Episode 239 - IST and Designing Stablecoins in Cosmos

Transcript

[Music] welcome to xero knowledge i'm your host anna rose in this podcast we will be exploring the latest in zero knowledge research and the decentralized web as well as new paradigms that promise to change the way we interact and transact online this week i catch up with zucky from sommelier and dean from mcgorrick we catch up about their respective projects and then explore some major narratives happening in the cosmos ecosystem specifically we recap the ust collapse fallout and impact on cosmos we talk

about the move of some apps from roll ups to their own app chain as well as projects looking to be increasingly exposed to ibc or bridging into the cosmos ecosystem finally we look at ist or inter-stable token a project being developed by the agoric team which is meant to be a cosmos native multi-collateral stablecoin we look at how they are thinking about it how other projects successes and failures are influencing its design as well as the role it hopes to play in the ecosystem now before we kick off i do want to highlight a new video series that we are launching this summer called the zk whiteboard sessions it's produced by zk hack as well as the zk crew from polygon in it hosts bobbin and brendan interview top experts in the zk space exploring

the most important concepts and building blocks of zk i'm going to add the link to this in the show notes and it's definitely a great resource to watch out for we're just starting to release these whiteboard series now so you might want to check it out we also have three introductory videos for the zk whiteboard series produced by dan bonnet from stanford so you can already check out a lot of these videos over at zika hack one more thing this september the zk summit returns for its eighth edition and we are bringing it back to berlin it's happening during the berlin blockchain week be sure to apply to attend spots are limited so get your application in soon now tanya is going to let you know a little bit about this week's sponsor

today's episode is sponsored by elio elio is a new layer one blockchain that achieves the programmability of ethereum the privacy of zcash and the scalability of a rollup if you're interested in building private applications and check out elio's programming language called leo leo enables non-cryptographers to harness the power of zkp's to deploy decentralized exchanges hidden information games regulated stable coins and more visit leo lang.org to start building you can also participate in elio's incentivized testnet 3 by downloading and running a snark os node no signup is necessary to participate for questions join their discord at elio.org discord so thank you again elio now here is anna's episode with dean and zaki [Music]

today i'm here with dean from mcgorrick and zucky from sommelier welcome to the show guys thank you for having us great to be here i'm very excited to catch up with both of you one of the reasons that we're doing this episode is to talk a little bit about general kind of cosmos narratives i wanted to talk to like people about the ust fallout from a few months ago and i felt like the two of you would be fantastic people to talk about this with and also we want to touch on sort of a new plan for something called ist but before we do that i mean you're both from different projects you've both been on the show before but it's been a few months and i think it's we're kind of due for a little check-in on what each of you are doing so let's start with

zucky you were actually on the show last october yep you presented sommelier i can definitely link to that in the show notes but you did just tell me before we started recording that a lot has changed so do tell me what has changed so um probably the last time we spoke uh similar was focused on uh like uniswap v3 liquidity management that was kind of our game um what we learned over the course of a few months was that basically any sort of decentralized liquidity management on like v3 style dexes is going to lose money outside of like a relatively narrow set of use cases around stable coins and

like you know paired assets uh like some of the stuff that like arrakis and gelato are doing it's a relatively narrow set of things you know if you are making money on uniswap v3 you are hedging on centralized venues um you are doing like you know there was 200 million dollars of flash liquidity on unit swap b3 um in the last year we basically like analyzed the whole uniswap v3 space um and like came back in december and were like oh we are not going to launch this product what whoa i'm not going to launch this product i'm not going to launch a product that i like i'm a hundred percent sure people will lose money on um so

in the meantime we had actually been like specking out like a different set of use cases for similar and we have sort of entirely pivoted to this um and the new use cases are actually probably going to be launched like within a week of when this episode goes live um we're looking at like july 20th as our most likely launch date um everything is done uh chain is upgraded smart contracts are audited like ui is done it's like really great so what we decided we really wanted to focus on is this like combination off-chain computation model or off-chain strategy model with validator driven on chain execution so like you have some entity who knows what it is it could be

a program could be a bot it could be a guy on a keyboard you have no it like the system does not define what this is is sending messages to the validators telling them what trades need to be executed on various smart contracts that we call sellers um and then those contracts are executed so we are initially launching with a ave stablecoin rebalancing seller um which is just going to go and say hey i would like to know which stablecoin i can get the best yield on ave and just like rebalance my funds into it i don't want to take like spot risk essentially like risk on the appreciation the asset like here's a list of stable coins because

there's actually quite a bit of volatility between different stable coins in the lending market um and like rebalancing this yourself is like a full-time job so this is the first thing that we're launching but really what's very cool about sommelier now is that we are a platform i.e you can launch pretty much any seller you want we have already started onboarding like external teams so we're building sellers on our platform really the only thing that is like slowing us down at this point is everybody's like this sounds really cool i just want to see money moving through the system i'm like i feel the same way and that's why we're starting out with this like very low risk stable coin seller that it's like will this make insane amounts of money for any

especially right now it won't uh yields will eventually go up like they will uh but like right now obviously like stable coin lending yield like demand is like is terrible um but there are actually strategies that we see coming that are really good for like kind of a bear market environment like this is a great time to be like hey like buy ste if the st discount goes outside of a range uh buy eth when it is like you know when it has moved out of like the two-week moving average right on the bottom side like there are strategies that are going to do that are potentially like huge money making strange but are like you need to be a like full-time trader to really run yourselves strategists can provide these strategies

