Ecosystem Funding with Patrick Perlmutter

Transcript

we're live folks I'm sub 3.0 and today I'm chatting with my good friend Patrick pearlmutter who is co-founder of the orb project we're gonna be talking about a bunch of stuff today like that Patrick and I have been talking together about for a long time which is public goods finding using staking and they're building it they're building this really cool product that allows all sorts of cool stuff to be funded with staking rewards um and so we'll be diving deep into that how it works um also dying to find out why Patrick thinks the decentralization is not the goal so we'll get in all that but just before we get started make sure to subscribe hit the notification Bell and the like

button to get notified when I go live every week my guest Pratchett Pearl Netter is coming out next right here on the interrupt [Music] hey buddy hey man how's it going good how are you good I'm excited to be here yeah yeah it's not often that I get to have like one of my closest friends on the podcast so uh that's that's fun yeah and it's my first podcast even though I've known you

for like years and years and years yeah yeah yeah um so yeah how you been good just home for the holidays it's taking advantage of that yeah yeah good how about you uh still home but will be home-ish for the holidays uh tomorrow so looking forward to that um so yeah like you know this we've been talking about this for a long time uh you and I and and also you know your co-founder Sharon who unfortunately couldn't be on because he's uh apparently you know during a bit of a vacation right now but um

you know it's like it's something that that I think is really interesting from uh from a sort of philosophical point of view but also like all the design challenges and the economics around what you guys are working on is something that I think like is super fascinating and I've talked to a lot of people about it and you know I hope that like we can have kind of a deep conversation here where like other people my goal really here is like I know you guys are working on this and still like kind of early in your product development and my goal here is that hopefully like someone will watch this and be like hey this is cool I want to get involved or like I don't want to build on this or uh or maybe like even contribute to you know to you guys thinking and and sort of contribute

to all the work that you guys are doing on this on this cool idea uh but first for our listeners who don't know you um yeah tell tell them a bit about yourself and uh how you got into crypto yeah so actually I got into crypto a long time ago uh maybe like 2011 or 2012. um because you and a couple of other people I know are into it and we were just kind of playing around with it um you know buying it paying each other to to when we ordered pizzas things like that um and then um I just thought it was kind of a game at that point I wasn't really like particularly serious about it and then in 2000 I think 2017 or 2018 you took me to a cosmos conference in in uh in Berlin and I was like wow this has

totally changed this is a completely different world um so I kind of started um getting a little bit more into it at that point and discovering what D5 was and um and all these different things that kind of popped up like dows uh uh yeah all these interesting uh products that were being built um and at that point I was like I was running an automation agency um so I didn't really have the bandwidth to begin building something in in crypto uh but about yeah like 2021 around August I had an opportunity to take the leap so we started building um I was really kind of obsessed with this whole idea of reputation uh at the time so we started building a reputation

system uh on Solana um which was just an incredibly interesting experience and it kind of really got me into like the weeds of how all of this kind of actually works from a technical level and what its benefits are to to people that use these systems um and we could talk about reputation a little bit I know it's not like the core of this conversation but uh that's just a fascinating Topic in itself um but the public goods thing kind of came about a little bit earlier this year when um Sharon went to a conference in New York and had an opportunity to build a public good with uh with sushi who's also one of our collaborators um yeah yeah you're you're uh your rise to crypto has been like pretty phenomenal to watch because I remember in summer of

2021 we were hanging out together you know at your house and both like thinking about what to do next and you know I had I wanted to also maybe like change career paths a little bit like stay in crypto but just you know it's like embark on a New Journey and you were also like really you know wanting to get into crypto and then we went to the break point together like the first break point yeah uh in in Lisbon and also like Cosmo versus happening around the same time and and and then like from just that conference from from then on you were just like in crypto and then you started making all these really cool connections and you started like meeting all these people and like getting involved with the Solana folks and now like folks in Cosmos and gnosis and and uh just like all these ecosystems and um

and uh like learning and and building you know something that I I think would be really valuable once you guys uh once you guys decide to uh or once you guys get to get to launch it um so yeah it's been it's been fun to watch yeah yeah it's been really interesting exploring all of these ecosystems because I never had like an affinity to one particular chain or ecosystem so it's kind of I mean break point was kind of a mind-blowing experience to me because it was another like one of these moments where you see all of this interesting stuff being built I mean there's a lot of controversy about Solana obviously but um I mean that doesn't really matter to me it just seemed so so Advanced compared to what I originally knew about and I took that Advantage I took the opportunity to

learn about not just Solana but IBC and ethereum and all the differences between them which are fascinating yeah yeah and I think this is what's kind of unique also about like your journey is that since since you have largely been I think on unattached to any of these ecosystems uh uh you know for for you I I feel like you look at them as just you know different different technologies that offer you know different trade-offs or whatever or like you may have some particular benefits to building you know this type of product or this type of product and um and and I I feel like that's kind of a superpower because

a lot of folks that are in the ecosystem are you know like quite vested whether you know from like from a financial perspective you know in these ecosystems but there's also like all this emotional attachment to things that makes it difficult to like you know sort of see the forest from the trees or like see that you know this Tech is like not great for what I want to do or like this other Tech might be better or whatever and so um yeah I think like having having that Clarity and and not having sort of pre presuppositions or biases uh is is kind of a cool cool position to be in yeah it's I mean I don't I see it a little bit that way yeah I just it's for me what I found the most fascinating

about it but beyond like the technical aspects which are themselves fascinating is the cultures that emerge like on each of these chains even within IBC which has all these different chains like the culture on each of these chains is so interesting when you like hop on a governance call and you see how people talk and behave yeah yeah yeah yeah um so you know what like your background does yeah yeah you worked as a product designer and for most of your career how has that informed what what you guys are doing and how you're building this product yeah I think I think that one of the one of the um the way that we kind of approach all of

