How LayerZero Seamlessly Connects Blockchains | Bryan Pellegrino

Transcript

we don't really care if it's a thousand orthogonal layer ones or ethereum only as a settlement layer in a thousand layer twos like you're still going to need to move State data between those we just try to build the Primitive that makes it as easy as possible for both of those what's up everyone welcome back to another episode of Xerox research brought to you by the atom accelerator if you're a developer looking for a home in the industry the atom economic zone welcomes you you're going to hear more about the atom accelerator a little bit later in the show today is July 17th and we have a great interview lined up with Brian Pellegrino the co-founder and CEO of layerzero labs and I also wanted to take a second to spread a promo for the permissionless event that we'll be hosting in Austin Texas it is the

largest default encrypted native conference bringing Builders researchers and investors and thought leaders all into one place in the heart of Austin Texas if you use code 0x30 you can get a 30 discount on your code and we will see you on September 11th through 13th if you do decide to come be sure to hop in our DMS on Twitter hit us up on telegram let us know and let's grab a beer but before we get into the interview as always we are joined by Ren and effort Capital two members from the blockworks research team to discuss the latest Market happenings effort why don't I kick it over to you for your hot seat or cool thrown to kick us off yeah thanks you yeah I think um I'm gonna start off with a hot seat today I'm going to throw all alt evml ones and uh proof stake

ethereum side chains on the hot seat so this past week um and I think I had them on a hot seat a couple weeks ago but polygon officially announced what they're going to be doing with their token Rebrand um this is their second Rebrand so if you remember back in 2017 2018 um it was originally it's called Matic Network they rebranded to polygon but the token was still called Matic now on top of this whole like architecture revamp and uh new token design they're now going to rename their Matic token Paul Pol uh after the polygon brand and what they're planning on doing is I think rebundling the entire modular stack data availability execution you name it under one asset um they're increasing their token Supply

so they kind of tried to reframe that their re that they're doing a one-to-one token swap from Matic to pole but they also kind of hid inside the the t's and C's the the actual wording of their Rebrand that they're increasing their Max Supply from 10 billion to it now included one percent inflation that's going to go towards paying validators and potentially like an ecosystem uh incentivization fund uh but this really just sounds like they're just a lot of ZK uh buzzwords a lot of like infrastructure buzzwords um really at the end of the day everyone in this space just wants to see polygon have legitimate usage they have a lot of Enterprise uh Partnerships but I'd be lying if I said I've used polygon to do anything over the past like a year or two outside of lens

um but on top of that you also Sello on their research forums announced that they plan on migrating from their own Sovereign evm based L1 to become now an L2 in the hopes of I guess joining this Narrative of l2s being the next wave of of ecosystem and on chain adoption uh but let's not act like anyone actually cares there's like 100 million dollars of tvl on cello the past 24 hours they've gotten two hundred dollars worth of transaction fees um if you haven't found product Market fit as in a sovereign L1 you're definitely not going to find product Market fit as in l2s where you're going to probably see hundreds of l2s um kind of pop up over the next couple years to try to catch this narrative and

overall I think all these rebrads all these like new architectures try to realign themselves with ethereum isn't going to change much at the end of the day again we just want to see some odd chain applications that people actually want to use um and we're kind of still in this like hype cycle of architecture or I'm sorry of infrastructure uh that I'm hoping is kind of dying down over the this next cycle I want to uh dive in on that last point you made on the CeeLo Green chain um you know it is kind of interesting that they made this move from their own altel one to an ethereum based L2 this is kind of something that we talked about when ethyl twos were like still in their infancy and like starting to see like okay these might actually be interesting

there was this huge idea around not necessarily a narrative but more of just like people talking like oh one day all these LL ones are going to end up as ethyl twos and now we're seeing something like the lower end ones make that transition be like you know what it doesn't make sense for us to try to run our validator Network like let's let's just go be an Ethel too and kind of just take things from there which is pretty interesting right because there's an interesting I don't haven't really seen any research around this but the idea of using your own native token to incentivize validation of your alt L1 is this a cost to your to your network and it can be viewed as such and um if you're in eth L2 you know like arbitrary or optimism you don't have to incentivize the the like the sequencing

of your chain that's kind of just like this off chain expense uh so there's like a trade-off there there is still an expense associated with that but uh certainly less than emitting you know millions of dollars of your of your own native token out so a pretty cool trade-off between the two things of the different costs there and I think the real takeaway there for me is you know there is this mind share of uh attention and value and use flowing back to ethereum this was like in the early days the bear Market everyone was like everything's going to consolidate around ethereum it's going to happen right now go um and obviously that didn't happen overnight but we are seeing some some true signs of that that narrative actually coming to life um now if that doesn't mean like all chains are necessarily dead but you know

like we've seen some action on Solana and other ecosystems are still bustling like the cosmos for example um so yeah just kind of interesting to actually see the The Narrative of people and attention and mind share and you know Activity Center back around ethereum yeah just to add to this I think coming from the cosmos ecosystem it's gonna be really interesting you're seeing them Converge on the same path so a bunch of all tvml ones are now converging back to ethereum as like the home base to hopefully get liquidity from and the exact same thing's now happening with the cosmos ecosystem or replicated security you see stride migrating from their own Sovereign Sovereign chain to now become a replicated secure channel in the cosmos Hub you're seeing Umi and a couple other

um Cosmos Sovereign chains potentially joining the ranks and becoming a secured chain to the hub one to offload validator costs but also to get Adam liquidity um I think it's also kind of interesting because these l2s I think the ethereum community likes to kind of hand wave away the costs of running a sequencer it's very easy to run a sequencer at little to no cost when centralized the moment you start decentralized the sequencer now you have to start incentivizing a decentralized validator set sounds like an app chain to me uh you also have to now uh like celo celo green chain is also going to be leveraging eigen da for data available ability who's if you're uh a a restaked uh validator for eigenlayer now

you have to go secure silo or cello uh chain for to provide data availability how is cello going to pay for that probably by incentivizing eigen da E3 stakers again sounds like more overhead and it sounds like you're just getting uh it sounds like you're actually like getting rid of your sovereignty by giving offloading other uh parts of the modular stack to other chains but there is a cost of doing so and really at the end of the day I really think everything in the uh L2 space is just gonna revert back to looking like a Cosmos app chain obviously it's my personal like point of view from my my bias lens but I'm really not seeing a lot of differences here I would like to make a formal proposal to the blockworks researched out to do some

uh digging around the cost of you know uh being your own L1 and incentivizing security uh through your validator set versus being an L2 and using a DA layer and having a sequencer and and working towards decentralizing that that'd be a really cool analysis I agree yeah that would be super cool especially considering when you're running off a centralized sequencer yes you're paying rent to ethereum but you're not paying it out of your own native tokens treasury or like token allocation I guess but instead you're making the user pay for that L1 settlement cost so that would be a super interesting report but hate to bring it to the effort I think you're going to be wanting to put uh all l1s and uh other side chains in the the hot seat for a while because we've got

Avo mantle we've got bass we've got World coin and CeeLo Green Jane now we've got Paul like I feel like this is not going to stop especially with uh arbitrones kind of full stack initiative and as well as EK stack so hate to say it I think you're you're going to be stuck in this camp for a while I will be and I haven't even seen the the heat of the ZK stuff like really come to life yet I think we're in the very very early Innings of that so I'm super excited once these chains actually have out of the box interoperability which I know you preach about all the time with IBC yeah just if you're touching on um polygon you know they say that it's a marketing password that PO is a hyper

hyper productive token and then you can use it to validate multiple chains and chains can offer multiple roles I don't know what those multiple roles of uh you know for example it could be validating sequencing data availability something um but it does feel like that's becoming a trend and and it really does feel like restaking is becoming inevitable right not just on the team using eigen layer but also uh using other like just other the other chains so like it seems like there's like a set of concerns around mistaking that people haven't really considered like how many consensus or validator clients can and

if at a data really like run at the same time if they're restating with eigen there I feel like that's questions that people haven't asked and just like how you know would come to terms with like centralized Builders right and for example in a costume for the future with like Suave or Intense or whatever whatever you believe in um it does feel like that there's gonna be these like massive entities that are building like all of the blocks and they're going to be centralized and it does feel like we may be running into a future like this with sort of restaking or hyper productive tokens where one like validator or like one like computer has to validate for like so many things at the same time so I think that's just an interesting point