on top of sommelier um and get this like sort of high reliability execution environment um and we are like we have a fully generic platform that can support sort of arbitrary smart contracts and arbitrary strategies uh today so yeah this is what similarity is now is like we are sort of an arbitrary strategy execution platform i mean you did have that strategy mentality before i just want to check something though are you primarily still looking to kind of work from the cosmos area but working over a bridge to with ethereum because like if you're doing ave you're talking about like the eath ave yeah the primary place that we're executing right now is ethereum um we have multi-evm support coming uh but

like it's gonna be interesting to see how compelling that is in the bear market too all of the liquidity has retreated to its home on ethereum um but like the general framework that we've built is applicable to cosmos it's applicable to uh ethereum it's potentially applicable to other chains um we're mostly looking for like where economic opportunities arise because like the whole point of this thing is to be able to like aggregate a significant amount of capital underneath it when you say the word seller i think we're continuing with the wine metaphor am i right it's a c it's not a seller like an s yeah it's a c-e-l-l-a-r

okay and these sellers are strategies there are contracts that execute strategies or they're vaults they're like comparable to like urine vaults or uh or enzyme vaults right but the difference is is they have this sort of unique thing right where you have off-chain strategies so you know you have this off-chain strategist the off-chain strategist can sort of make discretionary orders right it's the strategy's not fully on chain but you also have this validator set that can potentially swap out the strategist and so we have this like sort of interesting governance dynamic uh between the strategists the validators

the song holders like one of the other things that is just like we're really pushing for is to do a cosmos chain that where the rewards are not inflationary oh um so basically some holders and some validators do not make money until users make that money um and so that has been another big uh big piece of the experiment but you already have you have a change yeah yeah we have our chain has been launched for a while yeah we've even done the seller upgraded like i don't know two months ago we have been in a solidity smart contract audit hell process for a while and like that concluded on friday uh and so now we're just like we're like rearing to go very nice

all right let's switch over to you dean we had we actually had a conversation about agoric more recently i believe like this past year uh february actually 2022 where you introduced agorik we talked about and js i'm also going to link to that in the show notes if people want to find out more but you have since launched i think right or had you launched then i think you had not launched that so tell me what's going on on your side okay so agorak is a you know big platform play that's really important to getting mainstream developers into being able to do smart contracts by enabling smart contracts and hardin javascript as you mentioned but there are multiple stages to that launch so last november we launched the layer zero you know the cosmos layer

what we call main net zero which allowed the deployment of bld tokens it allowed us to do a public sale at the end of december and so forth but that was you know phase zero of several right um phase one is the important next step where we launch the hardened javascript platform and once that's launched then smart contracts will launch on top of that and i'll talk a little bit more about that we'll talk about inter protocol in a little bit but that's main net one now we're sort of steadily marching towards that with um test nets with a uh preview release of the bunch of smart contracts on the platform on top of it so preview

release of the inter protocol for other projects we've got lots of security audits third party security audits in progress and we have a economic stress test where economists are testing uh you know the economics of and analyzing the economics of the stable token infrastructure the amms and the and the other smart contracts that are critical to the uh mainnet one right now our strategy was always you know launch a set of contracts that provide a stable economy right the platform is you know build fast earn fast rapid development using a modern component architecture of interesting smart

contracts and being able to deploy them in a stable vibrant economy which to our mind includes having basic trading and having a stable token to grease the wheels of commerce in that economy and so all of that launches those first round of contracts launched in maine net one targeted later this year targeted q3 um after that is the next couple of stages are permissioned release you know governance determined release of new smart contracts of additional smart contracts so that uh experts building things carefully that go through security audits they can convince the community

that this would in fact enhance the robustness of the environment or enhance the richness of the economy that can get voted in and released in a permission fashion moving towards through additional security audits additional you know metering support all those kinds of things to eventually mainnet phase three which is permissionless and so we you know very carefully staged to allow this thing because this is not this is not oh my gosh let's rush out a platform that people can whack together crap right and and maybe some of it will stick this is you know building a platform that non-crypto developers can get into and if they can build an application now in web 2 they could go and build it in web 3 and that requires a level of support

and tooling and familiarity and training and all these things that they just take time to build now what's really exciting about main net one is it turns out that what we need to launch a stable economy is what the interchange needs for the the rapid growth of d5 in the interchange and so this is the inter protocol and our stable token for the igor platform so inter protocol like when you say that is that the name of the token because i've been calling it ist yes the token is ist for inter stable token okay ist and so and or ice tea as someone you someone on twitter every time i said

that he was envisioning this iced tea so now i want a glass of iced tea and and to have uh you know a rapper actor dictate our uh our advertisement right [Laughter] you didn't think of the drink you thought of the rapper uh yeah [Laughter] okay but you keep saying inter like the other word you're using inter protocol what do you mean by that then is that just like ibc or oh no no no no no so so inter protocol is about having a stable token that works across ibc so it is ibc native but it is a collection of smart contracts that form the the backbone of of an economy basically so it is a maker dow cdp style vault infrastructure

right but you can take assets over ibc so this becomes a stable token for the interchange and that's sort of the thing that has happened with mainnet one is it goes from being an initial release for this larger platform to being really critical and interesting for enabling uh economic growth in the interchange right so it is a stable token where the assets are not you know one token on one one zone that now you have to care about but they are community determined set starting for example with atom where you could bring atom over ibc lock it up in a vault uh to make it collateral and make it collateral so it becomes collateral that you then mint ist against and then you