this kind of all of what we're building is from an incentives design perspective so like when you use a web 2 application they've been really well thought out to encourage you to you know engage in certain behaviors and certain actions uh for better for worse um and those kind of techniques I think can apply themselves really interestingly to economic systems so what we're building in crypto um so I don't I don't look at design as purely a visual thing although I think it's really important and I think you see drastic differences between applications across different ecosystems and chains but to me it's really about incentive design so um thinking about how the economics of all of this stuff will impact a user's Behavior or psychology and how they perceive gains and losses and risk and

all that kind of stuff um is really core to how we go about building these things what's really amazing about crypto just generally is that you can try and make systems where most people win obviously not everyone can win um at least I don't think everyone can win um but you can craft systems where uh you know there's there's always a potential for upside um and I think that's really cool yeah yeah totally um so what why what got you interested in public goods funding and um I guess like maybe let's define what is a public good because I I'm you know I think public goods in the software space and certainly in

crypto space Have you know evoke certain things um you know if you think of public goods in the broader kind of societal sense you know obviously means very different things so when we talk about public goods funding you know what we're talking about exactly yeah I think drawing a parallel with what exists in the real world is public goods whether it's a fire department or a school or something like that really makes a lot of sense um when you kind of take those analogies when you when you find the analogy in crypto so um basically it's universally accessible tools uh functionalities um that aren't gated in any way to anyone that wants to use them um they're most often times Community

Driven or um at least they're not they're not run by private initiatives um and they create a an overall kind of systemic benefit to the ecosystem that they're being built upon so it could be something like um you know uh a shared GitHub repository that different people can contribute to like an open source project basically um it can also be educational content so if a blockchain for example wants to fund an initiative to create um you know docs for developers or you know know educational content around how to use a particular D5 application whatever all of those things are universally accessible and benefit the ecosystem more widely we try not to like when we talk at least when we I'm Sean

and I talk about public goods we try not to constrain the definition too much because we think of that it's kind of good to give a little bit of flexibility to what could be considered a public good um but basically anytime that profit enters the equation then that's sort of when the question gets you know that's when we ask the question of whether or not this is actually probably good or not um which is also incredibly nuanced right like if you drop tokens to um you know 10 000 people is it is it a public good or not I mean it could be right it depends on the profit mechanism there and like how people are going to use that tool and if they're going to date it in some way you know to be muted uh yeah I think I think that in the

context of of blockchains you know public like blockchains themselves can be seen as public goods there are there are a type of infrastructure that anybody can use they're meant to be open and permissionless or at least most blockchains are um the services or the value that they provide you know flow back to whoever wants to use them um you know I think from that perspective they're like a little bit different than what you would at least for now I mean like because it's such a crypto is also a very Niche thing at least for the moment it doesn't have widespread adoption in the same way that something like the internet has or

you know would you say like park benches have widespread adoption but you know like the the the potential users for the stuff is is remains limited and so you know maybe there's um maybe there's a uh a quality to public goods which is the the number of people who use it or they're they're you their General usability in the public sphere it could be uh a quality that helps define whether or not something is a public good but then also you can like maybe you use that sort of and a sort of like restrained kind of namespace or context um but when thinking about uh blockchain

ecosystems themselves what typically do we you know what typically gets put into this public goods bucket yeah for the most part it's open source projects um and educational content those are the two things that we see like most often um the idea of a blockchain as a public good makes a lot of sense um I think that that there's a lot of ambiguity around that too so like um like who who gets block rewards what do they do with them what kind of wealth um distribution does that uh kind of you know create um what are the power what is the power structure of of like of a blockchain ecosystem look like um and is it in fact really a public

good um it's a question of decentralization in my mind um and also how basically how these block rewards are being used effectively like in order to find Finance public goods you need I I mean I don't really like calling it this but you need some sort of like a tax mechanism people need to be able to collectively uh fund things that are beneficial to everyone else um and I think there's also a governance uh sorry there's also like a governance compo component to it right because like if you're saying hey we're gonna fund this content um I don't know like I wouldn't think it was probably good funding if people were funding me you know like for producing content because you know I'm I'm a profit driven individual and uh you know like also I own this content and I own

the IP to it and I own the copyright and everything um I think there is some aspect of like how do we govern the distribution or like how how is like the the the the governance of this thing um managed you know is is it really open or is it does it remain in the hands of few or this kind of thing yeah definitely I mean I think that um you know you you might be called upon to create or produce a public good even though that you know like the interop is not itself a public good um now oftentimes that's that's the case

right like they're like one-off projects they're not necessarily like um ongoing uh long-term initiatives um although they can be of course but um that's why I think it's cool to have like this sort of like loose definition about what a public good could actually entail because you can have private actors that create public goods for as well yeah i i as we're talking about this it feels like it feels like there are things in the blockchain ecosystem that people might try to pass as public goods or might try to yeah to to you know yeah pass this public goods uh uh while there are in fact you know not

public goods they're just um you know they might be valuable like you know just I I think I think it's helpful to maybe not construe public good with like something of value that to like a broad audience which I think sometimes there is maybe a a blurry line at least in crypto about those two types of things I think what we'll probably get into this in our conversation but I think if you ask anyone from a grants program uh what a public good looks like they'll they'll probably like raise the same concern right is it is what you're actually going to fund through a grant um worth funding as a public good and does it actually represent something that provides large benefit or or sort

of like broad benefit to the entire ecosystem and that's a question that I think that um most most grand grants programs at least struggle with um although I think that we're kind of evolving I mean from what I see we're evolving out of this Dynamic a little bit um where people don't necessarily spontaneously apply for Grants although of course that will always exist I think um but rather that needs are sourced from the community um and kind of formulated as a request for a proposal and that is actually a representation of a broad need in a community and and anyone who wants to provide a public good can then respond to an RFP right so um so let's get into then you know what are the roles uh I mean you

you mentioned before the call here that different ecosystems ha and I know that you like you've been kind of you know peering into different ecosystems you mentioned Solana uh no you know I know you guys have been talking with people on the gnosis side you're also quite um active on fmos and I I wonder what how those different ecosystems view public goods or think about public goods funding are there real differences um I think that the funding mechanic is fairly similar across all of these chains but how they perceive the benefit