to think about Brian you want to kick it off with your uh or not kick it off but you want to share your audience yeah um I got Ripple on the cool Throne obviously they contributed to a massive move in the overall crypto Market uh across last week so basically what happened was that a judge drew that xrp was it's not a security however there are some caveats here the sales to institutions of xrp does count as a security however the Ripple sales of xrp do not constitute an offer of investment contracts and so an offer of investment contract is separate from a security those are two different things right um and programmatic sales on for example like a centralized exchange also do not

count as a security because you don't know who you're selling to whether it's like a protocol the exchange or Market maker and you don't really know where your money is going to right um there's like a lot of caveats here I think I think the general just that xrp itself it's just a token right a token like isn't like anything a token is a token but it really depends on how you sell that token like what you offer to your investors what type of marketing language are you promising returns that really makes you the security and obviously as we all know like being a security is not that great of a thing because it means there are like a million different laws that you have to abide to you have to register for exemptions blah blah blah

um but I think there are a few key winnies here right one key winner is centralized exchanges because they are likely the place where protocols will come and offer those programmatic sales and I would guess that if you're a protocol team you would probably one of your protocol sales to uh verify like kyc user base rather than doing it on a decks but that's just my guess for all we know like these may happen on Dex is more than centralized exchanges um similarly protocols obviously regulatory Clarity is fantastic I feel like a lot of devs now have a better idea of what they should do and what they shouldn't do when issuing a token and one large group that I think is a really big winner here is that users

right um if you don't want to sell it to institutions because it means that you have to classify your token or at least like that specific contract as a security then perhaps you want to do more public raises through like Community fundraising efforts you want to do more air jobs you want to give users away uh to basically get more of the protocol tokens and it feels like those are the three big buckets that has sort of one from this uh judge ruling and obviously coinbase is one of the big win as well that every Capital talk to talk a bit more about that coin good good stock honestly really good Equity it was up 24 not Financial advice not Financial advice I I was at

one point uncomfortably long coin now I'm comfortably long coined uh after the move uh I mean yeah like Brian and the coinbase is unhinged right now after this news they immediately relisted xrp for trading uh obviously the market liked this news because it means that a lot of this potential Securities are at least in the eyes of the SEC are yes he's probably going to lose those future um lawsuits against Adam Solana Matic Etc so you know I I'm gonna probably get this wrong but I want to say like 30 ish to 45 of all of coinbase's trade volume is is from alts non-non Bitcoin and ethrelated ALT um so obviously prior to the uh the xrp news there's a lot of concern around coinbase's future Revenue stream in the

event that these assets are are considered Securities but if xrp is not a security there's no way like half of these are or 99 of these assets are uh so this is really good news for the market or around coinbase um you're gonna probably see their trade volumes you know sustain if not go higher in the event of a impending um bull market um but really good news for coinbase as a whole you're seeing uh obviously like their competitors mostly binance uh get their their hand slapped in the EU you know you're seeing different regulatory bodies throughout the EU and even in other parts of the world um start kind of cracking down on binance you're seeing a lot of fun on binance right now either right or wrong not sure because they're they're kind of not not fully transparent around their

assets and around how their revenues are are shaken out but they just laid off over a thousand employees over the weekend but you know currently you're seeing coinbase's story turn more bullish while you're seeing their competitors kind of uh I guess wither away a little bit right in in the the news of like the you know the Bitcoin ETF and all these major traditional financial institutions leveraging coinbase for um their their exchange surveillance agreements uh leveraging coinbase as a custody provider the the entire coinbase narrative is finally coming to fruition the the whole bet was that if you believe cryptos here to stay then you have to imagine there's certain like clear regulatory guidelines around crypto as an asset class and you're starting to see that at least in the

United States and the more regulatory Clarity we get the more bullish coinbase is as an entity because they really played by the book for the past 12 plus years people forget that like coinbase has been around since like day one um and if you're bullish on crypto you have to inevitably be bullish on coinbase um look they got lucky that FTX blew up because FTX is making a really big like brand and name recognition in the United States uh and they lucked out because of that because if not if FTX was a legitimate company and you know sambaquin freed and those actors weren't being greedy there was a good chance that FTX us was going to become the dominant Exchange in the United States and the dominant like American crypto brand but you know the the cards uh fell where they lied and ultimately coinbase

is coming out ahead and they're they have a really good story ahead from here as long as they don't mess up whenever it comes to legal stuff like this I am just so dumb like I it's this stuff goes so far over my head unfortunately so I I definitely am a person when it comes to legal stuff again that I'm looking to other people for thoughts and well all of CT was kind of you know hooting and hollering out of Joy the I gotta give a shout out to the blockworks editorial team they were like all right hold on what does this actually mean um and while there were some great things it's also still like okay you know we've we won round one but this is far from over uh and one of the interesting things is Ripple didn't even

win the suit for the reasons that they were suing the judge kind of came out was like I don't agree with why you're saying you're not a security but here's why you're probably not a security um and there's a quote from an article that Casey Wagner wrote that I want to read here and so this is a quote from uh Joe castelluccio a partner at Mayor Brown and the leader of the firms uh fintech and digital Assets Group so as one of the few successful challenges to the SEC in this area the decision provides a window into additional structuring possibilities for token insurances and secondary Market transactions however I don't think this decision deters the SEC or causes it to change its approach to the industry so

still expect the SEC to bend you know keep continue on the way they've been on this war path um it'll be interesting to see if they go after D5 protocols uh you know this has to be kind of like an arrow to the knee for the SEC but I I kind of agree like they've already made it their brand to go after crypto for better for worse and like I don't think losing the first round is going to kind of push them off the hill so it's just a bit of the Insight from the other side of the of the of the perspective here because I know all over crypto Twitter it was we won we won we won and all over the charts it said we won we won we won as well so um kind of interesting and again like I don't I don't I don't follow I don't

pretend to know the law so it's uh it's just interesting to see the other side of the of the wall here yeah well I know honestly I'm with you there Dan I'm like I don't I don't try and act like I know the legal jargon but I ain't short an xrp with a 10 foot pole like some people are trying to trying to play that game and I don't know you're just one headline away from just getting wrecked in either directions I'm going to steer clear that market for a while yeah they still have the retail attention like and which is coming back I've got a very embarrassing text from my mother saying she wants to uh get me to host a women's crypto group for the neighborhood so retail is coming back and the answer to that text was no let the record state

but uh one of my good buddies dads uh got wrecked in Block five Still Still pursuing on is like no I get the crypto thing he uh he's always asking about Ripple and Stellar those are the two always asking me and I'm like that's where retail attention is I don't know how it always shifts there but like that is what the this group is looking at yeah you just reminded me of like uh the FTX claims process I've been seeing people all over Twitter saying like I I made a claim but I haven't gotten an email or anything telling me that I made the claim and I don't have any money still so we probably shouldn't put them on the hot seat but instead actually for my hot seat I can jump into that I've got Ave companies uh they launched go I

believe it was late last week maybe over the weekend or I can't actually recall Dan will have officially pushed live on on Saturday yeah so what's that the 15th yeah okay so I've been live for two days there's about two and a half million borrowed I believe at around one one and a half percent reason we've kind of got them in the the hot seat here is just the valuation they're sitting at like a 1.2 million billion dollar fdv versus curves 700 billion or sorry million 700 billion would be pretty large um as well as uh makers uh 950 million fdv or so and then they also launched a lens V2 or I don't know if it's actually launched quite yet

officially but plans for v2 rolled out earlier today basically making nfts composable with the erc6551 standard under V2 so basically specific nfts can have their own lens profile so the example they gave them the Twitter thread that they that they put out was that a crypto Kitty could have its own lens profile kind of creating its own value flow for the the actual nft brand while um kind of creating value for the content creator who owns the nft themselves and they also introduce open actions which is basically the ability to interact with smart contracts via lens Publications which is actually pretty cool it opens the door for lens users to like mint nfts swap erc20s participate in dials like directly via user interfaces on

lens and some other improvements include some security upgrades the ability to transfer handles without actually transferring the entire profile so they're kind of split up into two different nfts now I don't know I just kind of got them on the hot seat because one I think Ave is overvalued relative to its peers with better products and I also think that decentralized social is just generally really far out like it's just not a smooth experience today and I don't think that people are actually going to migrate from Twitter threads um I don't know why I listed threads there no one's actually using that right now either but nonetheless other major social media web 2 companies I don't see that being replaced by web3 for a significant amount of time

