Solving Ethereum’s Liquidity Bottleneck

Transcript

[Music] Thank you. [Music] Thank you. [Music] Hello, Ken. You guys gotten some lunch in you? Hopefully you're not famished. I have to say I want to congratulate the ETCC conference because there's a lot more people here than is generally the case for crypto conferences. Um, so thank you for being here as opposed to at some side event, although I'm sure

you're dying to get to those. Uh, I'm Rebecca Leo. I am co-founder CEO at Saga. We are a layer 1 to launch layer ones and we are built for infinite horizontal scalability. You should never run out of block space on Saga. So today I want to focus on something specifically. When you hear layer 1 to launch layer 1, you probably think immediately well this is a modular architecture and yes it is. Um but it is entirely integrated. So the stack is verticalized. Uh you can spin up a fully decentralized proof ofstake L1 chain in a matter of seconds and everything is interoperable.

So I'll talk to you later today about how we achieve that and why did we choose to talk about this specifically at ETHCC because one of the problems that still plagues the Ethereum ecosystem is liquidity fragmentation. You can build additional block space that is no longer a difficult problem to solve. But integrating all of that block space so that you have a unified liquidity environment that is what actually preserves your position in DeFi and allows you to ultimately accelerate growth. So today I want to talk to you about how we at Saga solved this problem and it's called velocity defi.

So as I mentioned saga is about infinite horizontal scalability. The way that most L1 scale is by adding additional compute resources. So um if you are Salana for instance then any time that you run into uh issues with the performance of your chain you're just going to add additional compute. you're vertically scaling. What we have done is we have kept every single layer one on saga exactly the same. We take a lot of our inspiration from cloud. So all of you still use cloud. I know you do even though you are in crypto. And when you scale in cloud, you have one server to start with when your application is not very big and then you scale out to

additional servers. You don't make that one server bigger. And that is exactly what we have done at Saga. You should have as many L1s as you need to support the performance of your particular application. So it's invent horizontal scalability. So vertical scaling has inherent limits and this is why we decided to stay away from it as an L1. I already talked about the limited capacity congestion that is something that every user is familiar with in this space. It's unpredictable costs. So the concept of gas is one of the great killers of protocols in this space. And I say that not because as soon as you introduce gas then your protocol is no longer viable. That's obviously not true. But it does put a

ceiling on your growth because nobody likes gas. And ultimately for any serious use cases you need to have predictable cost if you have cost at all for using the chain. There are single points of failure. Downtime of the chain means that everything goes down. And of course, innovation tends to be a lot slower because you're trying to move a monolithic chain as opposed to allowing all of your applications to do whatever they need to do for their particular block space. All right, so we decided to go with horizontal scaling. Um, however, the system is always going to be much more complex to manage. So, let's do a comparison between the two. Okay, it's usually helpful. Uh so with horizontal scalability um L2s and roll-ups can do

the same thing. Again, you're just adding block space. So what we've done and what roll-ups and L2s do is very similar. You're just adding block space. That's where the comparisons start to break down. Fast finality. Okay, this is something you need in order to make sure that you keep the flow of DeFi going in your particular ecosystem. So with app chains and L1s, that fast finality is there. Rollups obviously not. You there's a waiting time for settlement. full interoperability. This is a big one. I don't think there's anyone in this room who actually likes bridging the way that it is. However, um until we get to complete abstraction, that bridging is going to be a critical part of the infrastructure. Now, with app chains and L1's, you do have that automatic interoperability. Everything

within Saga automatically talks to each other out of the box. Whenever you stand up a new chain, which takes about a minute or so, you are completely interoperable with Saga itself. and then any chain that saga is connected to. Um this is one of the big shortcomings of rollups and L2s is that interoperability is not readily forthcoming. Uh it's fully self-contained. No need to explain further there. Predictable low cost. So this is where we've taken an additional step with roll-ups and L2s. The reason why they exist is that they already are an improvement upon Ethereum costs or the cost of that mother chain.

