Ethereum is for building bridges not walls - Petros G. Sideris

Transcript

Uh quick disclaimer, I'm not going to talk about bridges as in as in the ones that we move assets from one bridge to the other. Whoever came for this, I'm sorry. I do apologize. I'm going to talk about a kind of different kind of bridge, the ones we can build ourselves. So, the blockchain space or more commonly known known as the crypto industry. It came into being with a few founding promises. Censorship resistance, independence, ownership.

A person born when the Bitcoin white paper was released would be attending high school today. Would they consider that these promises have been fully materialized? The first few cycles, the first few crypto cycles, we could call it a type of naive era. We had ICOs, we had NFTs, and we had the first few iterations of DeFi. Everything felt new and exciting, and all the potential applications seemed uh boundless.

Without a doubt, that optimism was a result or product of how little we knew and how much there was still to discover. As the cycles came and went, Ethereum's technical capabilities kept progressing, and the application space expanded. We had layer twos, we had uh practically more advanced trading. However, with all of these new applications, the the rugs, the scams, extreme financial engineering came into being.

We could call this more like a wild wester era or the frontier era. Now, somewhere during this the transition between these two periods, the naive and the frontier era, the incentives to use on-chain products shifted. We required our users to take more and more risk. We had lever perpetuals. We had pump.fund style platforms and pump.fund itself. We have prediction markets.

I know. Intentions might have been noble, but the incentives definitely were not. As a result, trust eroded. Many users either left or treat the space as a way to make a quick buck. Those who who stayed, they have to dodge heists, scams, and MEV hedge funds. For many, the experience turned into a Souls-like PvP arena, where every signature could be an unexpected surprise.

We talk about compounding effects in DeFi. The constant compounding effect has been the erosion of trust with our users. Death by a thousand cuts. And we are talking about users that that have gone through survival training. Keep your keys safe, but not in a password manager. Validate every signature, but the UI might be compromised. Use private RPCs, which not always private. They might be compromised as well.

Oops. Sorry. It has been clear for some time now that we are at the beginning of a yet-to-be-named new era. It's a new cycle and an important inflection point. It is at this point that we need to decide if we will keep building an infinite slot machine or if we're going to deliver on the promises we started with.

The last few years a new narrative emerged, real-world assets. We figured that labeling labeling them as real-world meant that we are not really operating in one. So, tokenization became a popular term once more. It is a more descriptive term, a little bit less poetic. This real-world approach was also a first handshake of sorts with established financial institutions. What we were seeking was legitimacy and a deep pool of capital. What we were offering was a pool of talent, a promising technology, and new financial primitives. For

example, perpetuals perps are practically contracts for difference, CFDs, without the need of a broker-dealer, an intermediary. That was That's revolutionary. Maybe this could be the future of finance. This is This are words that could have been spoken in the boardroom of an S&P 500. If that were true, they had to take a look. Why? Because it could either threaten their bottom line or worse, it could reinforce the bottom line of their competitors.

For example, Goldman Sachs in 2017 and 2018 launched their trading desk. They abandoned it, and they re-launched it in 2021. I can tell you from experience, from my tenure there, during this time, the technology was not the problem, but it was their risk profile, their perceived risk. They came, they saw, they said, "Maybe maybe later." What they saw was that their needs, and the needs of their clients, the businesses they are serving, were not taken into account.

There were too many risks to operate in the space. Regulatory risk, not our fault. Operational risks, and the one they can't really afford, reputational risks. And we did not help the case. How many protocols or apps or networks we know that operate for businesses outside of the space? Data providers like Dune and other ones, maybe, but they're also inward-looking. Come on.

Institutions, financial ones more specifically, have a different set of metrics, or we could call them values. These are audit trails, selective disclosure, compliance. It is easy to dismiss this as some kind of totalitarian bureaucracy. Could be. But for many businesses, these are existential. A fund cannot settle trades on infrastructure that signals that its trades to their competitors. A merchant, a business, a small business, cannot disclose every invoice, every client relationship just to use programmable money. And a regulating institution cannot tell its compliance office

it's decentralized, it's okay. Let's examine those values from our lens. Audit trails. We delivered it perfectly. There's no software system in the world before that could have delivered audit trails so well. Because in public block blockchains like Ethereum and other ones, every action provides a public record which anyone can audit. The other two, selective disclosure and compliance, we are not we were not sure how to uh deliver.

Now engaged but not really satisfied, the same institutions created alternative that solve for the needs and those of their clients. We now have layer ones that offer payments or stablecoin payments in this case, like Arc, Stable, Tempo, and many others. And for bulk settlement like Canton. They have been made in some cases with out rates. I do not believe they deserve all the hostility they got.

The problems they solve are real. Privacy and finality that compliance officers require, predictable cost and clear regulatory standing. These are not stupid decisions. They are rational responses to to failings or gaps Ethereum and other chains did not deliver. But this each of these chains optimizes for a single constituency, for a single client base. Okay, brace yourself. I'm about make some historical analogies.

In the '90s, every bank, every insurance company, and every merchant had an intranet. They were all good or excellent at solving their own specific problem, but none of them talked to each other, so the application space was very limited. Then the internet entered our lives and became the common highway or the common infrastructure between these companies and also ourselves. What do we have now? We have a compliance chain for banks, a payment chain for stable coins, a settlement chain for funds, which is just traditional finance or tradfi, with better cryptography and of little importance to the end user. They don't see the benefits.