of investing in public goods is pretty different um because they're all at different stages of evolution with different you know economic contexts um so if you take Atmos for example it's a fairly early chain um yeah it still has like you know a pretty high tvf um for such an early change but there's High TBL okay I mean relatively it did I guess yeah um uh but like they're like right now their incentive is to bring Builders onto the chain to be to begin like really building like you know uh you know applications um and and open source projects and even

just like developer docs right like yeah it's quite difficult um same thing on Solana like Solana's got some history but if you want to build something using like the the like using Realms or something there's a team that supports Realms but the documentation around Realms is pretty um non-existent for the most part and so like Realms is like their their Dao tool yeah it's like a dow tool it's like like on IBC um so there's a team that supports it but if you want to try and use let's say two token voting on Realms there's like zero documentation around how to implement two token voting on Realms and so while they're able to finance building they may not have all the supplementary or complimentary stuff that actually goes around

um what their what they're financing in terms of build um whereas gnosis is really really evolved um they launched their grants program I think about a year ago yeah um and so they've learned from all of the other grants programs that have existed on in the ethereum space for a really long time so they kind of have an idea of what of how they should be going about it um I think there's some DC's on the grants program as well so it's you know they have a pretty solid view of what the ecosystem needs and how they want to go about building grants whereas um on Solana it's like super centralized on evmos it doesn't exist in fact we've applied to to do grants on Atmos um so yeah it's pretty stratified yeah notices I think has also like

you know quite a few quite a lot of resources to have a team you know behind our grants program they also have like years of experience around say like Dow governance and things of this nature I think they're fairly well placed to uh you know it's not it's not surprising like their grand grants program is like well structured and like um from from a tooling perspective but also like a human perspective um and what are the roles of sorry go ahead no I was just gonna say they're very competent yes they are very competent uh actually like fidelica was on was on here last week um so what's the what's the role of Foundations typically in in in this whole you know public goods grants

program um business uh and and I guess you know our our foundation's roles primarily just public goods funding in your view or do they are they meant to serve some other function I'm I would say more like generally a foundation's goal is to not exist um so it's kind of a means to an end so if you talk to any lawyer that sets up a foundation for a crypto project or a chain um one of the big concerns they have is the dissolution of the foundation itself because the ultimate goal is for the foundation to kind of disappear and for the ecosystem to be able to run itself um I think that with grants we see that

pretty often so you can go to pretty much any any change I'm not saying it's all chains but a lot of chains don't really want to run their own grants program because it creates a lot of overhead for the foundation um and it kind of engages them in an activity that's a long-term activity ideally what they would like to do is um decentralize that mechanism and kind of not have to deal with grants and let the community decide What receives funding um that's like a a very difficult goal to achieve I think in the short term and it kind of requires a centralized mechanism to start because who's going to put in place these processes um who's going to lay the foundation or the or the the groundwork for all of this and um but I think ultimately the goal is to

to have the community take it over and I think there's different ways of doing about doing that right now the git coin released Bitcoin protocol right um the idea here is that any chain can use gate coin protocol to run a Bitcoin style grants program how decentralized that mechanic is from a technical perspective can vary although like with quadratic funding and everything like they're they they make they they try and accurately accurately reflect a community's point uh point of view but the actual funding mechanic where the money comes from and everything is so I think fairly centralized um I think that's where maybe we can bring a little bit more Innovation um to how all this kind of works

you're immunity yeah in the intro I uh I said that you know you thought decentralization is not the goal as when I asked you what your most contrarian view was this is what you told me I still don't know what you mean by that so why do you say that decentralization is not the call what's the what's the whole idea here okay they're like like they're to me they're like two type two types of decentralization there's a technical decentralization and I wouldn't question that I think that that is in and of itself a goal and I think that that's what a lot of this space is striving for right now um I think it kind of gets mixed up with social decentralization which is uh the the the the the human mechanic the

governance mechanic um around um a lot of what's being built in crypto and I do think that that makes sense for a lot of projects um say like public goods or open source projects blockchains themselves um but there are a lot of initiatives that don't necessarily need to be sent decentralized creating decentralization also creates complexity um without necessarily getting rid of the whole idea of hierarchy so even though you can have all these different voices talking eventually and this is I think anyone who has participated in a tao or in governance can see that there are certain people that are leaders versus others that are either followers or listening in or or just participating um so I don't think that

decentralization at the social level is necessary although um I do think that it's a means to an end um so for just like just to be a little bit more precise about that what I mean is like for example if you airdrop tokens to a bunch of different people based on their own chain activity you're effectively decentralizing a new protocol or a new blockchain right um that's still a means to an end you're just discharging the legal obligation of a centralized entity by doing that and you're obfuscating it in some way and that's that's the end really right um but if you want to have like effective um effective um if you want to build effectively it may not be the best way to have decision making work because decision making is

going to be long it's going to have to go through these processes where there's a discussion and then a proposal and then a vote and then the actual implementations so it slows things down um and that's fine it just depends on the context so for me it's just a tool it's not a it's not an end yeah I I tend to agree with that and you know I I think this this this came up a lot in the atom 2.0 discussion right this idea that there would be these councils that would um effectively be um be awarded some some chunk of the treasury that they could then spend or

or invest in in projects uh you know within specific I guess like niches right so like kind of like a sub-dial model where each subdial is tasked with say funding marketing or funding like some specific piece of infrastructure like the cosmos SDK or whatever and I think overwhelming like you know most people recognize that um doing the kind of due diligence that one needs to um to be effective at you know funding public goods is not best uh you know the the the sort of wisdom

of the crowd mechanism doesn't work best in this in this uh in this type of scenario and then what works best is when you have domains people with a high level of domain expertise that you know look at um projects and then decide on some criteria that they've established whether or not those are good projects to fund um maybe that gets replaced by some kind of you know AI driven decision making tool process in the future but in the same way that you have like uh AI driven um funds right it's like there are funds that that do have some kind of AI component to their due diligence