can take that ist and you can of course use it on local smart contracts on the gork platform but you can also take that over ibc over to other chains so over to som over to juno osmosis you know evmos etc it can become not just a stable token that is usable in the cosmos ecosystem but because those chains can provide the asset that is the collateral that they're using it's not that they buy into our chain it's that you know i've got a bunch of atom i can unlock its power by using it as collateral and taking ist back to adam crescent devmos et cetera right all right so i think i mean one of the reasons you're here is to definitely

talk about this particular topic but i do think we need to do a little bit of backstory into why this is very relevant today and as i mentioned at the beginning of the interview or at the beginning of this episode you know ust and its collapse i mean what i now want to touch on is basically these like three narratives that i see kind of like coming they're very different the ust fallout and its effect on cosmos the sort of movement for like applications that were trying out roll ups and now they're creating their own app chains over on cosmos and i'm also learning about a lot of bridge projects or projects trying to bridge to ibc so these are like other networks trying to bridge in

let's kind of like rewind to may um i don't think i've talked about this at all on the show so i'm excited to do it i always like doing this by the way i always love doing recaps rather than trying to report news because then people have digested and like they can kind of look at it a little bit more calmly but i think the two of you were probably looking very closely at this as it happened ust was the stable coin ontario uh was very very key in cosmos because tara was built on the cosmos sdk so it was the first stable coin to really like proliferate within the cosmos ecosystem and then had a very dramatic collapse um that's my quick summary but zucky tell me a little bit about your take where were you at when this happened and

what did you think was going on so i was in croatia for a conference okay was there it was good fetty from evanos was there and like this was going on you know it had been interesting like you know right before that i had like literally been talking to mike novogratz about tara i had talked to connor about tara you know i was continuously sort of like the potential risk about tara was always well known but like what do you really do about it you also have this problem which we can come to later right because you know usdc is coming to cosmos um all of these things but like bringing usdc bringing the sort of dollar back stable coins to cosmos

has always been a challenge because in a bridged environment right how do you implement the blacklists that like a sort of core to the theory of compliance on these chains right part of the reality was so tara had been on the cosmos sdk since like mid-2019 right oh wow so long-time cosmos sdk user right so you know both been part of the ecosystem and not part of the ecosystem uh inclusion was a validator on their network in the early years inclusion is your validator company inclusion is my validator with my partners um and so like we had been part of this world we had been like paying attention to um we were very familiar with it we

actually wrote an implementation of like the tara price oracle um like a bunch of stuff like so we pretty engaged like sort of into 2019 and 2020 and then as 2021 sort of rolled on we got less and less comfortable with kind of where the terra ecosystem was going but on the other hand like they had a lot of money and we were trying to get some money to like support cosmos stuff right okay that was one aspect of it right like you know you know doe had announced this like project dawn thing right where he was like gonna you know allocate 150 million dollars to cosmos projects and like cosmos infrastructure which was great uh and we were trying to figure out like okay so like how do we actually get this money into into things that are worthwhile

like this was our engagement okay so you know keeping an eye on ust and then the other thing that was like very a big thing for cosmos right is a lot of like smarter actors in the space sort of figured out that the best way to do the sort of one of the most efficient ways of doing the sort of ust carry trade where it's like hey i'm going to take stable coins swap them to ust get my 20 on anchor was to actually route through atom route through atom rather osmosis go to go to terra right and so you actually saw this like massive volume and the way osmosis sort of does incentives right is pools that have volume get incentives

yeah from the actual osmosis treasury right yeah like we are providing extra incentives to those large pools so that creates these like recursive feedback loop where like the pools get bigger because of the volume the volume is getting bigger because of the anchor incentives people were like smart actors were figuring this out so then i guess so all of the stuff was very familiar with all of these things um and then like was basically like watching the binance order book in real time well you know they were jump and lfg were like trying to keep the peg and like watch it collapse watch it explode but then you know the thing that hap so

like sunday and monday were about that then what happened was you know there's this famous like leaked telegram group that you can see me in for a period of time and then i leave because basically what happened was it's like i was very familiar many other cosmos devs were very familiar with like the mechanism by which ust gets converted into luna so like luna like the mechanism of the stable coin is that at any time uh well to some limit but the limits are fairly large um you can convert luna to ust by burning luna and getting ust and you convert ust to luna by burning ust and getting one dollars worth of luna okay

at some point sort of tuesday-ish so you're talking right around may 20th i'm assuming yeah i don't i don't know what the days were but we're going like may 20th so i just remember it as this like crazy week okay so one of the things though about this mechanism was it there was never any ui for it you had to use the command line to do it and so at some point people who were on the trade realized that they could buy ust on the market turn it into luna and sell it as a profit so this put luna into this like hyper inflationary sort of cycle where like the price of luna kept dropping the price of ust is kind of actually stable

and people were just like recycling were just exiting by dumping luna on like binance and other markets that were forever and it was like okay like what is going to happen here so like the cost of taking over the validator set like becoming the single validator we would just watch it fall from like okay now it's like 100 million dollars then like an hour later it's like 10 million dollars then an hour later it's like 100 000 and like you're seeing this collapse right and i'm like guys you know so i start tweeting about the potential risks of all of this um sunny is also in a chat with them there are a bunch of other cosmos devs we're like okay

