SOTN #15: - EXPLORING w/ @DanRobinson (ETHEREUM'S DARK FOREST, OPTIMISTIC ROLLUPS, MORE)

Transcript

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addresses to get a comprehensive report as to your currently owned assets and where they are in ethereum if you were around for the 2017 bull market it was characterized by refreshing block folio over and over and over again and anytime you would ever make a trade you would have to manually update your blockfolio to make sure that your portfolio was accurate with zapper you don't have to do that because zapper looks on chain at your ethereum addresses to see the assets that you have in various d5 protocols not only does it tell you the assets that you own but it also tells you if they are deposited into ave into compound what yield farm they're in your predicted apy and it'll even let you make investments into d5 protocols right

through their zapper.fi portal making it really easy to compare and contrast different places as to where you can deploy your capital check them out at zapper.fi all right everyone welcome to episode 16. this is state of the nation we have a jam-packed episode for you today guys we have our special guest dan robinson who's a researcher at paradigm he's going to talk about the evil things that lurk in ethereum's dark forest we're also going to talk a little bit about player two optimism big roll out last week on test net uh and touch on the uh cue coin hack few and emn

tokens but i'm a test net really the goal for say the nation is to update you on what's happening in the d5 and crypto space and related to the big picture stuff that we talk about in the newsletter and on the podcast and hopefully drop some insights and action items so dave and i do this every tuesday we stream it live on youtube that may be where you're catching it now also comes out on wednesday in podcast format if that is your preferred uh if that is your preferred way of digesting all of this material david how you doing today man just fantastic the the ethereum ecosystem continues to move at a mile a minute so it's actually valuable for me

to even do these things because it forces me to keep up with it yeah i know it's like it's like uh it definitely takes two of us to try to keep tabs on like you know the 10 to 20 of things that are going on that we see um all right man so i want to do some announcements really quick first and then ask you the question i always ask first let's talk about our nft podcast so that came out on uh monday why should folks tune into that you know there's this really good line from uh from andrew and then also i've heard it you know expressed elsewhere where um you know currencies and money are the units that we choose to denominate value but it's property that are that the things that we actually value right the whole reason

behind a currency is to value property right and like that's what the nft side of the equation is right so andrew steinwald on the podcast had this great line where he said you know i i think that you know the nft market is going to be a hundred x the size of the default market simply crazy that like yeah it was totally insane but then but then it makes sense when you when you kind of think of like well an nft can be anything other than money like everything else that's not money is in some sort of could be some sort of nft right and so like there he's very bullish on what he calls the metaverse which is just this world that exists that uh you know is everything else other than money right and so i i think that's a pretty interesting take and i hope that the

metaverse continues to grow in the way that andrew sees it yeah if you're trying to get caught up on nfts trying to figure out if it's the next big thing make sure you catch up or you catch that episode it's like an intro on nfts but we also go pretty deep in that one too it's also badge uh mint week at bank list so every month we mint the new member badges from the previous month and so that's happening on october 1st david you also put together a questionnaire right so we're trying to level up ourselves um and we're going to include that questionnaire in the show notes but what what's the purpose of that questionnaire why should folks check that out right yeah so it's been like two weeks since i've gone bankrupt full-time and i want to make sure that

i'm producing what the bankless nation wants right and so like it's it's a chance for you to give feedback on like how you value different parts of like the bank list like media you know arms right so we we have the podcast we have the newsletter we have the youtube like which parts of these things do you value the most what do you want to see expanded on this is your chance to give the bank list uh the bankless team feedback as to what you guys want and so uh though that that link will be posted everywhere in the bankless discord in the show notes after this episode is done uh in the the youtube in the podcast uh so make sure that you take it's just a very quick two to five minute questionnaire uh and it's it's how you get the bankless media uh

bankless propaganda division to start to propagandize exactly what you want so take the take the time and list and fill that out please absolutely and thanks in advance for everyone who fills that out fills that out and helps us level up david i'm going to begin with a question i ask you every single week on stage the nation what is the state of the nation today the state of the nation is exploring we are exploring right so we all and this is kind of fundamental to what the bankless nation is like we are on the frontier right but it feels particularly relevant in the last couple weeks that we are kind of pushing the fold in in many different ways and it's extremely relevant to our guests that we're going to bring on in a second dan robinson who

kind of started off this uh this uh you know uh illustration of like the mempool is like this really unexplored territory right and now there seems to be a bunch of effort in trying to illuminate the mempool also we are on our last dress rehearsal of the test net for ethereum 2.0 and so that we're kind of pushing the fold in that domain and then there's a lot of conversations on on twitter that are also exploring new social domains as well so lots of exploring lately lots of expanding the reach uh and so we are exploring all right well let's let's start with that let's bring on dan robinson who is a researcher at paradigm we're going to talk about the dark forest you mentioned some concepts there david that we want to define

for our watchers and our listeners like the mempool um dan are you there it's great to have you on state of the nation my friend yeah thanks for having me uh you guys have one of the you know most interesting i think crypto native funds in the space at paradigm and i know you're a researcher in the space and you guys have been an asset to you to many of the protocol designs uh and you know many of the d5 protocols that have come out um and i i think the the post that you put out called ethereum is a dark forest was another way that you and paradigm are giving back to the community it starts with this line which i love it says this is a horror story