yeah I agree um just going like to the lens V2 take like humans are inherently social creatures and we want to be social with other people that are also on the same platform and like threads great example I just looked I'm threaded anything in over a week and that's a centralized company backed by the larger social media platform in the world um and where I'm gonna stay on Twitter because that's where everyone that I interact with is on and until there's like a real Market product differentiator to go to lens like here's why and I I'm look I'm super bullish crypto decentralization and like ownership of a social graph is not enough of a reason for me to move right

now it just isn't uh like I I have trouble seeing what the tangible benefits that of that are and I'm like very I'm already within this Niche sector um so yeah I think it's really cool that they're trying to push us forward I do think at one point decentralized social is probably going to be a good narrative in in the coming years I just think it's probably too early and just put them on the hot seat I agree like from a product perspective if you look at like maker so maker is obviously going through their whole end game uh revision or revamp uh they forked Ave V3 to create spark protocol I know we uh I know Xerox research uh interviewed Sam uh as part of that who's kind of heading Phoenix

labs and building out spark protocol but when you look at like a maker down to obvious comparison it's essentially the same product at this point uh maker now has a decentralized stable coin it's the most Lindy Sable coin in crypto Maker's been around since 2016. um they obviously they now own their own lending platform which is literally an Ave V3 Fork uh they're gonna be able to uh lend out die at like the cheapest rate possible across the market um they're sitting at 900-ish billion of 900 million fdv uh and then you look at Ave saying a 1.2 billion fdv they have go it's brand new um yes they have higher tvl but if you look at like maker uh versus Ave maker has much more

um I guess brand awareness in the traffic space so they're being leveraged by Community Banks in the United States they're being leveraged by sock gen in France which is one of the largest intuitional banks in the world I believe and at least in the EU is actually like tapping into dialquility uh maker sitting on like billion over a billion dollars in usdc that they're able to leverage to uh deposit into T bills and they're going to be I think profiting over 100 million dollars like profit over 100 million dollars on an annualized basis by sometime next year once all their rwa deals reach Max debt ceiling um it's just really hard to like stomach investing in Ave over maker at this

point because Maker's kind of building out and expanding uh or doing like horizontal integration and ave's kind of playing catch up and for the record effort Capital thinks mkr will be a top 10 asset by market cap in the next few years so just take everything he said with a grain of salt and I also say I don't own any mkr so like I don't own any right now I probably should have because they're they're up like 100 or close to it since I I was Bull posting at the bottom but um yeah that was me LARPing but I do seriously do think MPR is like a very undervalued defy asset relative to the space let's uh let's get this on the record so you said by 2025 is that gen 1 or December 26th 31st yeah I'll say by

the end of 2025. you're gonna say mkr in the top 10. all right so what's that 24 months no 30 months all right Mark it down we'll be back in 30 months remember I keep receipts okay perfect perfect um and yeah I agree with the takes around decentralized social I think that perfectly sums up into if zoc struggles to do it it's gonna be hard for a a decentralized startup to do it as well so when comparing uh go to die I tend to agree with your your points there and uh the Lindy effect is is actually quite huge you really you really see that playing out in the market um you know dye really has never been challenged if frax got

fairly close um and then once the bear Market hit you saw like a true pullback nobody was holding fracks for its you know spot demand if you will or just to have the an asset that holds value or a stable value specifically um well people use that for die die is in treasuries of protocols it's it it does and very much so have that effect uh and when comparing it to curve there's a couple things that I think curve just just nailed with its new model um so like both go and die CRV USD is uses like that peer to protocol model where you don't necessarily interact with your peer-to-peers which is a very outdated model at this point what's more common is appear to pool where I I you know you have suppliers you deposit

assets that lenders come and borrow from the protocol or excuse me borrowers would borrow from the protocol um and you just that's been a great model that's scale D5 really I mean Ave compound really led the charge there that's that's why D5 is the way it is today but from a profitability standpoint that's just not a great way to run a business if you have to pay borrowers to bring assets to your protocol to fund new loans um you're you're just gonna have to cut that spread between what borrowers are paying an interest and that ultimately flows back to lenders to incentivize them to bring their Capital to the table where if you can play the role of the lender and have the stable coin that

gets borrowed you can capture the entire uh amount of interest that flows in from the borrowers and that is simply a more profitable model you know you saw die really be the first ones to take this and run with it and now you're seeing Ave migrate from into this peer-to-protocol model and that's how curve is launching its stable coin which is now up to about 100 million in borrow outstanding and they have two key Innovations on the peer to protocol model so instead of just borrowing from like a plain Vault or a dumb Vault or you know whatever you want to call it you're actually borrowing from an amm curve which is a very very interesting brand new innovation that we've seen in the space and what this enables is instead of getting a hard liquidation at a certain point so let's say you

borrowed a thousand dollars at 80 LTV um then once you hit that Health factor of you know one or zero however you're calculating it and when you're up for liquidation you lose everything at that point um instead of going that model there's actually this collateral conversion model if you will so as you're as the price of your collateral kind of falls down and decreases you're gradually moving from the volatile collateral asset into a stable collateral asset so you're always going to have more value than your borrow outstanding so it's a brand new model it's been working great in production there's been very very few hard liquidations I can only think of one but I'm sure there's probably somewhere between one and five at this point and

um so we're seeing a better in environment for borrowers to go Access Capital and another interesting thing here which is some would argue is the more the larger Innovation is a dynamic interest rate curve that updates based on market conditions without user intervention and what this leads to is less governance and that is always a net positive when you can have a safe and secure model that doesn't need to be updated with user interventions like ultimately that is what we're trying to build in Defy is just autonomous Financial applications and this is actually pushing out directions so again two massive Innovations and more a quick little intro on the the dynamic interest rate model is the two key ingredients into this model are the current price of

CRV USD the stablecoin and the amount of debt in the system and basically based on how those values shift the interest rates that users are borrowing at will uh kind of kind of shift the the rates that users are paying so we've seen these really cool Innovations and you know they want to start working in rwas over the long run you're going to see them work in curve LP positions so again I just think that there's more interesting models that we've seen and kind of Ave came out with this not Bland model but like one that already exists there isn't much Innovation here but at the end of the day like it is a more profitable model for Ave and it is the right thing to do we got a comment on a YouTube video last week I think it was someone asking why are Dan and Sam smiling ear to ear when

Lucas says there needs to be a curve on Solana it's exactly that you can just hear the guy's passion he's been talking about bringing curve over to Solana for like six months now so if you ever hear that happening that was definitely Dan's Dan's doing oh what an excellent comment I I didn't even see that one that's incredible um yeah I have no idea if that's happening but if you're a developer in the rust ecosystem hit me up because I want to make that happen just briefly touching um on lens like I'm not a consumer founder but I feel like most social apps have taken off either a they found their own like very specific Niche that caters to user base and then grown from there

or B they've introduced a new content type right for example short film videos of tick tock um like be real and like how you can take it with like two different cameras I don't know what the kids use these days um but like it's always been sort of like enabled but like a new content type that a lot of like young gen Z is fine super cool and then just like blows up from there so yeah same thing as you guys I'm not that bullish that's V2 and then similar from like evaluation perspective between RV curve and maker I feel like out of all of those yeah already doesn't deserve to be like at the value between that where it's at and I I low key agree with effort Capital here in terms of maker potentially becoming like a top 10 asset maybe not

by like end of 2025 so soon but maybe like five years down the road just because overall I feel like in the next five or ten years rwas are going to be a huge component of crypto and D5 I wouldn't be too surprised if 10 years down the road more than like 50 of TVO and crypto is for rwas or if I want to go like super bootcasing if you take crypto's market cap like 50 of that will be like rwas so like crypto market cap is one trillion today and like 500 billion of like 500 billion worth of rwas will exist on chain in some form and I think maker is in a fantastic position to sort

of capture that right they have like all of these teams working on like due diligence they have all of these existing Frameworks built out they have like insane Financial like models built up by stake Finance Steakhouse no Steakhouse um and like it seems that they've gotten that down you know they work with like block tower or various or the hedge funds soft gen for all of like those review World assets like generation or origination and I can't think of any other protocol that's coming close to what maker is doing in terms of rwas right now yeah at the end of the day like the on a long term basis the the way it's actually we're setting up ourselves I think one of the reasons why D5 is catching a bid lately and this is I

think maybe a personal take but in an increased uh interest rate environment that we're at right now and uh at least in the real world with t-bills yielding like five and a half percent like the risk-free rate is like high right now is a high hurdle rate and borrowing capital in like traditional financial institutions is extremely tight right now there's you're seeing like credit crunches happen obviously the bar rates are high right now how D5 wins is offering a lower borrowing cost than on than traditional financial institutions that is literally how it wins and right now this is like the exact opportunity for D5 to out-compete tradify and once we get a really good regular regulatory framework in the United States you're already seeing like