What we have done is we have taken gas and completely eliminated it. So we are EVM. We are EVM on the front end. Having said that, we have a recycled gas mechanism that I'll get into later such that the user never has to touch gas at all. It is only provisioned by the chain and the developer. And this is a huge benefit to allowing more flow of consumer activity on that particular app. Decentralized and secure. L1's app chains are fully decentralized proof ofstake chains in their own right. Obviously roll-ups and L2s by nature do not have that kind of architecture. Easy to deploy. So um previous to saga I would say that roll-ups and L2s you could do at a click of a button. They

are single sequencers for the most part. Uh but um in order to do something decentralized you need a validator set. You need to go through the whole rig and roll of setting up an L1 which was very difficult to do prior to us. I'll tell you a little bit about how we solved that. All right. So um the way that each application on saga is structured, it is hosted on parallelized and interoperable dedicated chains which we call chainlets. So every L1 on here is known as a chainlet. They are elastically scalable with application needs. Now what we mean by that is as you scale up obviously you want to add more chainlets. Um this is a little bit easier of a concept for a lot of developers to understand. It's also the

case that sometimes your application performance needs are actually going to decrease over time. Maybe you did a huge NFT mint. You don't have those very often and now you don't need all those chains. So you can actually deprecate the chains that you don't need and keep the ones that you do and just preserve state on the chains that you have kept behind. In the end, we have observed that this is much better all across the board for users, developers and of course our entire ecosystem. All right. So, um, just to drive home the point, why did we horizontally scale as opposed to pursuing yet another rollover or L2 solution, it is because first and foremost, it is about elastic scalability and high performance. Again,

you can have as many L1s as you need supporting the performance of your particular application. It is fully interoperable. This is a big one because this is what solves liquidity fragmentation. As long as the bridge experience is either impossible um or it is way too difficult for users to navigate then um functionally you have completely fragmented your liquidity environment. So interoperability is a huge one has to be out of the box whatever block space you're standing up. There's sovereignty and flexibility in an L1. This is something that people don't really talk about too much anymore. Um because uh I would say that DeFi as a whole and blockchain as a whole has become so incredibly profit driven. And I think a lot of the

idealism around sovereignty is um really held by just very few people now. But the point still stands that sovereignty and flexibility for your block space are incredibly important particularly if you are working with a larger more traditional um organization that is looking to stand up chains uh tokconomics. So um this is going to become a very important part of the discussion later on when we talk about how we achieve velocity defy. It is really about revolutionizing tokconomics and making sure that we can power truly costless transactions and fully decentralized. So fully decentralized again it's one of those things where the degree of decentralization and what is the optimal

degree is something that's really open to debate now and people are not as orthodox about this as they used to be. Having said that in order to achieve interoperability you need to have that kind of decentralization because otherwise the bridges will not trust your chain. and they will not open up to allow those assets to flow in and out of your chain. So really decentralization nowadays, especially for us, serves a very practical purpose where we can open up those bridges and allow for that fully integrated liquidity environment. All right, moving on. So this is the power of horizontal scalability. This is a stress test that we recently ran to uh show the compute ability of Saga as it stands now. So it is up to 1.1 million TPS. This is aggregating the TPS across

the chains that are currently available on Saga. Uh 716 blocks per second. I'll just quickly read through the stats. They're not terribly interesting other than to drive home the point that there really is a lot of scale on here and there can be more um given that you can just add additional L1s. It's a capacity of about a thousand chains right now. 500 chains can be stowed up in less than an hour. So this is a pretty automated process. And there are 2,000 validator nodes with up to 4,000 capacity. All right, it's a highly performant chain. Um, the reason we decided to to talk about this topic today is that Vitalik um has talked about the issue of scaling without interoperability.