um but what we want is we want decentralization of the governance and the governance technology that allows these you know these committees these these councils or these these bodies to um to be voted and revoked if the community deems their work to be uh you know of little value or or Worse um and to be promoted when they do good work and so I think this is this is what we need what like what we really mean when we say decentralizations like we we want to decentralize the framework we want to decentralize the framework that

allows you know essentially a form of democracy to exist and and I I kind of overlap that on top of existing existing governance and it's like democracy right like Frameworks um and and see those as somewhat flawed because there there isn't a strong enforcement mechanism um that allows all of the rules of those democracies to be um to be enforced you know and like we see this you know in in sort of like everyday uh in our everyday lives with government and things of this nature

right like um Democratic Society and and um but we still need as long as we don't have like artificial intelligence they can replace uh human decision making we still need the you know humans making decisions and taking and being leaders Etc so I think it's helpful for people to uh to recognize that there are a little different like there are different things that we need to decentralize and and people is not necessarily one of those things at least not yet let me ask you something I mean I I like over the past year or so I've been I've heard this like word or this phrase

thrown around a bit it's called it's true decentralization um does that mean anything to you uh I could take a guess I I guess I guess maybe what people mean by that is they probably mean like some some system where some some system by where by which but you know whereby uh miraculously somehow we've been able to fix civil resistance while maintaining decentralized Anonymous identity and people are very kind of involved in voting and there is a high voter turnout

and we're able to make decisions like very effectively is that is that what what that means oh I don't know I mean it's like I think it's up for anyone's definition I just hear it a lot okay but I think that's what people probably mean they probably like Imagine This uh this world that that doesn't exist right now like I mean if like I think one of the big issues with uh with governance at least you know in the decentralized blockchain uh world is the problem of of civil attacks and we haven't figured this problem like how to fix this problem without um without central authorities that uh that or like I don't know not not you know

coincidentally another project called the orb that that tries to do this uh you know this this retina scanning thing um we did an episode on epicenter uh for those interested with the orb but um yeah like if if you don't have effective you know identity mechanisms it's very hard to do this in a way that's reliable yeah I would totally agree with that yeah what do you think traditionalization means I don't know I like to I mean to me like I like to think of maybe exactly what you're talking about but I would put a different term on it I call it like perfect decentralization um rather than true decentralization like if you imagine the most perfect world of you know decentralized

organization it would probably resemble something that um you know close to like what you described um to me true decentralization would be whatever we want it to mean in a particular context which is kind of what I'm trying to what what I would like to promote which is um if you have 50 people that are able to make effective decisions in a decentralized way where they each have some share of vote voting based on some criteria um then that to me could be true to centralization as much as like 10 000 people engaging in this mechanism um it just depends on the context and what the goals of the organization are yeah yeah I guess yeah I I think there is

some I mean like nature tells us and and also social kind of you know our our social systems uh that if you want efficiency you probably want some amount of hierarchy um I I don't know I I'm no social scientist but uh I I think that's probably true or Anthropologist or whatever like not even a philosopher so I don't have no idea what I'm talking about but uh yeah I think this is probably the case and and it also applies here uh you know like even in protocols that are I'd say fairly decentralized

um in their um organizationally speaking so it takes something like Juno right like Juno [Music] doesn't like Juno is very organic right like it came together in a very organic way um it doesn't have like this VC funding I I don't know if there's even like a company I guess I'm not quite sure there but like you know those people are pumping out code and like pumping out features faster than just about anybody in the ecosystem but but there is no real like centralized leadership but there are leaders like there are leaders and there are people who lead you know the the

ecosystem and the teams and whatever like they there is hierarchy in that system it's not a flat organization as much as people wanted to be or believe it might be but there are people who are sort of like leading the charge and um and uh and being leaders like that's what leaders do right like they they sort of inspire people to do things and and like um and this is what like guys like Jake have been really good at is like being um very prolific leaders that inspire people to build things and and so that has allowed them to be very effective at pumping out all kinds of you know code into production and like Dow Dow and all that stuff like

you know it's like moving very fast much faster than other chains and other ecosystems that you know have all this VC funding and and so on so so yeah hierarchy man it does work um so yeah like I want to talk about this like this uh staking thing um that you guys are working on so this is an idea that you came about quite a while back now I think and like you know we've been chatting about this I know for for quite some time and it's this idea that one can you know leverage their staking Rewards or at least a part of their

staking War rewards to uh to fund public goods right so when you stake you get some rewards right for securing the chain or participating and securing a blockchain so if you're on Cosmos uh you know or like any Cosmos chain you'll get staking rewards if you participate in liquid staking you'll also get some uh staking rewards there although the tokenomics are a little bit different here but but you do get some rewards and people are used to you know some amount of apy here the idea is to say hey we're going to allow you as a delegator to stake your tokens and then you get to decide

some percentage right could be ten percent five percent it could be 100 of your of your of what you would normally get let's say you get let's say you get 20 on a chain right well um you'll you'll give half of that you'll get like 10 percent to some public goods funding thing so it could be a dow it could be a grants program or it could be directly to some thing that you want to fund and then the rest of the rest of the rewards go to you so you still get half your rewards you're still happy you get you still get something but you you get to also uh do something good with uh with that kind of free money that that you'd be getting uh anyway

so yeah I this is like I know like the last time we chatted about this this is where this is where you were at and yeah um yeah is that is that sort of still accurate and or has it evolved since then I think that like there's like a theoretical way this works which is really you relate it out like perfectly um and then there's the practical way of like how to actually build a product that people can engage with to to do this so like if you look at liquid staking today it's pretty straightforward right you deposit your tokens you get a synthetic asset and you kind of move on with your life there's not so much you don't really have to think about how the yield gets accumulated or or anything like that you

just when you unstake you get the yield that goes along with it um when you're thinking about using yield or or block rewards in a different way there's all these different questions that kind of come about so um for example if you're giving a portion of your yield to fund public goods in any of the ways that you described um how does how does a synthetic asset work in that case what's the value of the synthetic asset um if you create a synthetic asset and then sorry this the second part of that is if you're donating to or if you're let's let's let's stay away from the word donating because it can be donating and it can be it can be funding depending on the context um