block tower capital and some of the crypto native institutions start tapping into like cheap on-chain liquidity to then ARB that price difference somehow by leveraging the Beyond chain liquidity and bringing it to the real world like maker is the on chain to off-chain bridge today and you're seeing Ave and like other real world asset protocols starting to kind of I guess Converge on this concept but makers so far ahead that they are going to in my opinion they're likely going to win this race I think one of the issue concerns is because they're trying to go through this whole end game model uh makeover such like a steady and like you know what you got from maker prior to this whole endgame proposal now they're trying to do a bunch of fancy that

maybe couldn't deter some more conservative traditional financial institutions start tapping into make a liquidity but like if they're in game uh thesis wins out and their whole revamp works out um I I think you could see them like just gain a lot of uh real world asset exposure and just like curve kind of has their own ecosystem with like curve fracks convex like you're right now I think the closest protocol tied to maker now is probably centrifuge which does like a lot of real world asset loan originations by tapping into to make a liquidity in some form or fashion like block tower uses both maker and centrifuge to do some of their real world asset uh dealings but you're going to start seeing a bunch of rolled asset protocols try to tap into like die

liquidity do through like a d3m module and borrow die at like a cheaper rate than the than traditional Finance can can offer um and you're gonna I do think you're gonna see like trillions in AUM from D5 mostly on the back of maker down like over the next like decade probably Super Bowl like thesis but um ultimately like that that's really what D5 is offering is is offering cheaper cost of capital than traditional Finance yeah and I know like I agree the the in-game transition will be super interesting to watch and you'd have to think like if a protocol can effectively use its token it has a leg up over protocols that do not use their token I I struggle to think that won't be the

case um and so going back to the three we just compared Ave has a token model it uses two Advantage makers working on implementing one and then Ave doesn't I don't know another thing to think about but I think it's a good time to send it over to our interview with layer zero but before we do that I want to give a shout out to the atom accelerator they are doing a great job getting Builders into the atom economic zone and building out the cosmos ecosystem they have these they have these great tools that just come out of the box and they have uh IBC interoperability that allows chains to communicate with each other without having to bring in this external system they have energy and accounts that allow the chains to actually interact with

other applications on different chains they have Duality coming to the ecosystem kind of setting a new standard for Value accrual as it pertains to the cosmos Hub and interchange security you know stride's also a consumer here and they're really pushing forward the advancement of liquid staking tokens and then of course you have native USD coming through Noble so we're about to soon have a very vibrant defy ecosystem it's going to be a very fun time to build in the cosmos ecosystem if we're looking to get something started definitely be sure to click the link in the description that will take you to the atom accelerator homepage they're giving grants on a rolling monthly basis that ranging from ten thousand to one million dollars so be sure to check them out again if you're a builder that's really who the ecosystem needs and is looking for and is looking to expand the

power of the atom economic zone and the use of Adam as money so again put the link in the description be sure to check them out now onto the interview with Brian Pellegrino from layer zero all right everyone today we are joined by Brian Pellegrino the co-founder and CEO of layer zero Labs Brian thanks a ton for joining us today we have a pretty exciting conversation on the docket regarding all things layer zero and also Stargate one of the exciting applications you guys have been working on so I kind of want to start the conversation off going through uh you know layer zero and some of the cool things going on there so you know one major security unlock of layer zero is this Oracle and relayer design and I kind of want to dive deep into this but if we could just start with doing like a

you know know just a brief overview of kind of how this model works I think it'd be a healthy starting point most models prod creating this is that security to some third party so you would have whatever some you know insert any Bridge provider here or like messaging protocol um and you the application just say I sort of trust them with everything transaction is going to happen here they'll tell me if it's true or not and they'll kind of report out on the other side um that's that's fine for like small applications I think there are a lot of small applications are willing to just completely delegate trust like that but for larger applications it becomes very difficult and one of the questions we did continuously ask ourselves is like

okay you know how does this scale Beyond you know 100 million dollars a billion dollars but how do you have a system that the largest D5 protocols in the world dealing with tens of billions hundreds of billions of dollars um the stable coins of the world the uh you know eventual possibly tradify system like how does all of this stuff resolve around one system it was like very clear that uh everybody's not just going to to offload their security to some random third party however secure that third party may be um and so the entire thesis of the layer zero structure was basically uh you needed to create a system that was flexible enough to serve as a bunch of groups so again if you have this third party the third party basically only gives you a single configuration which means if you're a tiny nft project like

who doesn't you know dealing with very low value things you're an extremely extremely um you know you're Ave dealing with like 100 million dollar liquidations like the Delta there is massive and having them both subscribe to like a single structure just doesn't make sense for either um so the whole principle of this was allowing this sort of like modular security so we've seen you know chain link is in there um ZK like client by polyhedra just got in there like we're starting to see more and more groups come in where there is a really robust set of options uh that any application basically gets to subscribe to um so there's a much more flexible security stack and so there's also this uh the like obviously to kick start this you know kind of how to push out these two default options for both the Oracle

and the relayer um is Stargate still using that and like what percentage of of users of layer zero I've kind of opted into building their own models yeah yeah so one thing that we've found uh is actually that running the Oracle component uh which is just security is like it's it's pretty easy it's pretty straightforward there's a lot of groups who could do that running the relayer is like incredibly incredibly difficult uh whereas the relayer is basically just an Oracle and execution tied together right it really does security but it also does execution and execution is really really really difficult like um you know we have to deal with um Wallets on 35 main Nets 45 test Nets you're quoting constantly in all N

squared directions in terms of how to price gas in both ways so that the user has a fully abstracted experience you're keeping those wallets balanced we're doing like 40 billion RPC calls per month right now um so it's like it is like no joke in terms of like scale of operation and so that unsurprisingly people have been like that's pretty hard to run and so uh whereas in the beginning we're like yeah listen anybody can do that um so we're gonna be rolling out some some changes in in the coming months for for how some of this stuff works and just make it so so so much easier for people to do uh so it will look a lot different uh right now uh there are probably four groups we just released Essence which makes like the Oracle the security side much easier uh there are

like four large applications and a bunch of uh node kind of your node info providers kind of like classic service providers um who all are starting to build on this so so uh you'll see a landscape of probably a wait list about 50 people right now 10 will probably roll out kind of earlier so it will start to expand pretty rapidly um and each of those have their own like clusters of nodes and own structure um but yeah so so far on the relayer side it's been it's been pretty slow but that will change for sure no yeah no kidding it's a tall order just be ripping 40 billion RPC calls in a short time frame like that but uh I'm just curious at like the so you know you mentioned like the the broad range of needs for the the apps themselves right

like uh ranging from Ave to an in a small nft project uh which applications are like which which end of the spectrum has been more in demand coming to layer zero being like hey like you know we need to build like a super large robust system or a bunch of people coming in it's like hey we just want to do these smaller type projects yeah yeah I mean I think it's a pretty broad mix uh in terms of like actual contracts though obviously is permissionless right so you know we probably have I probably like 600 ongoing chats or something but there's like uh 10 000 contracts deployed on Main net now uh somewhere on the order of that and so like a huge number of teams have just come and deployed and like never spoke to us um uh I would say actually the majority of teams never

speak to us they just go read the docs to play themselves uh of the traffic I mean we look at all the traffic but the traffic that's like easy to identify uh it's probably like 70 so yeah probably about 70 value transfer um so you know your typical your Bridges your lending protocols your whatever pure D5 but mostly moving assets it's gonna be like the girly test net Bridge the Aptos Bridge printing assets into Phantom all that stuff um Stargate of course um the second largest application in the network actually is um is uh defy Kingdom so it's like nft uh gaming related basically with item Bridge

um so that's a second overall but still about 70 overall is value transfer um and inbound is like 50 gaming in nfts um in terms of like actual inbound interest but most of those haven't gone to market yet and that hasn't translated into messaging volume so I think that will happen over time for sure interesting that's cool that uh gaming applications are super interested in in layer zero technology I did not know that um in terms of funds yeah yeah that's cool because that's kind of in the promise right you know interoperability amongst games so that does make sense but shifting gears a little bit I feel like every ecosystem kind of is looking to establish their own uh I guess bridging or cross messaging you know communication