validators you have to halt the chain and then restart with staking disabled because otherwise like we have no control over this like luna ust disaster but there are like 80 million dollars of non-native assets on this chain primarily like eth and be eath and like other assets that had been brought over the wormhole bridge and we're like real worried about like the next phase of this after your head has become essentially free to take over the chain is some sort of attack on those assets right some sort of yeah ransom on those assets so i want to just give a little bit of context timing wise to what we're talking about uh it looks like i'm just checking it it was may 2020 may 7th was

when it started to depeg that's like i think uh what is this this is a saturday and so i'm guessing zucky the tuesday that we're talking about would be around the 10th and um it was that week that you were seeing this and what you're saying is at this point like the deep pegging has fully happened it's de-pegging it's ought like there's this automatic sort of like liquidation or like the price of luna's just going so it's not automatic like someone has figured out okay that there is an arb here which is i can take ust which no one will buy i can convert it to luna which someone will buy and that's hard to do you have to use command line to do it yes

but people started realizing you could do this and started buying ust to do this okay right but why wouldn't it re-peg ust if they're buying it well because it was dropping too fast yeah like there's the seller like basically the minute any liquidity showed up and like there wasn't infinite lunus liquidity but like a lot of traders were looking at this coin that was worth a hundred dollars and they're like seeing it for pennies and they're like oh like there's an opportunity here like i'll buy this not really understanding the mechanism that like infinite luna was being printed um the key here of about being able to take over the validator set is where there might have been

a billion tokens before i don't know how many there were now it was so cheap and the mechanic of luna was such that you could do uncontrolled minting that someone literally minted trillions and so now if you could take trillions and stake them you now have a validator that is a thousand times larger than the entire rest of the network and so all blocks would go to it it'll do whatever you want and you're now in complete control from a protocol point of view and what could it do though like you just mentioned there's all these other tokens on the network itself could they have started to just like make those tokens land in their wallets exactly you could just you know do a vote and vote to give all the money to themselves right okay um on another chain well but yeah but

they're in control of the end point of the bridge so now they can give all the money to themselves and transfer it off chain you know luna implodes but their money as far as ethereum is concerned or binance or whatever they've been told by luna it was transferred into the attacker's chain what are they gonna do although there would have been a couple stop gaps there i can imagine like bridge operators could have maybe done something yeah or it would just have gotten like a lot worse and you know clearly people in that chat room decided to like arb this whole process of halting the chain also because they like somebody decided to arb the process of oh i realize this trade is going to stop um right because of this chain hawk it's all pretty chaotic crazy it's like

basically the like most chaotic environment for validators that i think i've ever seen um wow but i wouldn't say that it was like a complete fail right okay it's cool that you're in that group though it's kind of crazy that you had that perspective that you you were still running a validator at this point no i don't know oh you weren't okay so you were just like giving your thoughts but then you didn't have to turn anything off but other than actually it was just like you know i'm familiar way the code works the tfl devs like really did not know what to do oh they're like this thing is like you know everything is falling apart they didn't have like a good crisis plan they didn't have a plan crisis response was really not happening

so you know like a bunch of cosmos devs showed up advocated for a course of action that could be executed quickly was it perfect no uh did it achieve the stated objectives were those the right stated objectives who knows but the state of objectives was to like create an environment in which people who have foreign assets in smart contracts would be able to like extricate their assets from those smart contracts okay did that happen yeah i mean the chain froze so like i guess the validator set decided to is that what you call it they just stopped the chain they stopped the chain all the validators stopped and then there was an ibc stopped so the relayers also stopped or was that after yeah so you know one

of the things we put in the chain in the upgrade was close the ibc channels okay um again who knows if this was the right solution uh but it was all you know under fire right do you feel like i mean i got the sense that the the sort of chaoticness the intensity of this particular event that it is like it needs to be dissected and studied in a way because i think in it there are lessons i mean i think there's the obvious lesson of like how to design a stable coin differently um that that's not a good model that there's that's dangerous i think that people kind of already knew that that

was dangerous people already knew this was dangerous yeah i mean but then it's also this like to see what what is a cascade from this what is the domino effect what happens after i think us being able to see it will become useful for the future in design i think the other thing that was kind of interesting about this is the way you could construct something that basically functioned as like a waterfall credit instrument that like does not look like a legacy finance waterfall credits like there's a sense in which this thing was like oh like luna as a chain was operating in a conceptually similar space to like a

mortgage-backed security where you have like the triple a-rated transit 2007 or something right and it was like you've constructed a cosmos chain that is the functional equivalent of that system wow when you use the word waterfall here what do you mean is it like waterfall of money pouring out of itself or something the idea of the system was that like essentially in the risk management system luna was supposed to be the junior trash where it was supposed to absorb risk and the ust was was designed to be the senior trash but like if the entire system turns to garbage like luna fails to absorb the risk

could luna have acted differently was there something reckless in the way that like it was promoted or how it was connected oh there i mean there's there are many layers of recklessness in this whole thing yeah um there's the way it was promoted by the centralized exchanges um you know who promoted ust as a on the same level as other large you know more secure dollar-backed stable coins there was really no quality filter there you know i think it would have been wholly ineffective to fight this in cosmos governance like it would not have worked um but the other mechanism that i would say was a big thing was um like tfl was reckless right there with like