if you're using your rewards to fund uh projects um what sort of governance do you get in exchange for what you're giving in terms of the amount of funding so what sort of governance mechanism might you be able to develop around this and if you're doing this both with the synthetic and the ability to govern who is the yield accumulating to is it accumulating to the synthetic asset holder or is it accumulating to the original sticker and what are the consequences of that so that there's all these like questions that arise when you try and build out this mechanism that are kind of difficult to answer and this is sort of what we're playing around with right now is we're just experimenting with all these different systems and how they might work in practice

um I think that right now like the whole the whole reason we kind of embarked on on this idea or we wanted to build out this idea is because right now if you want to take risk in crypto you basically have to do some Capital Outlet you're basically putting your existing position at risk um so I have to spend money to make money or I have to invest money to make money um if you think about using block rewards to do that rather than your principal or the capital that you already have you can limit your downside because you know that your downside will always be whatever Capital you're already holding can you just use your block rewards to invest um and so this is kind of like a a way to hedge your bets a little bit obviously like your block rewards don't

amount to nearly as much of the capital that you might have at the outset um but it does allow you to to have some flexibility in managing your risk a little bit better so that was the original Theory and everything kind of beyond that is all like technical mechanics about how to build this sort of system and what the user experience looks like um so yeah I'm not quite sure I get this whole risk management thing because I mean like uh staking is a fairly low risk uh activity um what what is the what is the risk that one is hedging against when uh when performing this strategy yeah so like if you

um so you can you can you can stake of course and that's like a really low risk um investment let's call it um let's say you take your synthetic acid and you go you lend it on a lending protocol right at some point if you want to unstake let's say it's like a bear market and a lot of people want to withdraw their steak you have to go but I guess it again to be able to unstick so you're taking on this risk and if you're not engaging in liquid sticking then you're using your base assets you're risking those assets if you're just risking your block rewards and you don't really have so much um as much downside I mean you're talking about leverage I mean you're talking about yeah if you take those those uh synthetic derivatives and then leverage them in order to to lend uh

some stable corn or some other assets that you're taking a risk um do you know about some of these other so there are a couple teams and you get some right now that are like so there's like no lists they're doing um essentially leases right so you can you can um get a loan for uh bait you so I can't remember how it works yeah but basically you're getting a lease and like say you want to buy like atoms with usdc um or actually no I'm not quite sure how that works but anyway basically you get a loan for part of the CL part of the loan actually

uh is kept as collateral and staked until uh until the the principal has been paid off so it's like essentially at least two to buy cryptocurrency right um and then there's another project that as we come across it's called interstate and they do Lending uh with staking with uh staking asset as collateral so you take out a loan and the loan pays for itself with the staking rewards so essentially using like you're staking position as collateral yeah and it pays for itself which is kind of like yeah I mean why not why would you know

it sort of like removes the layer of abstraction which would be to I mean you could one you know you could do this if there were if there were um uh lenborough markets on on staking assets which there certainly are like in the eth world you know you could you could effectively do you know do the same thing um but they're building it as a product um how does that how does that like you know mechanisms like this play into what you guys are doing is if it's effectively it's the same thing where like you're sort of using this staking um asset this Revenue generating asset to generate some some uh some amount of

money that uh some Capital that goes to um to a public good or a Dao or like a funding mechanism yeah yeah so I think like the the general way to think about this is basically using black rewards as um to base subscriptions where a subscription in this case would be paying paying off a loan or um you're subscribing to an investment fund by basically just every month or every Epoch you're like contributing yield to to a fund or even like if someone wants to charge a subscription and eat or a subscription in an atom or Atmos or whatever you can use your yield to basically finance that subscription um and I think that that's sort of like the general umbrella that all of us might fall into

um but what's very clear is that a lot of people are really conscious about um how block rewards can be used differently and even the sources of revenue or the sources of of yield so like tradition so there's a really interesting um I'm sure this exists on ethereum I just don't know what it's called but um in Solana there's a liquid staking provider called Jito um they started out by creating Med software for validators um what they do is now they have a set of validators that um that generate um revenue from Mev um and distribute that Revenue back as staking rewards so not only are you getting block rewards but you're getting a boost in your black rewards because the Nev is coming back to you as a Staker so that's like a revenue you know

increases the amount of Revenue you're generating from staking and then there's the outlay which is all the subscription stuff that we're talking about so it's just I think that there's something happening There's Something Brewing around um staking right now because it's a really reliable way of uh both accumulating capital and spending that capital or using that capital yeah I mean you brought up Mev here and I think I think there's also sort of Something Brewing um uh here as well where yeah I I I feel like I mean this this is sort of a little bit a little bit off topic but when when looking at the way the ecosystem is evolving

I think that there will be I think the app chains are going to play a fairly important role in the ecosystem moving forward so I was reading this article earlier today um I have it here still but uh yeah the inevitability of uni chain um by uh Dan elliser of of nascent and and you know you know what he's arguing here is like he's saying look it's inevitable that big protocols like big massive uh protocols on l1s are going to move to applications specific blockchains like

they're going to want to become their own chains um they'll probably have outposts on other chains this is kind of what osmosis is doing you know they have their own chain but they plan on having outposts on on other chains that allow you to access liquidity on the main on the main chain and the argument for this is the argument that he lays out which I think is pretty interesting is [Music] um as as a as a deck like as a true user of this app right so as as a Trader of Eunice on uniswap um on ethereum uh you have to pay basically three fees you got you got your swap fee uh you have the network fee and you have

the Mev and any centralized Exchange a user of a centralized exchange only has to pay the swap fee they don't have to pay this network fee or you know like get like super high slippage or basically like have value extracted from each trade with Mev and his argument is that or you know I I remember if he argued this but the way I see it is in a world where we have app chains where app chains get to provide more value to their users by being more cost efficient and also