platforms so you got like IBC for Cosmos you got subnets uh for in in avalanche and then shared provers for ZK Roll-Ups like what exactly is the primary difference between layer zero and uh in IBC let's say considering it's it's often touted as like the most secure bridging Tech yeah I mean I IBC is just like clients right obviously is like very very interesting it's just basically um you have a you have a bunch of chains and in order to move State data between them you're going to basically run an on-chain like clients you're going to send every single block header from one chain to the other um and then when you have this sort of like list of stacked block headers um then you know you can just take a proof an arbitrary proof and like okay walk it back to the root and prove that

it's like included in that set so um it's cool it's like a um like we we like the model in general uh it's incredibly uh expensive right like if you want to send every single block header from a tenorman chain to ethereum like you would not only like fill up all of the blocks but you'd spend like 100 million dollars a day to do it there's just like no world that you're doing that um so like that that is the main right there's a bunch of different ways you can do the ZK same stuff like again um uh polyhedra is like probably the leading they are by in in terms of messaging volume now the number one most used uh ZK messaging like client in the world um and they they're integrated rather than like trying to build their own channels integrated within layer zero so

the applications can select them like layer zero people think okay because the way you think about most bridges the way you think about most of the stuff in the path is like the bridge is the security model right you choose X or Y or Z like that is the security model that you're choosing that's not what laser is layer 0 is like the the protocol right it's a framework and any like any existing system can just fit in the middle IVC could run over layer zero incredibly easily this uh polyhedra ZK like client could have been some competitive Bridge it could have been any anything like that instead they chose to build inside of layer zero and now they have like 30X the volume in a month that the next sort of like ZK Bridge has done a Lifetime right um so like the whole point is like

Leisure has distribution uh we're not trying to to solve the validation layer like the like that's bigger that's like extremely like um Progressive Fields a bunch of interesting trade-offs there all of that can live within the system and so um yeah I mean the main trade-off is is that right like if you choose IBC it's great it's going to be you know fast and have its own security assumption sort of living within the cosmos the problem is when you try to go anywhere else uh you now have to use an entirely different system like how do you go to ethereum how do you go to x or y or Z right and there's all of these different trade-offs um what laser gives you which is really nice this is like unified semantics right like you can use IBC there and X here and why there all within layer zero

while having the exact same interface the exact same semantics all devs only need to have like one structure for how to send data and receive data everything else is just handled on the back end um so that is like really I would say the main difference is like layer zero is not necessarily trying to solve what IBC does IBC has the as like the transport layer effectively right uh that that sort of validation methodology can just live within layer zero so one of the things you mentioned there is you know you're not really trying to solve this like validation uh this the idea of that and so what is the future of the like of layer zero really look like I mean hence the name right it kind of wants to live at that base that base layer but you see other Bridges or

messaging Solutions um kind of moving towards this like like an L2 for synapse or an independent proof of stake chain like uh maybe axillar Wormhole but then you also see like Circle kind of launching there not obviously not a layer zero solution but it's like again something's more abstracted away how do you kind of see the Dynamics playing between those two things and do you eventually see like an LZ chain type thing or always being this this sub layer no definitely always being so like I feel like people are just recycling the same mistakes that people have been making for like seven years now right um that doesn't that's that doesn't sound like crypto at all no way it's kind of insane to me um so like the whole reason we built layers are in this method is like like

you're just not gonna have one single chain that can secure a hundred billion dollars like it's really great way to sell a token and be like listen all the value will flow through this chain so like of course we're gonna have a hundred billion dollars of security within this little external construct because like we're securing everything so this will be worth so much um but like how many models of that have we seen probably 30 different models and I don't think a single one of them have ever scaled past like a billion dollars of crypto Economic Security um like it's not even remotely close to the order of of what needs to be secured and that's like in the current set of where this space is let alone like five years out effectively this is roll your own Bridge we usually spent a ton of

time with them as as they were developing this like um how many people need to roll their own bridge and get that and get hacked before people like stop trying to roll their own Bridge right like look at the axi Ronin hack look at the harmony hack look at like all of the Native bridges that have got hacked and it's like this might not be your core competency like that's okay right like you're meant to build like a chain or an an application or like whatever like you don't need to roll every part of the stack yourself and so again I I do think the more people that go that way uh the the worse it's going to end up I think we will continue to see large hacks as we saw multiple in the last uh last couple weeks here already again

um and people just seem to keep uh keep going in circles here but we'll see what happens no fair take completely there and I want to get your take on just kind of like why this all matters so you know I obviously I would assume you're more built into the like the modular thesis than something like the high throughput Solana type thesis where you know one Single Shard that's all we're going to need um and you know you just mentioned that point around like maybe it's not the best idea for you to build outside your core competency and like build every inch of the stack so I'm curious like how do you see the future of the industry evolving when it comes to actual blockchain infrastructure and architecture yeah uh I mean uh on the layer zero side we've tried to be like as agnostic as

humanly possible ultimately like for us it doesn't like we equate again I equate the problem myself like how I how I think about layers errors like go back in time free internet and you have just random isolated like execution environments you got DARPA you got Stanford you've got all these University groups like you have some data that you want to do some computation on like I've got to fly to Stanford and like run it on the computer uh we invent this cool stack for moving State data around uh the internet we got TCP ethernet we run cable we do all this other stuff um and like great now we have the internet that's how we're talking now that's how we have all these things like the base unit that's a package just some compute here some compute here with like an array of bytes that's it to create

this array of bytes send it over and like do something with the array of bytes and like that is the internet effectively um and so now we're moving to this structure where like great blockchains cool like isolated execution environments that are that are have strong trade-offs so like some of them are very uh good at throughput some of them are very good at storage some of them are very secure uh no way to move State data between them right layer 0 is literally arbitrary contract invocation with a bytes array that's it two SIM compute here take the bytes move the bytes do some compute there um and like that itself is massively valuable like 99 of all compute in the world still happens on a local computer but like the internet is still the

internet so for us like we all we see is it's the same problem like we don't really care if it's a thousand orthogonal layer ones or ethereum only as a settlement layer in a thousand layer twos like you're still going to need to move State data between those um we just try to build the Primitive that makes it as easy as possible for both of those so we have like no thesis as a company as to like what is more likely one thing that has been super surprising to me uh has been that like I thought the most used Pathways by far would be uh layer twos coming back to layer ones because like all right you're going from L1 to L2 um you're going to use maybe the native Bridge Barber term optimism it's free it's built in like okay great I use that

but I might not want to wait seven days to come back so maybe I'll pay some premium to like come back faster right there's like something that I'm willing to to basically assume for that and so I thought L2 to L1 would be by far the most used pathway not even close uh arbitrum and optimism are most used nodes by far but their most used counter nodes or like uh connections are to each other actually so it's like once people have made this decision to go from layer one so go from like layer one land to like cheap low fee Layer Two land they treat them largely as fungible they want to jump around and do whatever they can between them that's interesting um they don't want to have to go back and pay an L1 fee so like if you're on arbitrum and you want to go do an

application on optimism or base or linear like all the l2s that are coming up like there isn't a world you want to wait seven days to then go up and do that and so like that uh L2 thesis a lot of people early on were like is is the L2 thesis going to be terrible for layers era like it's been incredible Boon for us to see uh the l2s taking off so um no I would say we don't have like super strong opinions I think even the most single like even the largest Maxis of their own ecosystem so like Anatoly vitalik Etc and neither of them are like everything is going to live here uh both of them are reasonably convinced that they'll be at least some so uh yeah okay that's super interesting to think that uh the connection between an arbitrary and optimism is so huge uh and

is I'm assuming most of that activity is done through Stargate uh yeah yeah zero is a whole probably like 30 30 35 of overall volume is Stargate so this is a bunch of different applications who go across that pathway for that specific pathway I'm not I'm not sure what the breakdown is but laser as a whole is is 30 35 which has come down like in probably like in November somewhere September November time frame that number was like closer to like 80 right so you've actually seen a bunch of other apps like meaningfully come online which has been interesting okay that's that's a fantastic uh just proof of you know what else is coming online is is that 35 still the largest single application yeah largest single

obligation by far that's pretty good honestly if you break down like activity on you know even something like ethereum it you probably get something I would guess if you like you know measured by I would say transactions to a certain address somewhere around 10 or 11 as the leading application so that's that's actually quite impressive for just one year uh a little over one year now so um pretty interesting there and you know I think one of the first thing that comes to my mind when I think about Stargate is okay well there's an obvious side will attempt going on here I mean just simply pulling up the defy llama dashboard um I think last time I looked it was like 200 000 transactions in the last 24 hours for Stargate ZK sync again another potential airdrop farming activity that was number two in about thirty thousand