withdrawing on that saturday you remember actually i i'm gonna have to recorrect it so this is the seventh i have a graph it was may 7th so may 7th was a saturday yeah yeah so on that saturday they withdrew a huge amount of liquidity from the curve pool um with the intention of later in the week setting up a new curve pool and that and they told they communicated that right like this was somehow made or was it just visible on chain or was it both okay yeah it was you know the setup of the new pool was planned and the fact that they did this you know in like not like one atomic operation but like over the course of days created a definite

moment of like maximum instability where like all these other forces around instability the general deleveraging of the space like the general deleveraging that was going on the like amount to which tfl had sort of burned their own luna to create ust swapped into other coins you know for various reasons uh like all of these things like had been like sort of converging and like that was definitely like you know the straw that broke the camel's back yeah or like the jenga block do you think it was malicious do you think that there was someone or a big group that like saw the opportunity to crash this out i have heard rumors of people raising money to attack ust

um so like i don't know whether or not those rumors are true i don't have the slightest idea but like again the other thing though you know that i've heard in general is that like a lot of funds had their risk management systems on ust sort of go like alert them um over the weekend that they thought something was wrong um and like pull liquidity out of anchor sell luna like all of this stuff so you know it could have been any number of those things but it was certainly like the the way in which the the three pool to four pool set like conversion was and so this i think this is like again like a another lesson for for blockchain teams right is that

like you know operating assuming sort of a non-adversarial environment whether or not the adversary was there or not but operating as if no one is going to attack you at a publicly broadcast moment of vulnerability is just you know a recipe for disaster there's a couple of critical things i'd like to insert here there are lots of layers of failure or attack or vulnerability what have you so at the bottom there was robust software that was functioning on a continuing basis you know sending messages back and forth all of which you know were were the intended action and then there was the design of the economics that could cause this minting of trillions of luna that was fundamentally flawed now people can talk

about it it was an experiment or what have you but no no there was a lot of people going it's really bad over there but it'll never get there and that was the fundamental bogus error on which this stack was layered and there's an important sense in which you know better that bubble was popped now before it got worse i mean you know doe was very actively wanting to get too big to fail so that if his bubble popped it would take everything else with him and uh you know and that's not the way to build a robust economy that's not the way to build a robust system and that was the problem at the bottom there were plenty of other ways you get problems but many of those could have been coped with if there wasn't this core problem that would cause the whole

infrastructure to collapse because someone could take over the chain and so you know because every system is going to have you know people that are i mean you know when you talked about do you think it was deliberate or malicious let's be really clear that does not mean criminal you know hostile takeovers happen legally all the time that kind of economic activity to notice an opportunity and take it i mean arbitrageurs malicious i i don't know they're just doing their thing that's true right and so much of blockchain is all about being robust in the face of this byzantine environment that's just a byzantine economic environment suck it up yeah uh what about you like on the igork front i mean you're you're busy building did you feel this did it hit you like

did your team feel it or were you just guys like oh well we're not really like we're not ibc enabled yet it doesn't matter well okay so so several things and it'll go some of this will go back to um cosmo verse in november or whenever it was where we started talking about uh inter protocol or at that point it was called run and talking about we've gotten through main net we we launched our main net zero and then went to cosmoverse and talked about it right you know many of our investors are people in the cosmos ecosystem so they suddenly could actually get their tokens and start to stake them even though rewards weren't turned on now you can start to see that you know there could be governance there could be all these things that they're that they're used to but when we describe inter protocol

you know folks like well zucky sunny pong people from you know fede from all these different chains you know sonny was like oh finally an atom back stable token you know that's just what we've needed forever and i really had this sense related to ust you know people were using ust heavily in the cosmos ecosystem because it was kind of the only game in town and everyone was leery about it partly because its architecture was to use this you're relying on that chain over there that has some potential issues and not only are you relying on that chain you must buy into their token right you have to buy into the yo so the only way to exit is through luna that means you know if you've got really active use of it on gaia you got to go over to to luna exit

and so they're sort of a relying on some other project to have yours be successful you know that can always be challenging and so they were very excited about being able to unlock the capital in all of their chains in osmo and in gaia you know cosmos etc um and the fact that you know sort of attitude wise um we were much more about you know ibc enabling the world and inclusiveness so that they could feel economically that they were engaged in the stable token and so this changed our vision of what was you know our initial launching to being something that was suddenly a huge service to the entire ecosystem and that's part of what inspired renaming it and the inter protocol in the stable token was sort of important but not central we need a stable token

in newark the particular mechanics don't matter to us but it needs to be robust it needs to be healthy it needs to be economically sound and solvent and so we've been working on that got it so obviously we saw this happening because we'd been paying attention to stable tokens in the cosmos ecosystem because we were planning to roll out with a new you know very robust one and it was you know interesting couldn't keep your eyes off of what was going on partly because you know oh my gosh is it going to get all the way to where it hits that death spiral that's sort of inherent in the architecture and we had a conference the very next week so gateway events one of our investors rockaway put it on and it turned into a big cosmos conference we

were one of the sponsors it was in prague and it was inspired originally by cosmo versus like oh that worked let's get a bunch of people together in the community and and make something happen and that was starting right after that tuesday that you talked about earlier right so starting on the 15th so we're showing up there you know me zucky the agora crew all of these cosmos chains and at the start of the conference everyone's like what's gonna happen it's really scary i mean you know there was really this yeah i don't know what to do yet right and there was a lot of terra people there and all this sort of thing and a big impact i think of that conference sort of and we'll look back historically and sort of measure some of that is a you