through Mev bring value back into the protocol you know the unit swaps and the compounds that are on ethereum layer one are not going to be able to compete with those protocols so they're either going to lose in relevance or they'll have to change and they'll have to go on their own chain and that's sort of like then begs a question of Mev and what uh the place that Mev then uh sort of takes in terms of allowing chains to fund things within their ecosystem so you know if like if they in so I think osmosis has been what's been discussed and what Sonny's talked about is like let's internalize

let's let's eliminate a lot the Mev that we can eliminate through batching and stuff like that with Mev that we can eliminate let's try to internalize it in the protocol uh let's build it let's build it into uh into this into the protocol such that that those funds can then flow back um you know to provide value for users by like investing and uh and and like you know new features or or like paying a dividend or whatever right and I think that's I think that you know it's like I I think it's uh it's an interesting shift in terms of business models for blockchains um yeah yeah it's fascinating I I didn't

know about any of that so um so yeah it's really interesting I'll I'll show you the I'll put the link to that article in the show notes it's pretty it's a really good article those are in like a couple months ago but um but yeah so yeah like as um as people start leveraging their staking Awards to do other things than just you know like restink which I think is what most people do like probably probably most people just restake or or sell their staking or it's like to intake profit as we move towards well hopefully you know a world where a portion of staking rewards are used to fund things

um what do you think that looks like and you know where does that money go does it go to does it go to Dao's does it does it go to um you know it's like back to foundations just so they can then allocate that Capital like where does the money go from there I think like anyone who participates in this mechanism wants to will want to have some level of ownership whether it's direct ownership or or indirect ownership over how those funds are used um so there's different ways of of imagining like how this could work so you could have this go into a grants program like a sort of a decentralized grants program um and then have people vote on how that money gets allocated specifically for

say public goods right in that case you don't really expect a return from Premier investment you're just expecting that whatever you're you're putting money into benefits the ecosystem more largely and it's kind of like a feel-good thing right like it's it's get coin-esque if you will um but you can also Imagine like having decentralized funding mechanisms for for startups or for or for dapps or whatever anyone can come up with in which case like you're putting money into this fund that fund gets allocated to a project and then I don't know six months down the road or a year down the road you get an airdrop from that project and so you get not only do you get that your your staking yield but you also get any potential air drops because you participated in the early financing of these projects I don't know to what

extent yet that this can disrupt traditional financing models or traditional funding models like BC models or angel or seed models or whatever um but potentially it could be a new way for projects to raise funds directly from the community rather than having to take on private investment at the outset there is some Nuance to this um so if if um if the token so when you're participating in this right it a lot depends on the price of the token um and the apy uh both of those factors are important because it ultimately determines the dollar value of the funds that are the total amount of funds that are being raised and then there's a Time Factor so if you have like a low token

price of like say it's like a dollar at seven percent apy it's going to take a lot of time before enough yield accumulates to be able to make some interesting um like financing decision whereas if you have 300 API and your token is worth uh I don't know six bucks then that gets you to the point where you can fund a lot of projects really quickly um without having to wait for all this yield to accumulate it becomes a dollar terms it's really it's really interesting or if you have a token worth like 1500 bucks and the apy is five percent it's the same thing right like even though the apy is low um in dollar terms you're able to raise enough funds to be able to make interesting things happen so in the app chain perspective especially especially

for newer chains in the in the um in the cosmos ecosystem they often offer like really high apis to to start to incentivize people to come to those chains so they're like great candidates to start um to implement this sort of like decentralized funding mechanism because the apy is so high and sometimes I mean obviously right now things are a little bit depressed but in better times when the token prices are a little bit higher um it it could be like a really interesting mechanism to to fund an IBC um that those are sort of the mechanics of like how I think all this will kind of end up working where are you guys uh where are you guys planning to deploy this right now like

what's the what's the road map to to launching the first product and where do you hope to launch it so there are two there are two aspects of this one is the chains chain or change that we choose to launch it on and the other is the Partnerships that we're able to develop so um our reputation system that we were building previously was on Solana is on Salon it still exists in anyone can use it it's an open source project um so we have a lot of connections in Solana and it's an easy ecosystem for us to to integrate with so we're working with marinade there there's the largest liquid staking provider on Solana um the way that this works is it's a layer on top of marinade so we're not going to build rebuild all the liquid

sticking you know infrastructure and smart contracts we're partnering with we're going to partner with marinade or we are partnering with marinade to be able to to make this happen um we're also going to use quadratic funding in the governance mechanism to allow people to vote in a for funding decisions to take place in a way that better represents a community's voice so for that we're planning on using get coin protocol we're doing some like very very big basic implementations uh to start um but that's the idea is to rely on all of these all the infrastructure that already exists that people trust to be able to facilitate this and then we're going to build it on Atmos as well well it's going to be an evm compatible

version so we'll we'll start it on Atmos but the idea is that any PDM compatible chain could could deploy this and then we'll see how IBC I mean we love the IBC ecosystem of the like what people are building there is really really interesting it's still a little bit early so in terms of liquid staking for example um so that we have a goal to build there but maybe not um immediately you mentioned you you mentioned reputation and uh yeah I I when when I think about this if one of the things that comes to mind is how do we leverage the um the on-chain data and the actions

right so like the um the intention and the action of uh of donating part of your staking rewards how do we use that as uh information that allows us to make decisions later about say like you know lending right but essentially uh how do we use it as a as a way to attest um reputation based on you know on like virtuous Behavior I guess um and I know you've been thinking about right reputation for a long time and you guys have built um this this reputation system on on Solana uh yeah how does that how does that fit

into all this um okay I mean it's kind of like a it's a very deep and loaded question um [Laughter] um there are two aspects of reputation there's like the source of reputation and then how reputation is interpreted so reputation can be uh on chain and most people would like to consider on-chain reputation first um the problem with that is basically a unifying reputation under one identity um so how the did plays in uh on Solana and ethereum there's a project called Civic that we work with to to make to basically facilitate this uh this reputation

uh Paradigm where it's like you know you want to associate everything to a unique uh identity um how people or or ecosystems or chains or daps or whatever want to interpret reputation is kind of up to them like how how you how you want to value a particular action um is shouldn't be controlled by anyone there should be no like points value or anything assigned to a specific action universally um if I decide to lend on uh on soland in Solana um Solon might interpret all of my wallet's history in some way that is different than if I decide to uh I don't know um