The argument is not that institutions should not get what they need. They definitely should. The argument is if we build this on a shared substrate, where settlement leaves and audit trail interested parties or relevant parties can verify, or we will keep repeating the same mistakes for different user bases. Earlier, when I said we were not sure how to tackle the last two metrics, selective disclosure and compliance, I would like to revise that statement.

Advancements in cryptography and hardware make the first possible and the second latter feasible. They have been quite a few initiatives exploring zero-knowledge proofs, ZK, and trusted execution environments, or more commonly known as TEEs, sometimes together. ZK is mature enough and there are public goods, fantastic public goods like Semaphore and Noir that can get you started very easily.

But more recently, there's new protocols that have brought fully homomorphic encryption, FHE, on chain. I'm referring to Phoenix and Zama. They're the first two protocols that provide this and I'm sure there will be a lot more. Is FHE slower? Yes. Is it more expensive? Definitely. But I remember paying half an ETH just to mint a JPEG on chain. We can assume that a second, an additional second in finality, and a dollar in fees a very good starting point.

Specialized hardware will make this much uh more efficient in the future, in the near future. Or an AI bubble burst and maybe we'll have cheap GPU compute. Who knows? I will give a quick primer on FHE, just very basic stuff. Most of you will know. You will be aware, but just for the ones who don't. Normally, to work with encrypted data, you need to decrypt them. You need to if you want to add two values together, you need to decrypt the first values, generate the third value, and then re-encrypt all of them.

FHE does away with this step. You can do the calculations on chain as well. And then, you don't need to know or other parties that don't have access, they don't need to know what the result of this operation was or what the the initial parameters were. So, where does this leave us after what we just discussed. We have audit trails. We can have selective disclosure through ZK proofs, encrypted state, and access control list which controls who can see the encrypted state.

What about compliance? This is where the next battleground is going to be. It can either be built by the financial institutions for themselves and make every other party, including you and me, an unwilling participant, or we can do it the Ethereum way. We can build systems that preserve confidentiality, respect user rights, and enforce obligations of the related parties. It has to be permissioned by default.

It can be permissioned where mandated, legally mandated, and we can always be trust minimized. Okay, so what about bridges? You came here to to listen about bridges. Let's talk about gardens and islands first. Ethereum did not come into being with just tooling.

It came with a philosophy. The Ethereum Foundation popularized the term together with Liam Colmes' uh wonderful illustrations, that of the infinite garden. The idea is simple and powerful. Ethereum is not a company. It's not a product roadmap. It's not a closed financial network. It is a shared space where everyone can build, everyone can fork, and everyone can contribute. A space, a place where public good matters.

This was meant to be as a contrast to the walled garden, closed end systems. That idea still matters today. I would say it matters more than when we started with because now we are mature. There's a certain naivete in this metaphor about gardens and infinite playgrounds. A garden can be infinite in aspiration but not in reality. And in any case, we still have to reach it. People still have to go there. Most regular people don't leave or haven't visited this garden.

Neither have the businesses, the auditors, the courts, and the regulators. The infinite garden in this case starts looking more like an island, an isle, or a garden isle. To reach that, we need specialized software, which wallets, centralized exchanges, opaque on ramps off ramps, and custodians. I will make one last historical analogy, I promise.

In the mid-18th century London, the main way to get to central London from the South Bank was by hiring a waterman. What were watermen? They were people with boats, boatmen, that would ferry you across for a fee. Often in a very congested boat, accidents would happen. This worked very well for the watermen, not so much for the common Londoner. Capacity was limited. Prices were set by the cartel of watermen, which there was one, and crossings happened on their own schedule.

To the vocal protest of them, Westminster Bridge was built for everyone, and then everyone could every Londoner could access uh uh central London with their own volition, with their own choice, which is a sort of freedom. Following this metaphor, Ethereum today is where London was then. The on-ramps, the centralized exchanges, custodians purpose-built permissioned networks or permissionless are our own counter-waterman.

We have the tools. We have the technology. The question is if we're going to keep building faster boats or if are we going to connect our infinite our garden island to this real world. Allow me to close with this statement. Software as a technology was promised and in some cases has been as a tool that will help us liberate ourselves and our society.

As a way to connect each other regardless of distance or language. And as a way to expand our knowledge and expose ourselves to different perspectives. Lately, we have been experiencing how software technology has rolled back some of these freedoms and reached deeper into the fabric of our private lives. We are increasingly isolated, addicted to the algorithmic opium, and with less security or privacy than before.

If we want a future where our heart and rights are protected by design, then we must build the alternatives on open platforms like Ethereum. And censorship-resistant platforms, I I add. We also need to build for everyone, not a subset of people who cannot handle the added technical complexity. Freedom does not exist in a vacuum. It is like the air we breathe. If it gets poisoned, it poisons everyone.

Mathematics does not discriminate, neither should we. Thank you. My name is Petros. I'm the founder of Obolus. We are building the bridge between companies, their shareholders, and the rest of the financial world. I'll take any questions. Thank you.