I think the other is 16 or so Bridges combined for maybe 10 to 12 000. so how can you meaningfully measure the amount of cyber activity or like how much organic use do you think is truly occurring right now yeah so I think it's hard actually got in trouble for like trying to like a bunch of people started attacking me on Twitter for like trying to back into this on Twitter so like I like to do reasons like random thought exercises of like okay um Stargate specifically let's try to measure like Stargate civil activity like what do you think what do you think the average size is of a civil transfer my guess would be somewhere between ten and a hundred dollars yeah sure so I I did this exact math so Stargate average

transfer size right now is 455 dollars um every other bridge if you look at every normal Bridge of like the next X uh they average out to about 800 and 855 845 some somewhere around there so like uh Stargate is roughly half let's say a little a little bit more than half of that um so then you back into like okay if you take um you know let's let's say a hundred dollars I think the math was if it's a hundred dollars um and uh so if simple is 100 and organic is 8.55 or whatever the other bridges are how much volume would be simple uh and it was something like 54 or something would be simple um and so like that's one metric

everyone's like that's insane like clearly it's infinitely higher than that I was like okay so like what is the number it's like is the Civil average civil transfer like larger than organic transfer on other Bridges like just give me a number and you can like back in this is math it's not like overly hard um so there's a bunch of ways to like try to back into this um I don't spend too much time thinking about it ultimately it's something that's like outside of my control and so effectively uh you know I look at is like right now if 98 of all volume was stable like it would still be the most used bridge in the world by like a factor of like four so like you know who really cares like build the thing with maximum utility and like let everything else sort itself out

so um like yeah I I don't spend a bunch of time trying to be like it's exactly this or like here's how I classify volume versus others it's just like loose numbers just like what you know what is actually uh meaningful right you don't want to get like lost in the noise um and so I try to Benchmark like roughly uh where do we think the world is because what I care about is measuring like layer zero adoption as a whole um but but yeah I think there's there's a couple different Frameworks you could use for like trying to back into what numbers make sense I like that mindset I feel like there's no sense in trying to figure it out anyways it's permissionless anyone's going to use it if they can so might as well just forget about it and uh know that you're still putting in good work

but uh you did you mentioned cctp I am curious how you think that uh impacts stargate's value proposition obviously you know with circle backing bridge bridge movement from chain a to chain B there's no custody risk or anything like that like you're gonna be fine so I guess I'm just curious do you think that changes the value proposition at all yeah I mean I I think a world where something like cctp takes off at scale it definitely changes the Demand right the starting ultimately solves an inventory problem right it's effectively listen I'm on chain a whether I'm an application or a user I've got a hundred thousand dollars on chain a and I need it on chain B because I want to like do

something in a contract there or I want to be in that ecosystem or whatever like start it just abstracts away the inventory problem that's it and so like if you move to a world where like these um third parties are basically doing that themselves um then that would change sort of this so you'll never you know I eat assets um some sort of like maybe uh yeah I mean a couple of others like native assets you're never you're never going to change you're always going to need to basically have that nobody's gonna have an arbitrary like mentor of Ethan other chains everything uh there's a couple problems with CTP right now like actually from the pathways that it's enabled on um there's still more volume going over like even though you can like once we turn it on you'll be able to do cctp in

Stargate over layer zero effectively the same in terms of message category but it's like capped at a pretty low number um so there's like there's there's throughput restrictions um there there's like like Circle isn't providing it itself they're sort of all external parties would be so like Stargate would be sort of an interface for doing this um but yeah the world definitely changes some um I would say I'm not totally convinced that it will be super used at scale within like a very fast time frame like it's only if uh to Avalanche right now and maybe they just turned on arbitrary or are about to turn on arbitrum uh but those are like the only three Pathways

they've turned on I think like very low volume usage overall at the moment um and then I I do think there are like you know it's a new system it's going to stand the test of time security wise like ultimately I think they're like is that concern um where which is why the throughput limits are so low right like ultimately if you break that system you can arbitrarily mint like if they uncapped it right I could just if I broke it I could arbitrarily mint 500 billion dollars in ethereum and drain every single decks every single lending protocol like every structure that exists I could drain completely and like yes the usdc will be recovered but like every other asset is gone it's like pure existential risk for the entire

industry and I so like I think it's good they're putting through put limits and like hopefully taking that super responsibly uh but but I do you know there there really is that risk that like if that single attestation server is hacked like catastrophically bad for the entire ecosystem um in a way that's unrecoverable again you'll recover the usdc you will never recover all of the East and Route you know every other asset that lives in those pools that's actually something I hadn't considered so I think that's a very fair point probably a good idea to have those caps on um pivoting a little bit to Stargate V2 are you able to share any details around what's uh what's in store there oh uh yeah um let me see what I can actually share

um Stargate V2 is a very very significant upgrade uh it if done with Hydra it will reduce emissions to basically zero and gas costs will be cut by probably 80ish percent at least um but possibly closer to like 99 um so uh without saying more than that it will be by far like it's already the most liquid Pathways it's already the cheapest pricing it's more expensive on gas um reasonably frequently like that will change there in my opinion there will be no reason to use another bridge and then the economics of Stargate will change such that right now last month I think it did like two million dollars in uh an

overall uh revenue generated and spent about a million to a million one in already should be cut down to like 700 to 800k now in emissions um for this coming month um so you're generating like 1.2 million dollars net profit for the protocol um admissions will go to near zero effectively oh so yeah it'll be interesting um I don't know again we like we try not to be too noisy about most of the dev stuff I joke like when we launched right we came out of stealth in like overnight nobody had ever heard of us we released our white paper instantly jumped from Stone zero to like 40 000 followers on Twitter like 15 000 Telegram and Discord like we didn't put out like a single other tweet for like

six months until we launched the protocol right like we're very prone to just kind of like go going in and just like building stuff um so you're trying to be a little bit better about about talking in general but but yeah when it comes out it's it's gonna be awesome um yeah are you able to so today you know emissions are are going to incentivizing liquidity throughout the platform and different channels and what about are you able to expand on like what about V2 is able to kind of like you know Reign that into near zero yeah yeah it's it's so hydrous V2 will be like gas reduction V2 is like a change in in Stargate itself makes more efficient all that stuff Hydra was this proposal that I put out it hasn't passed no but nobody like people I've been talking about it but

nobody's done anything about it but Hydro is effectively like our thesis when we built Stargate was all wrapped assets suck there's like this additional sort of risk that goes on to the end user that they're you know not used to in a use of pro usual protocol infinite hacks happen from just like a bad it's strictly worse than native assets um and so our thesis was like everybody will want to use native assets and Native assets will be kind of everywhere they will be the dominant asset uh since we launched like 15 months ago I think like one new chain got native assets right they just like haven't moved at all and yet rapt assets have gone hacked like 15 different times um and so the thesis was like listen uh we thought raft acids were going away

native assets were going to be everywhere that has proven not to be the case in that world why are we making everybody else use these kind of sketchy Bridges like Stargate probably has uh by far the most like consumer trust around a bridge um it's the most used all that did three billion dollars in transfer Volume last month and the month before and like uh so if if anybody is going to do wrapped assets like why doesn't Stargate just do it um never had any security risk everything so in a world you'll have Stargate the native protocol that lives here and does everything how you would do now and then let's say you're going to go to I don't know name a chain that doesn't have native assets uh I guess Phantom now does that was the

first thing that came to my mind what about what about movies yeah sure um so like let's say Moonbeam um now basically Stargate would uh through Hydra have wrapped assets go to Moonbeam so you would lock them up on ethereum or wherever move it over to Moonbeam you have let's say Stargate usdc that lives on Moonbeam uh that right now most wrapped asset Bridges charge you about 10 dips uh to to go round trip uh that would be entirely free in both directions uh but the uh price for it effectively would be we're gonna take the underliner stargate's gonna take the underlying asset that lives in the contract on ethereum and rather than have it just sit there it's going to supply it to the Stargate pools so now if you move 50 million over to

