized Care and that's something we don't want to build in house so that's why we decided to go work with like you know axar was our first Bridge partner but now we expanded to like Wormhole and hyperlane and stuff as well right we say Okay Bridges you

know there's so many things we need to bridge to and so much security implications here we're going to Outsource that completely and so yeah there are times where you do need to you know be strategic on what you choose to Outsource or not how do you how do you see like the the trade off of horizont like staying modular staying the very like wide breadth of horizontal like uh Market fit and then and then I'm I'm what I'm trying to get to is this liquidity landscape that's living on Cosmos right now like when you when you vertically integrate all of the liquidity AC like you have a series of apps that are all vertically integrated

into osmosis then there's almost like this shared liquidity model and it all becomes more efficient so could you kind of talk us through like the landscape of liquidity on Cosmos now that it's that it's pretty horizontally spread out and what you're doing to kind of bring that together inside the Osmos stack yeah that's that's really good question something I've thought a lot about which is like yeah the liquidity landscape of Cosmos okay I would okay there's just like okay there's this interesting thing which is at the end of the day a lot of crypto projects are just building trading

infrastructure right like we're all just building different ways of like trading assets and most most like l1s are trading are like and l2s are just building infrastructure to run trading dexes on top of and then most like defi stuff are just building at the end of the day they're building some way of building a DEX or leverage infrastructure so in Cosmos I would say we actually have you know there's a lot of projects that are not necessarily trading infrastructure but like some of them are so what osmosis has done well is it is the for in the C ecosystem it is by far the decks where anyone who for

any token that is not trying to build trading infrastructure osmosis is the obvious place to list their asset right because this is we have all the users we have the volume we have like a great ux and so we've succeeded very well on obviously atam because it doesn't have its own decks or anything on Celestia because it is not trying to be trading infrastructure things like aash and stargaze and all all these projects that are not trying to build their own trading infrastructure we've done a really good job of that we and for us we did as well right because it was also not a DEX where we don't the the projects that we are not the main deck for are the things who are trying to be their own dexes right so like Neutron is

like a token that's pretty popular right now but like you know they don't want to list their token on osmosis because you know they want to keep that volume and liquid liquidity on their own chain same thing with say same thing with like know a couple of uh and so there I think the astroport architecture has actually gotten some success where astroport takes more of the Unis swap style approach and actually just goes deploys a version of their of their decks on each of these chains so that way they the chains get just be like hey look at all this liquidity and volume that we have on our chain but the thing is at the end of the day all that liquidity and volume is only for their own native token it's not

really for anything else so um what we are trying of you know what we need do need to figure out as osmosis is how do we make sure we capture some of that volume other things and we're we're actually seeing that so someone went ahead and created a pool for a neutron on osmosis and it's already like in the last two days it's already doing 10% of the volume that's happening on the neutron chain itself and I think eventually it's going to like exceed the amount of volume on the neutron chain just because you users want to trade where they're already comfortable which with which is osmosis man the app chains have so many consequences of liquidity it's nuts man one of the things that we are considering doing is like you know we

might just start dispatching trades to other trades like if a user comes in and they want to buy I don't know Archway or not even Arch let's say they want to buy abax right and like we just don't have that much liquidity for abax on us exposes we do support it but there's like I don't know a few hundred K of liquidity which is not meaningful right what we might just do is say okay if someone wants to do that we're going to dispatch a trade via Axel to like Trader Joe Do a Swap and then send the avax back on the osmosis chain so that way people are still holding their assets and like the user experience is still on osmosis but we can just dispatch trades elsewhere we that you know someone might argue like why are we giving volume away

to other exchanges to other dexes but then but that's volume we weren't going to capture anyway we might as well keep the user and dispatch the volume exactly the user gets better execution uh because more liquidity on Trader Joe could could you kind of like describe like how that works in practice and and maybe even bringing in some of like the experience that you have working out a a consensus like uh group like how do you derive that consensus if you're going to go send an order over to avac like like we know that like osmosis because it's a cosmos chain has its own set of validators those validators have to derive consensus with the Avalanche or wherever you're trading avac on Trader Joe there's another set of validators

and there has to be some sort of like State consensus about where the adax is and where the you know what token you use to buy it how do those two sets of validators arrive at consensus right now we basically Outsource to a third validator set in this case which is the axar validator set the Axel validator set acts as our bridge and they have this protocol called GMP General message passing that allows an account or a contract on one chain to trigger smart contracts on a different chain so what we would basically be doing is sending the user when they make their transaction osmosis it gets picked up you know the Avalanche Val AEL