I don't know like do something else like uh like okay I join a dial right and I want to participate in the governance of that Dao um how that Dao sees my entire history is going to be very different and then issue me like Rewards or roles or access or authority or whatever is going to be very different than hustle and interprets my wallet's history um what I think is kind of interesting is combining off-chain reputation with on-chain reputation which requires a sort of like on-ramp for all these off-chain things that are happening um that's part of the protocol that we've designed you can have um off-chain attestation submitted and go through a validation process using a multi-sig um

so I don't know basically the answer to your question is that there is no answer it's all up for interpretation the most important thing is just creating a set of interactions that represent whatever you want to consider reputation to be and then assigning some value to that um either on aggregate or based on individual uh actions yeah I I feel like you know I I have this I have this uh this kind of conviction that [Music] um and I you know I didn't think of this this is something of something I read right so like uh if you know Nick Grossman wrote this article a couple

years ago about how technology evolves in these infrastructure and application Cycles right where um you have infrastructure applications that Inspire infrastructure that Inspire applications Etc and like I feel like the infrastructure for attestation attestation infrastructure essentially is kind of mature like there's all sorts of attestation type services and you know poapp is is a very simple example right it's like it's that you like you are part of some Community or you've

done something you've been somewhere or met someone and like you can infer things from that and then there's like gitpo app and you know there's all this other kind of attestation stuff that and you know to some extent like nfts are also a little bit you know uh as a station that you're part of our community and and I feel like that infrastructure is there it's it's it's mature and that in the next kind of application cycle in the next you know two to three years that people are going to use that uh to do really cool things and I don't know what that is yet like you know folks have been talking about you know leveraging attestation and kind

of reputation to do under collateralized lendings like Financial things um but I I I I feel like there's like there's like a a pressure cooker of really interesting applications and use cases that people will start building using this this on chain data um what do you think some of those things could be have you given any thought to what these applications could be yeah I mean more than thought they're like um Dows or or apps that we've um spoken with about putting in place these reputation systems it's it's still really early like there's this whole identity piece that's still kind of missing a little bit um yeah well come back to that we come

back to the identity problem yeah um one of the like the biggest thing that we see anywhere is governance so if you want credible people to participate in the governance mechanism and such that um you don't want to you don't necessarily want to give the same weight to someone that goes out buys a bunch of tokens and begins participating in governance and and influencing things in a doubt um that aren't aligned with that Dao's Mission um that's sort of like the number one thing so um actually a great example of this is uh what happened on Mango markets so someone basically manipulated an oracle acquired a bunch of tokens and then asked a proposal for them to be able to withdraw a bunch of money from the protocol um so like like that shouldn't be I mean

if you if a rep I don't know I mean it's it's a deeper um you have to think about how deep you have to think deeply about how to prevent something like that it's not just like oh a reputation system solves solves for this problem but um using reputation could be an interesting way to prevent something like that from happening um so I think governance is like a huge a huge piece of this under collateralized lending is another um big aspect of this and there's different ways of doing that so um like who who is going to give you a loan for example and in what denomination will that loan actually occur so let's say I'm part of so I'm part of grape dial right

um if I go to Grape and I have a high reputation maybe I have a specific token for reputation and I can use that reputation token as collateral to take a loan out directly from grape right in grape um so you keep this this like underclass under collateralized lending um system in the context of a specific Community because the Dow itself has funds that it might be able to lend to its users which is the case for a lot of doubts um or if you want to make it more Broad and I want to take a loan out from someone I don't know maybe it's individualized loans and it's not going through like a pool of capital right um there's all these different ways of imagining how under collateralized loans might might work um and then uh more generally one that we

are uh when we really like is for airdrops it's like it's just because you participated in this defy app and you learn you lent here and you staked here and you did this and this and this does that really make you qualified to get an airdrop that then leads to you having governance power maybe it's specific actions that you want to incentivize in which case like why not go all the way towards interaction-based yield rather than stake based yield I don't know there's like all these um all these different um ways of thinking about how to integrate reputation in into the accumulation of financial value which could in the future perhaps be more correlated with governance power where you're not so ready to sell off your tokens because they also have some representation of of

your weight in a community or your governance power in a community um and your choice to participate in that Community really yeah yeah I think like the biggest issue here will remain and probably at least for like the next few Cycles is the is the identity aspect and I I really think we haven't quite cracked that nut yet um we need to create the right incentives for people to to want to participate in identity like why would anyone just connect their wallets to like to one did for no reason right like what's what benefits people do this all I mean people people do this all the time I mean like I mean the other the other

issue with this is and I tweeted about this earlier because uh icns which is this Cosmos like interchange name service just came out and and you know like people are like and as they should be because it's cool right Say Hey I want to have like my own Cosmos domain name kind of ens sort of like ens and you know it's like I don't know 10 000 people already have registered these things and I was like guys this is this is cool but hey uh by the way you know that by registering your yeah your your icns name you're effectively disclosing your past present and future transactions and there's no going back you know and and sure you can you can choose not to dox yourself and

um you can create like another wallet with another Identity or like another you know another name or something like that but like well first of all sure but um you don't know what what's a future governments or companies will be able to do with the information there um also it's really hard not to dock yourself because you have to send funds to the thing to the headdress that's registering the toke the The Domain in order to pay for the fees so this is a problem people have had with with ens but a lot of folks would you know do a tornado cash transaction start a new address fresh have the fees there so so they could pay for it