know it started with you know okay we had a plan but let's talk about usd because oh my god right and so many chains stepped up i mean the first thing was you know what happens uh to the cosmo verse so you know first off ibc executed beautifully tendermint executed beautifully all these things were happening but it wasn't a bug in the software it wasn't the system's collapsing it was everything functioning just amazingly well to accomplish this thing that had an economic problem but that thing imploding over there yeah prices fell but but everything kind of stayed up and was fine i mean this is an important way in which loosely coupled systems working together they'll take

some dependency but they get to control it they get to bound it and they get to stay up when that other thing over there dies and so it was just a tour de force yeah i mean i remember i spoke to the wormhole folks i mean it's maybe a bit more of a centralized bridge but like all of their system also worked and that was one of their takeaways exactly nothing crashed yeah nothing broke even though there was like liquidity flowing super fast over that and then the other thing that happened is the developer ecosystem worked so just one more point about that is at this conference everyone's like there were also a bunch of good projects on ontario you know that were quality things that they built there because you know there was a stable token there first that's critical to making an economy hackman as i've

mentioned multiple times and so the community of cosmos was just incredibly welcoming right you know there's several kosum wasm chains that are all like you guys have expertise in projects you know here's a new place to build we'll fund it get over here you know and and so the the transition of attitude across the two days of the conference from oh my god what's happening to wow cosmos is healthy and driving and growing there's a place for these people yep there's going to be a big market downturn but this is a robust place to build was huge i want to move on to sort of a second narrative i had sort of mentioned here which was like apps dapps that have been thinking of deploying on rollups potentially launching their own chain i think the biggest example here is dydx

moving from starknet to the cosmos ecosystem but i do know that there's some like talk of other chains doing or other applications doing this i am curious like it almost feels like a narrative that counter like the ust narrative as much as it showed sort of like that the network stayed up it was also i think we could say it was a bit of a hit because it was like a somewhat toxic asset that had like spilled into the cosmos ecosystem it pulled down a lot of prices it made people sort of like feel slightly shaky then this this new kind of narrative of like roll-ups potentially not being the place where people want to build but rather than moving to the cosmos ecosystem is an interesting narrative i would say and

i just wondered is that a blip narrative or is that something you're seeing like in a bigger way so there's a lot of conversations about this going on so i want to link it two things to this one is applications that were on terra have gone in a bunch of different directions right some of them have gone to you know polygon and solana and all of the stuff but there's been quite a few applications that have stated cosmos some of them have gone to juno but some of them have also launched their own chains some of those chains are already live oh crazy you know and the other thing that was kind of funny about all of this for is tara was always this like both part of cosmos and not part of cosmos right they were always kind of like oh we're our own things separate

from the rest of the cosmos ecosystem with like loose connections to the cosmos ecosystem wasn't there some sort of like schism with kepler wallet in them too like i feel like they weren't added for a long time or something like that or ever team have not been fans uh okay it's sort of been an interesting thing though you know as as close as the kepler and osmosis teams are the kepler team was not fans of terra and ust and uh you know even though it became such an important uh asset for a while on osmosis okay so a lot of these have come some of them have launched their own chains uh kujira just launched like within uh so you know this is uh early july and the

encounter just launched their main net which is like a dex and stuff like that a lot of things that were sort of in the terra ecosystem have been very seamlessly able to move into the cosmos ecosystem you know delphi digital has their mars project which is now going to be another chain on cosmos like all of these things right huge amount and like the world of hey like we mostly talk to tfl people we mostly talk to people on the territory has now transformed into a world of we talked to jack we talked to zucky we talked to david at galileo we talked to like this whole network of people right yeah do you think what we're also going to see though is like some projects just shouldn't have their own chain like do you think they might swing too far into like everyone has a dab chain

all right like it has an app chain is it is an app chain or dap chain or is it a drop chain it's not a zone anymore i was i was schooled recently for calling it a zone they were like what are you saying we were really worried about blockstream's trademark on side chains for whatever reason when we wrote the whitepaper that was why we did it so it's app chain yeah whatever not zone i don't know i honestly like i don't really care okay all right all right all right but go back to the question do you think we might swing too far worth too many teams so i think this like that's a good routing now into your roll up question right are all of these chains going to be able to economically secure themselves support a lot of economic activity all of this

stuff a full value set yeah you know and what i would say is one of the biggest differences between the cosmos ecosystem and the roll-up ecosystem specifically the execution layers of the roll-up ecosystem is right now the execution layers are not really community projects there is a company the company has a a business model like frequently source available business source license stuff you can't just like fork the code and you know all of these entities have roadmaps right they have all have these like elaborate road maps of stuff that they're working on and you have an entity like dydx who's like

we do not want to couple our decentralization to our vendors decentralization roadmap right and we would like to be able to throw our own engineering resources to solve our decentralization problem and the roll-up ecosystem today there's nothing that architecturally about real ops that forever makes this true it just means that the roll-up ecosystem today did not have anything to offer them um and so that is how you know dui dx sort of ended up on cosmos could you imagine where like a lot of these groups launch app chains aren't able to fully create secure validator like they just don't get enough value into their validator so they can't

grow the value high enough that it's not corruptable basically or they can't get enough validators or something would they then potentially become like a roll up on celestia is that yeah that option is like largely a world i like there is a lot of work going on into again because the execution environments are so immature um you know going back from like 2019 when celestia was founded to now as we get close to celestial launching the thing that is most surprising to me is how immature the execution environments still are compared to the cosmos sdk and in theory i'm not as familiar but compared to something like substrate um wait you're saying cosmos is that what you mean