validators basically are the ones who are actually triggering the smart contract uh the trader Dr contracts on Avalanche and then when they get the ABX they're the ones like bridging it back so we kind of Outsource to the ab uh to the axar validators um and this kind of why mesh security is so important as well because uh that's what will bring make it s Axel has the same level of economic guarantees as osmosis right like right now so much of our stack is like or our assets are dependent on Axel but at the same time osmosis makes up like 7 60 to 70% of Axel's TV it would suck for either of us if the other got like attacked right so the nice thing

about what mesh Security will do is it will allow both osmosis and axar to be secured by the sum of our two market caps and this is by combining the two validator sets it doesn't combine the two validator sets we actually keep independent validator sets but it uses a reaking paradigm where when I have my osmo Stak on osmosis I can restake it on an axillar validator as well and so that way if that Axel validator does something malicious my osmo gets slashed so basically what it does is the validator sets are independent but the economic security securing the two chains is actually like the sum it's a sum it's a

total yeah it makes sense yeah and so what you and and hyp Lane straight too I me hyane effectively will Bridge through either you know using Axel or Wormhole or or a combin a combination of them as well um to bring that in and then what you get to you know if this is a future that you want to take osmosis through what you get is you get a future where you don't have like crypto users of dexes you have osmosis us where why do I need to go anywhere else other than osmosis when I can swap everything here and then I can do anything and it's probably like more or less the vision of perss and lending and decks and um you know the other kind of functionalities and what's great is that we're finally seeing the infra catch up to this Vision

it's like you know I I remember simple things like def5 summer 2020 was like damn it's gonna be really cool to have a settlement layer Stak e that is always yield generated why would I ever trade into E I always just keep Stak e as my base right and so now we're getting like interop and now more sh access in Cosmos and you know the the infra is catching up to the visions of The Visionaries which is it's exciting Good Stuff um moving moving towards more of um the the kind of back also you know kind of forward this uh liquid saking token narrative it's something that like I just want to hit on again because I think it's gonna really open up a whole another kind of world all in Cosmos where um we can

unlock so much liquidity that's invalidator so when we have liquid sticking unlocking an osmo um we have uh Thea we have dox um you know and you know name your toen right we there's going to basically be like more money floating around but still have the same governance properties um you know of a of a uh you know of a of of somebody sticking in a validator so could you just walk us through what this is going to look like in the cosmos ecosystem so let's say I'm scking I'm sticking TOA right now or I'm sticking DX on a validator let's say I'm on stako I'm on fig men or wherever and so once that protocol goes live stride persistence

I'm then going to be able to trade my Stak for a liquid steak uh token receipt and then I can go into osmosis and I can you know do a trade or I can do some uh you know some some CDP on a chain I can move my things all around this is all going to be tracked back to the home chain um so is there any security concerns that you're seeing there from like moving stake tokens from chain to chain to chain intertwin andapt toap to DAP like is there any worry that Cosmos isn't really getting ready for where I don't know any sort of malicious event or I don't mean to be too much of a doomsday but I'm thinking how much rehypothecation and then bridging from different chain to different chain uh with liquid staking tokens like is there

anything that you thought of as far as that on the governance side or you know yeah I'm just curious two interesting things I I would say but so one the obious I think the one thing I would like to I've been pushing stride to do and I think like is the right way of doing lsds at the very least is um something I call Copy staking because right now when you like delegate to stride they have to choose a specific validator set to delegate to and it kind of turns into like almost like a little bit of a POA system right where it's like okay the stride just chooses who the validators are and if they get 80% market share now they just choose the validator set which I don't

think is like really that okay um and so that's why I would like to do something where it's like an LSD should just delegate in the exact same proportion like you should pretend you remove the ls like strides uh delegation what it is the distribution of stake delegate according to that distribution so what you're basically making it happen doing is that you can either choose to direct stake like and choose the distribution of validators or you can choose to go to the LSD and just get that extra liquidity right and so it's like like um what will actually end up happening then is like the validators basically uh will direct stake and it becomes like with

their self Bonds in order to get uh you know higher voting power but then it's the the people who don't care they'll just go through the LSD but it the LSD shouldn't impact like the secur like the distribution the governance and the yeah exactly or else I I just worry she has it's still governance centri in Cosmos with the validators that I just worry about something where somehow we we lose track of this and yeah all of a sudden a freaking chorus One controls all of freaking osmosis governance and then boom you know like what the hell the other interesting thing like re that is we'll be interesting to see if it plays out I I you know before we started I

heard I heard you guys talking a little bit about like J Kwan's like fork and everything with after that happing proposal um I will say I actually find it to be interesting so this is like Jay's thesis at least which I I can get behind um once again the thing with Jay is he is very brilliant uh he is just sometimes like so out of tune with the rest of the crypto industry that he doesn't know the standard terminologies that we all use to talk about things and because of that he struggles to explain his ideas in a coherent way um um you know maybe that's ging giving him too