Again, this is what causes a fragmented liquidity environment. We are natively multi-chain at Saga. We have always had this problem. It wasn't that we had a layer one with a great DeFi ecosystem and then we had to scale out. We've just been natively multi-chain from the beginning. Nobody has ever built on saga mainet and it was designed that way. Everybody always built on their own layer 1 or set of layer ones. So this was something that we had top of mind as we were thinking about onboarding DeFi. So we have um observed that our chain lit infrastructure really solves the scalability without sacrificing interoperability.

So in many ways it is the Ethereum scaling dream realized. We are EVM compatible. We are not Ethereum itself. And so what we are bringing to you here is a solution that exists for a layer 1 and I think in many ways can be applied to what's happening to Ethereum today. And a lot of the traffic that we have right now is actually inherited from Ethereum because of that EVM compatibility. So let's get into it. We launched at ETH Denver 3 months ago our liquidity integration layer and little as we call it is our DeFi layer.

This is the way in which assets can be transferred back and forth between any of the chains within Saga and then in and out of other ecosystems as well as long as Saga bridges to those. So um fragmented liquidity uh leaves users uh incredibly frustrated obviously. Um any time that someone needs to touch extensive bridging they usually stay away from those transactions. And so what we wanted to do is make it seem as though you are entering this ecosystem of multiple chains on saga.

Nevertheless, it's going to feel like a monolithic chain experience. That's the reason behind liquidity integration layer. So what is it exactly? Um so once a chain is originated takes about a minute on saga, it is stood up with all the necessary bridging infrastructure such that that chain is no longer an island. So out of the box it is fully interoperable with everything within Saga and then again any uh chain that we bridge in and out of with other ecosystems as well. Um every chain lit is connected um to to one another and to the saga mainet. There's no need for manual bridging any longer and this sort of automated routing is ultimately

noticed first and foremost by the user. So we thought about the developer experience in terms of standing up a new chain and not having to worry about any of this liquidity integration or bridging infrastructure. But ultimately it is in service of the user because when they are trying to bring assets to Saga and then ultimately have those assets flow to other chains within Saga they need to have that integrated experience. All right. So um one key driver of this in addition to the interoperability piece is removing the gas. So um slowly but surely uh we're seeing the scaling solution come together. So first and foremost we had to solve fragmentation.

So we've solved fragmentation. The ecosystem is fully integrated. Now let's talk about the fact that gas remains one of just the weirdest innovations in this space. It was appropriate for the time, but I think as we scale out, we recognize that if you really are going to have a serious number of consumers on here and you're also going to have very large organizations adopting this technology, then you need to solve the gas problem. So, we have removed gas from tokconomics entirely. The Saga token is never ever used for gas. That has been true since the beginning. Okay, so gas is useful for congestion control.

Um but chains have started to use gas as a value acrome mechanism and that actually is it doesn't work. It just flat out doesn't work. I don't think I need to elaborate too much more uh to this particular room but that just no longer works. You have to find another way to acrue protocol revenue. It cannot be the case that your protocol um can only grow as the user experience gets worse. All right? You want the user experience on crypto to ultimately be more seamless and you also want to make money along the way. So, um, how do we get rid of gas? Let's let's touch on that piece first and then I'll talk about the revenue generation. But what we do is recycle gas tokens. I'm not going to, um, go into all the technical aspects of this because quite extensive,

but put it this way, we are fauceting gas on the back end to fulfill the gas requirement on EVM. Okay? So, there is still the technical requirement of gas. that doesn't go away because we're ETH. So, um in that way, the developer is always going to have the requisite gas for any transaction on their particular chain. However, the user does not notice anything. They are not paying for gas um inadvertently. They're not doing it as a hidden cost. They're not getting their gas sponsored. They're just simply is no gas that is ever charged to the end user.