Phantom you'll have that 50 million instead of sitting in an idle contract will sit within the Stargate native pools which means that's 50 million less dollars that Stargate the protocol needs to incentivize and it will always be there if people come back from Moonbeam and want to take it out you just remove it from Stargate exactly as it works system says solvent all that stuff but there's basically no need for emissions after that and and all of the ecosystems you're going to both the users get free bridging and the ecosystems get a uh ideally wrapped asset that is much more reliable than than historically prevalent how does the separation go to like you know if I'm a user or maybe even if I'm an LP in you know traditional Stargate today the V1 model how is my risk still being sharded away from getting involved

with these wrapped assets uh yeah so I mean the wrapped asset contract only has um only has so much LP right so it's just uh you know again let's take the Moonbeam example 50 million dollars goes from locked on ethereum of usdc goes over and now you have 50 million dollars of Stargate usdc on Moonbeam 50 million of usdc that's sitting in that contract adds to Stargate and holds Stargate LP um right so like s star usdc representing 50 million dollars of the lp pool that's the maximum amount that Stargate the protocol sort of has um any sort of risk or anything right you can never redeem more than that Stargate the protocol isn't minting arbitrary this system is actually lives entirely outside of Stargate the core

protocol it's just an external wrapping contract that effectively participates in there um which is like net good for Stargate and then drive zero fees to the ecosystems okay that makes a ton of sense because I know one of the core missions of this V2 model was really just to increase surface area of like where uh Stargate and even layer zero could kind of like expand and reach into these Corners maybe Stargate wasn't but layer zero because it could already be there and uh this kind of like opens the door to more you know fear cruel right because that's kind of the idea here is is being a protocol and generating Revenue so I'm curious to get your ideas around how do you think about protocol value accrual like where should that end up going and how should that be used within the ecosystem yeah I mean I think number one

like stargate's Mission from the beginning as I see it in the community seems to have like catalyzed around it is ultimately like grow protocol and liquidity period so Stargate has 90-ish million dollars of pure well right now it's growing by one to two million dollars in Pol a month um once you hit about 250 million dollars um Stargate needs no emissions so that's like another path to zero emissions like take away Hydra take away anything 250 million dollars you could service every single thing that is in production now do the same three billion dollars a month you're doing in volume and have your emissions Target owns all of it Stargate captures 100 of the fees of the uh swap fee of sort of like everything around that

um so that is like apat so I think the number one thing is like get to the critical mass of Pol like the goal of Stargate should be driving missions to zero right if emissions like if every dollar you give out emissions yields you less than a dollar back to the protocol then your goal should be to remove those as quickly as humanly possible and then you retain every single dollar of value that the protocol has and the protocol owns that right it's not like any external party zoning and it's within the protocol and it should be put to use in like the most productive manner so if that is living in Stargate that's what it should do if it's something else that's what it should do like Stargate as a whole goal should be to capture as much surface of fees as you humanly

possible and like in the most efficient manner is humanly possible that's how I see it right on yeah I think that that idea makes a ton of sense and um yeah I guess so that makes a lot of sense to me as Stargate the protocol but then when I think about like moving back to layer zero um is there fee capture for layer zero is that the intent or is that just not even like the direction that you kind of want to be pushing in no yeah I mean so right now there's like you're the participants within the ecosystem so again your chain links your polyhedras relayers all these things right they charge whatever fees they want to charge it's an Open Marketplace ultimately you can imagine like that will get largely commoditized down right um to to people will sort of this line

of cost for security and people kind of take the cheapest cost option where it gives them like their minimum bar of relative security um and so uh all of those participants sort of have their own fee structures and whatever they charge um layers are the protocol right now it doesn't charge anything um but the you know effectively that Marketplace and participant in the middle is like a large part of layer zero so um you can imagine you know whatever that looks like in in the future well I won't dive into it too much but um uh Stargate is like net good for layers or all these applications are like net good for layer zero because ultimately it's like surface of traffic a volume of fees for these participants which means more secure systems are going to come

online and there's more incentive to be uh within the laser ecosystem all of these things interesting okay now you mentioned that uh you want to get admissions for Stargate uh down to as little as possible honestly zero ideally an increased protocol and liquidity so a lot of people in my corner say you know bridges are a race to zero on fees would you argue the opposite and is that kind of the strategy around protocol and liquidity you know if that's where all the liquidity is then maybe you actually have some pricing power yeah 100 I mean ultimately uh Bridges depending on how they're the native Bridges like Stargate is just a capital efficiency game right how much uh liquidity can you have you want to do a

10 million dollar transfer on any pathway unless you're gonna wait like 24 hours or for a centralized entity or something like you're just not going to do it on any other system but Sergey right now so ultimately like there is a there's a bunch of directional flow that you cannot do elsewhere um and you just need liquidity when you go to all of these you know is the number of chains expand um it might be easy for somebody else to reproduce on like a two chain pathway right so you'll see people go like um like each arbitrum optimism and it's like okay like they can go if um to arbitrary optimism for free they just wrap the native bridge and like that's fine easy of course we have unlimited liquidity like go that pathway but then when you try to go arbitrary to optimism it's like oh actually like we

have very little liquidity here like you can only do X so people installed like part of the puzzle it's very hard to be able to put it together at scale um and I think liquidity is the premium ultimately like LPS need a certain like in order for them to have their Capital sitting there um for an extended period of time for use for on-demand use uh they need to be there's some hurdle rate right right now if you look at start if you look at most Unchained stuff that hurdle rate's like four to somewhere between four and six percent call it five percent right um so that's what LPS need to be able to stay stagnant um end users are willing to pay some premium to basically have this service now have the liquidity available when they need it applications uh who don't want imagine building an application

Sushi swap metamask whatever and like randomly when you want to do a transfer over a pathway it's like yeah like we'll get back to you in 24 hours like don't worry this will happen at some point good luck right and like you as application never know when your user is going to experience that you're never like you know what I mean like there's there's a bunch of like friction points so like applications and users will pay some premium for convenience and like real world examples of that or like how am I I think uniswap's UI itself still retains something like 30 to 40 percent of overall transaction volume right like it's it's basically always going to be cheaper to go use one inch or go use any like aggregator do these things right always but like people use it because like they trust it

um you know there's just like a convenience factor to always go back to the same URL that you have bookmarked and like you're not worried about getting rugged like you're not into approving new contracts there's all this different stuff so there is some premium um and some like utility that's added to applications and consumers to have that um but when you already have that like it's very very difficult to bootstrap and so you can compete on fees in a way that other people just can't one thing we haven't talked about yet is uh Omni chain fungible tokens ofts can you walk us through what these are and kind of how they work to improve cryptos ux [Music] um really the Inception of rfts were this construct of like take yeah

multi-chain right so just add the multi-chain hack and all this bad stuff happening around multi-chain like there was billions of dollars of assets that were moved over multi-chain and we were just hearing these constant horror stories of like teams who negotiated with that team to bridge uh their token across um so you would move your token over multi-chain and you would get like any X right so any X is like your new token on the other side for any they were called any swap at the time um and then like randomly you know would be like now now there are fees like your negotiated zero fees now there's fees like nobody can unwind without paying them fees so you're like there's some arbitrary gatekeeper where you're paying six eight ten twelve bips to this external party you have no control over

the security so there's a bunch of times where it's like there wasn't enough money in the contracts that were supposed to be because like on the back end they're the ability to like move this liquidity around whenever they wanted for like native redemptions um you know if they got hacked you were just 100 wrecked all these things are just like friction points so like why did why are teams moving um their entire like their single most valuable assets over to some third-party provider and then at the same time what you're getting on the other side was just this vanilla wrapped the rc20 token so like if you were like Olympus Dao and you had like rebasting or you had like anything in there like that was stripped out on the destination change who like

couldn't do the functionality that you needed you couldn't have like so it was a mess in terms of how the structure was so the principle of the oft was like listen layer zero again is arbitrary contract invocation with the bytes right Stargate is just pools of liquidity that sits there and layer zero relays messages that Stargate constructs back and forth so it's like somebody adds here Stargate generates a message that says like a million dollars was added here go to that chain and tell it layer Zero moves that message stargram the other side interprets it and like releases a million dollars so ad for lease and like uh laser just moves the data so when you think about that same construct oft is just a contract that the and um and Creator owns they own the contract they own the functionality they own

what's allowed to go across you want to add rate limits no problem you want to have pre-crime no problem it doesn't matter you can do anything that you can do on chain within that contract and layer Zero moves and messages so when you talk about moving message moving your uh asset around like instead of using any swap or whatever third-party provider like burn the asset here mint the asset there you've constructed the message you have this secure messaging pathway between there do something in this contract do something in that contract you can guarantee solvency of the entire system there's zero fees and so now when you think about what does that buy you and so like stable coins like circle cctp is effectively this just in a totally centralized manner ultimately it's their attestation server that sits there they said anybody can come and request this API attestation