much credit here you know he is also a little bit crazy but I think he'll admit that you know he knows when he's a little bit going off The Rocker but um the the the generous reading of what the premise of uh Adam won or now I I I'm happy I he chose my ticker a toone we were all tone for my SS uh thank goodness it was not Adam one that was going to be show but a toad is cool I really like a toad uh but the premise here okay is lsds are as they suck up more and more of the capital they are going to be like the biggest governance holders in all of

crypto right and you don't want a situation where one LSD dominates the entire thing but the problem is economic incentives the way liquidity Aggregates by Nature will push everything towards one dominant LSD so how do you solve this how do you actually incourage multiple lsds is you like you you have to make people care about something other than economic incentives and you need to like use tribalism to encourage like diversification and you do this by adding a political component to lsds where you turn so once again if LSS are

the governance like they you know they the governance power black holes you turn them into political parties so and so the idea is that like okay maybe you'll have the stride political party you'll have the Adam one political party you'll have this you know other political party oh so like you stake with with the person that you align with or the people that you align with exactly and so that's great Jay's premise is like hey here is this like very contentious governance proposal about the Hing and this is a good dividing line to to to separate the progressives from the conservatives right he's like okay the people who are

anti-h havening are the conservatives the people who wanted the happening are the progressives in like Adam governance let me airdrop my like LSD governance atone to the conservatives because that is the party that I want to build like Adam governance part political party around and like I think this actually makes a lot of sense I think there like you know uh we'll see how it plays out but like from like a I I got into crypto because I was like I I I was really into like political economy and I think this is like one of the most interesting like political economy development at crypto is if we see the emergence of lsds as political parties wow yeah I mean some people

might just dump but some people will be like free money I love this guy I'm so so is this going to happen is aone happening is it is it confirmed is this Fork happening I I assume it'll happen I mean it's not know one of the things that's uh For Better or For Worse and CTIC hay makes it so easy for you to launch a new chain so you know I'm sure they have the capabilities to launch the chain um now keep in mind all of this like premise of like what I've been talking about this I all I talked me and Jay had like a discussion about this like a month ago or month and a half ago so this was before the proposal actually happened and so I don't know if the current

vision of it is the same as when we talked about it originally but I I mean if that if that if if it is I'd like to see it happen personally and also you know more at the end of the day I also think a toad is a little bit of a jquad mean coin which uh you know yeah and look more me there's there's gonna be a lot of volume on it for sure and that be osis and so more volume oh my God there's the capitalism coming out here we go y Sun's right at the middle progressives and the conservatives just GNA Let them fight it out and then profit from the middle Switzerland getting getting the Switzerland of Cosmos yes that's right baby the uh the strong value the strong

value interesting and so you think that um you think that uh doing governance in in using political uh kind of vision or separation for lack of better term could then also actually uh lead to a more uh well sustained and decentralized more secure governance system via lsts yeah I think it I think it'll lead to LSD diversification which is important right like that you actually see this a little bit in like Lio and Rocket pool right I think Lido and Rocket pool have slightly different views on how like ethereum governance and like stuff is supposed to work and that's what

leads rocket like every everyone who delegates to Rocket pool is doing it I think partially for ideological purposes more so like you know they're probably better off getting the higher liqu um but that's a good thing right you want to leverage this like political diversity to lead to like better security but as you said in Cosmos it's it's even more so uh governed that like the difference between eth and rocket my opinion is like well we don't want or sorry Li Rock we don't want Lio to have too much stake so we're going to stick with rock with this it's like well freaking Jay Quan is this and this and that and drama there and this and then on top of all that there's actually all that governance on every single chain it's a whole other so I think your

thesis on Adam being the number three by not taking the same path and being governance money and I think I saw you tweak this maybe somebody else was like Adam is the the most decentralized governance money in crypto maybe it was Jack or Zaki like in in all of crypto and and I think that's totally the path to take and to lean into or else you just out come another L1 with a set of 30 validators that's M like yep and with with like like more governance around that it means I I think it means that monetary policy is more adaptable Bitcoin obviously has the most rigid monetary policy in all of crypto ethereum's like less rigid than Bitcoin we saw EI P 1559 but it's still

like not so fluid that the community can make decisions Kos is super adoptable like anybody can put up a proposal next thing you know the Adam inflation rate is cut in half and like it doesn't work we just put up another proposal we increase it again it's like very fluid Nimble cool very adaptable yeah I mean we haven't seen it so let's see yeah it it definitely uh it's uh it's not the nor in crypto for sure but you know if you're trying to build a new thesis like you're not going to do it by copying what already works it's been a pleasure to have you

on Sunny I appreciate your insights and your and your hard work thus far um in the cosmos ecosystem and I know many people do as well thank you so much was pleasure being on