no what i mean is the cosmos sdk itself like what dydx wanted is like a full distributed system right they wanted you know proposer selection they wanted fairness they wanted to be able to implement their own business logic on top of a roll-up system and no one offers that today um no one in the roll-up ecosystem really offers a solution in that space and what one of the things that we're seeing is like a surprisingly large amount of interest and using pieces of the cosmos sdk on top of optimum to build roll-ups on top of celestia for custom chains because there isn't an execution layer toolkit that really

works for them do you think i mean could they also use something like interchange security eventually or is it too hard to do that kind of migration so interchange security being like using potentially a validator set and creating almost like a subset of those validators that could be used for other projects so interchange security is going to appear in multiple forms just like everything in cosmos right we make open source technology we give it to the world multiple go to markets run simultaneously so one of the go to markets for energy and security is like expanding the atom economic zone right and that's not really like hey i have an app chain i would like someone else to run it i'm worried about security like

for that specific go to market like our focus is expand the atom economic zone okay um but like you have teams like saga uh which are trying to uh sort of make it as easy like make it much much easier to like sort of deploy app chains get it secured by validators all of the stuff while without having to go through all of this and that might end up being a very appropriate solution for that kind of environment okay i want to talk about the third narrative because then we gotta get back to ist the third narrative is bridges bridging to ibc or just generally other projects looking to bridge into ibc you had sort of mentioned usdc as well using xlr but um yeah tell me a little bit about i mean

xlr is a cosmos app chain itself so maybe that's a bad example but like i know that there's you know a lot of the bridge teams we've talked to i've had on the show i'll sometimes ask them about ibc and there is often some narrative some kind of like exploration happening there so is that a narrative that you think is taking hold of cosmos too which is like other networks trying to bridge into it so two of the most amazing teams that we've sort of found in the last you know six months or so one is the composable finance team has just like been crushing ibc to the substrate polka dot ecosystem and then also been doing it for the near

ecosystem the other teams are polymer and they're looking at other ecosystems to build ibc clients 2-2 roll-ups et cetera right interesting it is worth distinguishing getting ibc connected to those other chains because ibc is designed to be largely technology stack neutral it's designed to be able to do ibc over to substrate or even over to proof of work chains it's designed so that developers can accommodate that they can adopt it as this neutral mechanism and that allows you to have the you know robustness and usability and extensibility of ibc all the way through to those other chains that's very different from ibc to a node that is then doing a

bridge where there's some you know multi-sig five-party bridge to to just transfer assets and so it's useful to distinguish those two cases but i mean every time you touch ethereum you are doing that like every time you have to convert ibc to something else because they wouldn't have an ipc but for example the substrate bridge is ibc to substrate nodes so that you are doing end-to-end security without trusting the relayers in the middle which is one of the much more robust elements of ibc versus bridges where you're trusting the software in the middle to faithfully move your money back and forth yeah on the poco dot front they also have the xcm and i i was wondering if xcm and ibc will ever speak the same language or somehow talk to each other but we'll see maybe they're two that is that is a

composable finance question um but i think it's the most exciting thing about all of this stuff is again we are disseminating out the ibc expertise to the point where other teams are able to implement it um other places in other places um i was always kind of frustrated to be honest with the icf team's like unwillingness to like really go after some of these other environments as like places uh it's fantastic that we have new participants in the ecosystem that are doing this work cool okay i think we've covered some like good background narratives of the cosmos ecosystem which i think does bring us now to talk a little bit about ist i guess in that conversation maybe

we can talk a little bit about how it could compete i mean i think dean you've already mentioned a little bit like where it comes from oh you always had the plan for a stablecoin but now it's sort of become i mean at least it sounds like you're thinking about it a little bit more like taking the role of what ust was doing but obviously built on much much sturdier foundations i hope yep it better but um what about like usdc coming in like do you see it is that a competition there is a stable coin coming in it's bridged in it's not ibc native i don't think right correct there's no like usdc well even if there is it's still cosmos it's coming yeah it's coming it's that's coming yeah oh i mean even at that point which in some sense

not ibc native because your money's in a bank account but yeah native direct bridging into cosmos is coming oh where is that issuance from uh uh to be announced uh okay i mean the main story is you know well like dydx has like been tweeting uh and they represent like one billion dollars of usdc tvl right um we've been working very closely with the dydx team um to find a usdc solution that is acceptable to them and acceptable to the broader cosmos defy ecosystem like so that will then be a native asset as well in cosmos mintable well mintable like some centralized body will be minting it there i think there are there's a

fundamental reason even in an environment like the ethereum ecosystem is economically stable in a world where both multi-collateral dye exists and usdc exists and tether exists right like economic stability of these things is like real and actual and tangible and they are actually complementary to each right and you think different ones have different use cases like is there different use like are there moments where you should be using dye in moments where you should be using usdc well like let's say you have a lot of atom right you're like i have a lot of atom i would like to take out a loan against that atom sure you could go to some lending protocol you know lending protocols always have this mismatch