um but the thing is that like most people don't recognize this you know like yeah I was I was sort of writing in this tweet that you know like Tyler that listens to bit boy crypto and nothing against guys named Tyler it's just a common name but like that guy you know heard of her bit boy crypto talk about Adam a month ago he just bought his first you know his first Adams he's like oh great like you know I'm gonna like you know I'm gonna do this domain name thing he has no he probably doesn't have the um the doesn't have the understanding of crypto to recognize the the tax risks the security risks the personal sovereignty sort of personal privacy risk that Associates disassociated with tying your

you know you're on your online identity which may be sort of closely tied to your own identity sort of doxed uh with an orange Unchained identity and um so that's another issue with identity is like not only do we have not have good mechanisms for uh ensuring civil resistance without tying things to people's real identities but beyond that we don't have the right tools to um to allow that to exist with privacy so if we had some kind of like zero knowledge thing and I'm not actually there's I could have asked this on the podcast on that podcast but right now epicenter is being recorded with Anna Rose from the zero

knowledge podcast about like the future of zero knowledge and uh I would have lost asking this question but if there's a way to basically have addresses to which you can only send funds but you don't know actually what's going on behind there um that would be pretty terrific I'd say in terms of at least solving that privacy problem um yeah I think those are like you know I think identity and closely tied to that civil resistance and also privacy are the big challenges that crypto is going to have to face in the next in the next one to two cycles if it wants to get any kind of adoption um it's really the you know it's like the it's the https moment

yeah for crypto you know there was there was a point with the internet right where people started putting their credit cards online and that became really dangerous uh and you know https was was invented but this happened really early this happened like mid 90s right and sure it was vulnerable and like you know there were multiple um iterations on in order to make it secure and now like https is everywhere but you know up until like I think 2000 and 11 I want to say you know most websites didn't have https right and it took Google it took Google and Chrome and a big

flashy warning sign that yeah they basically forced on people uh in order for the whole like basically the entire industry to move to https I don't know how that happens in crypto in the first evil futures I don't I don't know either I I think that we're a lot farther away from that than maybe you think we are I don't really know oh no I think it's quite far yeah I think it's it's I I I think that I think that probably will see probably in this cycle we'll see the first um we'll see the real like first real at

scale privacy Networks um basically go live and in production so there's things like penumbra inoma um the ZK VM stuff right right it won't be until the next cycle that that stuff really gets picked up and integrated in uh in the entire uses at least so you know we're probably looking at you know three to five years until we have really usable um privacy Solutions and that's just on the Privacy side that's not on the identity side I think that's by to some extent maybe even harder problem oh yeah I would say so yeah I'd say the the last the last problem that I see or actually

perhaps maybe even a more um um Crescent problem is um being able to purchase real world items in crypto I think that oh yeah like it's not really a problem in and of itself but I think a lot of people would like to avoid the toxic of exiting crypto like if you live in Europe or some places in Europe yeah so long as you don't go to Fiat you're fine um I mean it would be amazing if you just paying usdc or for youth or whatever for you you can do that you can do it on gnosis what do you mean oh so I mean you'll have to listen to my my interview with felica last week but basically they have this product on those chain I think it's still a common

beta but where you have this debit card or yeah this kind of easy type of card um the card itself is a hardware wallet so the chip on the card holds your seed phrase when you go to a payment terminal um there's and this happens in seconds there's a transaction that sells uh that sells your stable coins for Euros or dollars on the spot okay so it's not like one of these where you have to sell first and then put it in this kind of here's the stuff here's the money that's on my credit card like so many other blockchain or Bitcoin or credit cards it

sells it on the spot and if the merchant accepts usdc and they have a partnership with this um payment terminal uh company if the merchants except usdc it bypasses the Visa Network and they get usdc directly well so if they don't have it you just pay with Visa like if you don't have it you pay and um and it sells you it sells your crypto for dollars or euros and then they they get dollars a Euros just as they would with any other credit card but if they accept usdc and the payment terminal recognizes that they do it bypasses the Visa Network and you pay

with your card and they get usdc that's sick wow cool yeah that's really cool yeah yeah yeah yeah so they have they have it sort of as a prototype right now uh but they're they're gonna be rolling it out yeah it's is that it's super cool is there a hardware component I mean I'll listen to the podcast but you know but basically no I mean like you have a credit card and you get to pay at any um any anywhere where you can create Visa but if that Merchant happens to use this payment terminal that accepts you SEC which for the moment you know probably isn't very many but they'll probably you know what what happens here is that payment terminal then can offer it as a as an as an option so like if you're you know Patrick's baked goods on

the corner or whatever um you you can say hey I can accept uscc and and then anybody who comes uh and uses that credit card will just pay you a uscc directly that's amazing so you need the point of sale to be able to accept uscc but that's like I mean yes whatever I mean it'll get there at some point I mean I think I think it's just still cool like technically that they were able to use they they like they I I I I did an interview with Stefan and in Berlin a couple months ago which is on the channel where basically he explains how this works and it's um they're using so there's like arbitrary messages like Visa protocol has these messages that it sends and whatever and like there's like a message

payload that that they're leveraging in order to do this and like it's it's kind of getting deep into like Visa protocol stuff but I think it's kind of it's kind of interesting amazing yeah yeah anyway I think we'll we'll edit there uh go watch the episode uh if uh if you want to learn more about that it's last week's episode uh you Patrick but also anybody who's watching you're listening and yeah thanks for uh thanks for coming on um great chatting and uh I always love chatting about this stuff with you so me too get you on get you on the channel and I'll have to come again and we'll have to get Sharon and come on too because uh uh I I I I I I also like like chatting with us with him about this stuff so

yeah he's got some interesting ideas yeah for sure so thanks for having me here yeah yeah of course uh Merry Christmas to you and the fam and also to everybody who's listening happy holidays uh this is the last episode before uh for Christmas so um hopefully I'm trying to get an episode I'm trying to get a sort of panel together next week with maybe four or five people like a state of Cosmos you know kind of like wrapping up the year right before New Year's uh live stream so hopefully we'll make that happen uh if not I would be back

in January uh to kick off the new year with uh more interesting content so thanks for joining and we'll see you very soon