and move the data around so they kind of took an abstracted sense where like anybody can so any messaging layer can do it we just want to like sign the message but effectively when you think about an oft one of the biggest benefits is like yeah uh rebalancing like again inventory is like a massive problem right if I'm um you know maybe Avalanche only had like five you know 500 million dollars of like usdc minted over the Avalanche bridge at some point and now there's some new farm that Launches on Avalanche like defy Summer's happening Avalanche is super in demand like in order for people to jump from Solana or Phantom or whatever other chain to Avalanche to move that usdc over even though it exists in circulation uh ended up being like you know you might wait 45 minutes and you

might pay like 10 to 15 bips to get over there into that route which is insane um and so now with oft you have the ability to move near unlimited amounts of money within the contract for literally just the cost of gas like you want to move a hundred dollars from Solana to Avalanche like it's gonna cost you 11 cents move like 100 million dollars right like the contract can just make the fee zero strictly the price of gas and when you can do that like think about what that does for Capital efficiency now if I can now if moving my ptcb you know my Bitcoin synthetic my you my stable coins Etc is effectively free now I can ARB spreads to like subsense right now you can arm pairs across all these chains so like subsense

spread so like all Dex pairs become incredibly Capital efficient all this stuff becomes like incredibly Capital efficient because the friction that people have been paying this tax the consumer to move the asset is driven to near zero and then the other thing Are teams like um if you are already paying six eight ten twelve bips for an external service provider and you're like a decentralized stable coin you can now own it in the contract and you can charge cut it in half charge three bips and you yourself get it it's a way to monetize we're like now you own a large percentage of every fee that's out you know it's not only half price for the consumer but you're not paying it to any external provider you can own it yourself there's a surface of like if you want to have fees at least it goes to you the project not

some random third party um and so like yeah that that is the construct of rft it's just just a construct a contract structure that lives on top of layer zero but it is meant to turn the control of these assets back over to the end Creator rather than delegating them out to third parties which again has ended largely terribly in most cases so one of the users of this has been Abracadabra with this decentralized stablecoin MIM and they I think they just launched uh the oft in early June so a little over a month ago now already seen over 87 million uh MIM transferred across a series of different chains mostly to and from arbitrim which is which is pretty interesting right because if you're Abracadabra you want your decentralized stable coin

everywhere arbitrim's kind of been becoming increasingly known as this defy Hub as far as ethereum l2s go and now they kind of have this ability to just get to and from that that uh that chain so that's pretty interesting but I find it more interesting about the fees that you mentioned right yes I feel like I need to go check this contract and see if Abracadabra is kind of capitalizing on this so I'm curious if you if you know that one specifically um but I I think I think they're charging zero fee I'm not 100 sure but I think they went with zero because I think they uh you know their structure they make money when like MIM is is minted effectively so they already have this this monetization structure um but but it's definitely a revenue storage for sure if they want it to be

so what is the security model look like specifically in in this context right so does did they operate a relayer in this in this context so they could right so in this case um it's just like anything else on layers or effectively you choose your validators effectively so let's say you're going to do chain link and poly and chain link the ZK like client and like the laser relay let's say you're going to stack the three of those effectively and like that's going to be your security structure um fine no problem you can stack all three in circles case like if they wanted cctp to basically be you know effectively act as an oracle within layer zero they could do exactly what they're doing within layer 0 uh already right and so like now you instead you just have like the relayer like grabbing

that testation but they could do that themselves inside um so it really is always like with everything with laser it's always application owned like at the end of the day like completely modular they can do whatever they want a lot of applications like don't want to have to run their own but they're totally fine being like listen like polyhedra the GK like client and like chain link combined like that's enough security for me I'm fine with that but for applications where it's not when you are dealing with tens of billions whatever it is that you have the ability to run one and the nice part is like again it's it's you're effectively operating one with veto right so rather than delegating 100 of your security away You're now saying I'm still going to keep this external security and I will make sure that I sign every message that I'm included in

everyone such that I have veto rights if you guys lie and are malicious I get to veto it but if I get hacked like you guys are a fallback to me as well um so like now the Assumption to be able to like hack the team take their private keys and simultaneously like break the ZK like client and hack chain link all collectively like the hurdle becomes very very high so what's the risk here why isn't everyone launching ofts yeah I mean ultimately uh uh ultimately I think it's just time I think you know pancake swap um multi-billion dollar token moved to oft Trader Joe Joe token is an oft avalanche's btcb is an oft abracadabra's MIM is an oft right so I actually think like we're very very happy with oft

adoption so far I think we're going to see a bunch of other uh very very large projects coming out soon um like some of the largest in the world and so I think we will continue to see this um it just takes time everything takes time uh again where I like I look at Contract adoption on layer zero and it's just like as steady state growth up as you could ever hope for it just says really continual churn and it's like I know I don't know hundreds of projects that are building right now that just like haven't gone to market last when we were at 5500 contracts on test on mainnet there were 35 000 contracts on testnet so that's like the type of overhang that is that is then going to be coming to mainnet

um so like it just takes time we're in no rush uh we're gonna keep building the best stuff we can build and like it'll it'll come you mentioned btc.b are you able to kind of elaborate how that works because I just feel like the the Bitcoin bridging design space is always kind of left a lot to be desired for me yeah yeah so Avalanche made this structure uh where they had their own bridge is it their own permissionless bridge to say you can take Bitcoin from the Bitcoin Network to Avalanche and back right you can do this permissionlessly and so you would do it you would mint this btcb asset and Avalanche but it just lived in avalanche um and so what they did is they went in and made btcb and oft and so now great

you have your your ticket from Bitcoin to avalanche now you can take it from Avalanche to anywhere to all 35 chains right so now you can have btcb on Aptos on Phantom on you know any of these other chains as a as a Bitcoin derivative and anybody who wants to go back uh effectively just goes back to Avalanche and out to the Bitcoin Network okay I see so you're still trusting though Avalanche as the kind of like Bridge custodian so as the layer of moving from Bitcoin is is you know their own structure so their core Bridge like that's something that's a product that had already been developed and then they took the end result of that and made it in oft to move it everywhere so yes you have this there's two parts components where like to and from Bitcoin still is that uh

system that they've built and then from Avalanche everywhere is is the oft okay interesting sounds somewhat similar to wbtc in a way um yeah cool well that this has been an awesome conversation I learned a ton I feel like I was just kind of a fly on the wall but I'm glad I got to see it firsthand Dan did you have any more questions before I pass it over to Brian to share more about where people can find them yeah Brian I got one more for you I want to hear some like what is uh what is something that you've been thinking about as a really interesting idea that would be perfect to be built on layers here but just hasn't happened yet all right so I have like a real answer or two that I'm not going to give you because you'll just see them in

production when they're ready um so so there's there are some really really cool things coming um really like in my opinion as as transformative for this side of the space as anything even even including our launches anything we've ever done um so I'm very excited about what we've been working on uh the easy answer that I've given a bunch historically is like the one thing I thought for sure would happen that hasn't yet um is is lending and borrowing uh in a in a manner that you can collateralize anywhere and borrow anywhere because I saw that as disrupting kind of like tens of billions of dollars of wrapped assets like I think 95 of use cases just want to like collateralize native or stable

and borrow native and stable like that that is the super majority I'm on Salon I'm in ethereum I want to go to Solana I might want to collateralize my eth and borrow Saul because I don't want to take the tax set I don't want to lose like each exposure but I want to do something in the solid ecosystem um or I want to like collateralize Saul and like borrow stable in another ecosystem like just native in rap uh sorry native and stable covers like almost everything 95 of all wrapped Assets in existence uh and so I thought there would I thought those structures would come to Market faster um now radiant started sort of the earliest parts of this of like you can move and you can then deposit anywhere and you have lend and borrower you can

bring things anywhere there's there's you and a couple others are coming out where they're again working closer and closer to this structure but that is the that in the stablecoin ofts were like the two things I was like this just has to happen like the world is too inefficient as is somebody will definitely be doing this um and it's been uh slower than originally uh expected but like you said um you know MIM has just come and uh yeah we see a bunch of lending protocols working on as well awesome well I'm excited to find out more about the real answer at some point soon then but thanks again Brian uh can you just yeah Lisa with the audience to let them know where you can hear more from you and learn more about layer zero and Stargate as well awesome yeah um obviously I'm

anybody who knows me knows I'm very very active on too active but you can find me at primordialaa on Twitter uh layer zero is layer zero underscore labs and Stargate is uh Stargate Finance but uh yeah hit me up I'll be around too active aren't we all so it's the devil's juice for us but thanks thanks again Brian cheers man [Music]