between depositors and borrowers where like if you deposit when there's no borrowers you're just you know not earning anything and if you are trying to borrow when there's no depositors and so like lending protocols are constantly trying to smooth this this is literally what we're doing in similier is building a smoother for this um is something that smooths this but when you have a maker style protocol you can show up with your atoms and get your stable coins there does not have to be a depositor right got it okay so ist like is ist that i mean you've sort of said it's a multi-collateral die of cosmos i guess you could say but is it multi-collateral is it starting multi-collateral like when you first envisioned this dean wasn't it more like

a single collateral no it was always multiple yeah it was always about bringing assets over ibc to be able to mint against it because i say ironically the one asset that we don't directly do this sort of cdp style vault with is agorax build because then that competes with using build to secure the chain right and so it was always about being able to bring other assets as collateral and enabling people across the interchange to unlock the value of those assets and so the multi-collateral was well gotta do adam right and and you know osmo got to do osmo right got it you know now oh well there's all these other chains coming up many of which are going to be you know big chains with serious um asset value

there enabling them to unlock that in a way that is consistent with how all the other chains are unlocking themselves right what you would not want is a stable coin per chain right a stable coin per per app chain what you want is to know you can use the same thing i can unlock my atom and use it over in this smart contract running on ammo i can unlock my osmo and use that value over in the same smart contract running on fmos right would you only allow um cosmos native tokens to be collateral or would you allow like synthetic eth to be a collateral as well well so first off it's a community thing it's really not up to me there'll be an economic committee that you know informed by gauntlet running simulations and all this sort of thing that determines the right profiles and risk

for that um but but one of the key differentiators about the implementation of ist onagoric is because it is built with the same hardened javascript framework with composable uh smart contracts it will be much more straightforward for it to grow over time to incorporate other things like even synthetic assets for off-chain assets you know or at the point where there's some robust set of nfts or some robust set of securitized you know real estate assets the community could decide with the appropriate risk models and liquidation process to add those as potential collateral types that's a long way away the key thing is it was always

um you know the assets are up to the community and if there was a robust bridge then being able to use you know saul or or or rapteath or or btc those were always you know in something that we envisioned as being reasonable collateral um it was always designed ist was always designed intra protocol was always designed to be multi-collateral um with assets in the cosmos ecosystem so that you could uniformly use a stable token even if you were starting from having osmore having adam and assets from other chains either as ibc connects to substrate or what have you or is it just brought over with bridges so you know rapd threat btc zek solano what have you all of those are capital assets that have some kind

of history you know models of volatility such come up with an appropriate role for them as collateral in our ecosystem and you know and that's how you power an economy is by connecting disparate things and making it so you can do business across them so now i want to throw back to the story a little bit of ust and i guess a question i have is given the knowledge that we have from that kind of case happening from having been able to observe it like do you have protection within the design itself for if a toxic asset were to be used as collateral yes in a system like that and i guess here i need to also check like could a toxic asset really kind of mess it up i'm assuming yes so well we have protections against that so the key

thing i mean one of the biggest protections is um debt limits for any particular asset type and if you're going to have a system that's extensible you know thinking about how you extend it but bound the risk of any new extension is absolutely critical so we were talking about usdc you know that's a friend to getting defy going right we have a module which you can bring in usdc and directly mint um ist against that because it's a high quality existing stable token but that too has a debt limit because that's another system it's got its own risks you know there's whether whether it's contract bridge or u.s government um and so it's got to have a debt limit

so every distinct collateral has a debt limit and one of the jobs of the economic committee is if things start to turn south you know bring that debt limit to zero so that no new vaults can be created or no new ist can be minted against a collateral that looks like it's at risk right yeah would there be like a risk assessment done on these different assets is that how that happens exactly is that how it happens in dye actually yeah there's a risk committee that evaluates new collateral types there's a whole process for adding a collateral type in our case we're working through that process now the work of the risk committee at uh maker is actually like a shining example of prudence in cool diva right yeah

it's an inspiration you know monet's supply who's like one of the people on the risk dao is also a big cosmos enthusiast and so uh you know we talk about but i'm a huge fan of his work like they look at smart contracts they look at the economics of the asset they look at everything right and you know i hope that with inter we live up to the standard that is set by the maker down collateral risk committee so yeah we're inspired by their risk committee in addition we've engaged gauntlet you know they do uh economic simulations on other smart contracts and are very well respected you know taran chitra and company about how they understand these things sometimes co-host of the show yeah you might have met him right you might

have heard him yeah yeah yeah and and so gauntlet will be doing ongoing simulations so not only do we do risk evaluations up front but every week there's a re-evaluation of every collateral type to figure out what the right debt limits interest rates volatility targets all these kinds of things are for each collateral type independently in each of the different ways it might function in our system and so that will as we grow either new collateral types um you know or new collaterals or even new collateral types like if we want to use liquidity uh tokens as a collateral type that has some important economic advantages from a capital efficiency point of view that's something that we look forward to doing after you know in

future mainnet releases and that's something that they'll be able to model incorporate into the overall you know risk analysis models that's being continuously evaluated for each of these collaterals very cool i want to say a big thank you to both of you for coming on the show sharing with us a little back story on ust also what you've both been up to in your respective projects and the ist slash interstable token slash inter ice tea whatever we're going to call it uh upcoming token i guess this comes out with main net one phase one right the one you were saying would happen potentially in q3 so it's something to look for i guess cool and we'll be back after that launches

yeah sure all right thanks guys thanks for being on thank you so much for having us and as as always it's great thank you anna i want to say a big thank you to the team that put together the ck podcast that's tonya rachel chris and henrik and to our listeners thanks for listening