All right. So put it all together, we have the interoperability, the gaslessness of the ecosystem, the fact you can have as many layer ones as you need in order to scale your application, particularly if it's DeFi, and a lot of those our bots are trying to look for their profit opportunities. This is what velocity defi on Saga looks like. So DeFi needs to be able to onboard volume. Our main focus at Saga for all of our DeFi ecosystem is volume. All right. And it doesn't happen in the current meta. So right now people are not as focused on volume because once again so much of the value acrruel of a particular protocol is based on the

cruel of gas fees. So instead we have switched to one in which we are looking specifically at volume very simply that is flowing through the liquidity integration layer and then taking a rake off of that um for for the service that the protocol has provided. So what we're looking for is a very positive feedback loop. Um, when you have increased transaction volume, there are more fees generated that way because we're taking a little skim off that volume, which leads to increased liquidity and is ultimately cheaper for end users. We want to get to the solution on the left. That is a positive feedback loop that's sustainable for DeFi going forward.

What's happening right now for most chains is what's happening on the right, which is that there's more chain congestion, your gas costs increase, it's more expensive for end users, and ultimately reduces your transaction volume. it really limits the flow of assets within your particular chain which is not healthy. So how are we doing on this liquidity integration layer was debuted three months ago. The very first app to be built on top of that is our canonical dex um which is a canonical deployment of unis swap v3 and um for the month of June we are number two in terms of dex volume growth only behind binance and um in absolute numbers among the top 10

across all chains. So it's about 800 million in volume that we regularly do on a month-to-month basis and I think that will grow as we introduce more DeFi primitives on Saga. So what are some of these D5 primitives? Well, the next big wave we have revealed across our socials is really focused on stable coins. No surprise there. Um but how we're thinking about stables is it's not just you know implement a fork of liquidity v2 and leave it at that. Um that would be perfectly fine but we are taking it a step further. We are feeding liquidity into DRinity which we announced yesterday. So liquidity will produce the stables but dinity is what is going to take those stables as well as any assets outside of saga and it is

going to generate our canonical stable coin as well as additional yield. So we are compounding stables on top of each other in order to generate the most saga USD possible as well as maximize the yield opportunities on our chain. Okay, coming this summer, August time frame. All right, so um some of you may know about Saga, maybe not all of you, uh but uh for those of you who are very familiar with us, you're probably looking at this and thinking, okay, I heard something about Little and I heard something about you guys doing DeFi, but surprising honestly because so much of our focus has been on gaming and entertainment and a lot of our focus remains on gaming and entertainment. Um it's not something we talk about at this

conference. Uh but it is definitely something that um we uh we really um aim to make a big splash about at Gamescom which is in a couple months in Cologne. Gamescom is the largest gaming conference in the world. That is where we reveal the big games entertainment IPs that are coming on chain. There are quite a lot this summer. This is the breakthrough summer for any sort of web 2 IP coming on chain on saga particularly in the form of AI agents. How does it feed into DeFi? because the way that the ecosystem is architected, I think this is true not just for us, it would be true for any layer 1 out there, but there is a concentration effect. So the higher the percentage of TVL that you have that's outside of DeFi, the better the yield opportunities

ultimately end up being. So you don't want this to just be a pure liquidity, you know, scheme stacked on top of each other. You actually want outside capital to come flowing in. And that is where gaming and entertainment becomes crucial. What we have told all the apps that we work with in gaming and entertainment is you never have to see a token. If you want a token of your own because you're more adventurous, go for it. You can tokenize your AI agent. You give them a token in your game. That's great. But if you don't want your users to interact with that, you can always just interact with payment onramps that are completely abstracted for the average consumer. So just have them swipe their credit card, their debit card and it is Saga USD on the back end.

And in terms of how you actually make that pay for the protocol, that's where our DeFi flywheel comes in. So you can see there are two sides of Saga that are really coming together in this strategy. It is velocity defi, but it is also our highly robust gaming and entertainment vertical. All right, so with that more faster um is the theme for this year. you can see that we are really h hurtling towards numbers that we haven't seen before at Saga for sure um but I think across the space as well and it really started with the fact that we needed to solve liquidity fragmentation in this space and to the extent that this is at all valuable to the greater Ethereum

community as members of the ETH community when we wanted to offer this to you. Thanks so much guys. Take care.