what you're about to write and describe in ethereum being a dark forest is a little so i was glad that it did where i think a lot of people were than just the ethereum smart contracts stated that so we're in ethereum but what the heck is the ethereum mempool so the mempool is the set of transactions that have been submitted to the network and propagated to minors and and other uh full nodes on the network but haven't yet been confirmed or

included in a block so so if i'm like a meta mask and i submit a transaction i want to buy something on unison right and i put my gas fee there's this period of time where if i go an ether scan and look up that transaction it just says your transaction pending essentially so when the transaction is pending when a minor hasn't you know picked it up and actually validated it and committed it to a block it's sitting in the mempool is that right yep and this is a very dangerous time for your transaction because it's public anybody can see it and people can submit transactions that come after it or that come before it um but there's no guarantee that it will be included that how it will execute um and so people can basically mess with your transaction

while it's visible in this memphis but hasn't yet been confirmed wow okay so who is looking at this this mempool so you said it's visible but um i don't see a place necessarily i haven't seen it on um either scan for example uh well there's no like aggregated place for me to see so who's looking at the the mempool and where is that visible yeah so um if you're running an ethereum full node then your node has a mempool um if you're running a miner then there's a mempo which is basically the block template that you're trying to build there are some tools uh that are being developed for mempool visibility um that's more accessible for anyone's like block native as an example which just came out the mempool explorer um but i think usually this mempool is is uh you know

it's stuff happens very fast in the memphis so it's mostly bots reading this so basically someone's hooked into their ethereum full node is watching transactions come in and is creating transactions programmatically in response to that okay so everyone that runs a node has their own version of the mempool and what the mempool does is it broadcasts transactions out to the rest of the world and the reason why you called your article ethereum as a dark forest is because like you know you in order to get your transaction into ethereum you need to broadcast but then you are also broadcasting what we are calling your minor extractable value right you're broadcasting therefore the arbitrage opportunity that you're willing to commit to

in so far that you are ready to commit to that transaction being included uh so can you first can you elaborate on that and if you wanted to just spin it in and using different words but then also i want to get to like okay who are these monsters that are listening to our broadcasting our arbitrage like who are these people so there's uh there's a certain kind of specialized arbitrage um or front-running that happens that is kind of analogous to the front-running that's described in like the flash boys book um and uh and happens in traditional finance which is whenever there's there's a trade you're broadcasting your intention to buy it set up some particular limit price say a trade on unit swap um

somebody can potentially buy ahead of you um have your trade move the market and execute at a bad price and then trade after after that so that's something that can happen and there are a lot of bots that specialize in this kind of uh arbitrage and that's almost i think that's it's fairly well known although i think a lot of people probably underestimate how sophisticated these spots can be and how intense the race can be that happens when one of these transactions goes in then pool there's actually a post that came out sometime after this one um someone uh just just dug in on the example of this kind of arbitrage that happened i think in the pickle token um when there was a big trade on on pickle uh there's a uh the scarier kind what i talk about in this post um at least scarier to me

although it's it's only applicable in a set of uh of cases of which this was this was one is this thing that we that we call generalized front runners so the reason we were worried about generalized surroundings when we were writing this post is the concept of this post is that i realized that there was some money that somebody accidentally sent into a new swap contract that could be retrieved by anybody anybody could just make a call to the universal contract and get this money um out and about 12 thousand dollars worth um and when you're in a scenario where anybody can pick up money which is often the case especially with uh with hacks where like the idea of the hack of a ethereum for a contract hack is that like anybody can get it not just the owner um

you have to worry about these generalized front runners so what the generalized owners do is uh you know the specialized ones just like look for unisrop trades and then apply this particular formula to it the generalized ones are are much simpler in some ways they just run your transaction see what it does test programmatically whether if they did that if they did exactly what your transaction or one of its internal calls did possibly mutating some of the arguments like replace an address with their own address um would that cause them to to realize a profit and they don't have to know anything about how the contracts work just sort of basically run this deterministic and just see what would happen if they if they did this and if they see this then um then they they front run your transaction with

something that makes that internal call so they just all this happens within a block time right all this has to yes um has to happen basically immediately um before before your transaction gets included um and yeah and yeah it does so so there's a there's thousands of different ways that like people can leverage arbitrage right and so like you smart traders uh sophisticated investors like they're they're they're incentivized to go out and find this arbitrage but then the miner when they hear the broadcasted transaction they just listen to the listen to the transaction then and they're like well did this person just find arbitrage let me buy and let me find out by replacing all the receiving addresses and and with my addresses and then i'll and i'll before i broadcast or

include my own transaction i'll just replace my their address with mine and if i make money then i will broadcast that transaction with more gas right and so they're letting the laborers labor to find out where the arbitrage is on ethereum and then they're just swapping out the their address uh into their place so they they could access that arbitrage instead right that's that's right currently it's not miners or at least we're not aware of any miners that are actually doing this at a sophisticated level it's mostly other participants in the in the mempool who uh who are running basically bots that do this and submit transactions um and as a result of it not being miners there is some competition even for a particular piece of emmy of muv there's often a bunch of

bots that try to uh have to race each other for it um but uh but yeah that that's exactly right and uh it's true that this this kind of generalized running vulnerable case happens with hacks it also happens with arbitrage when it's when it's like a pure arbitrage it's just like it's just like for example something with a flash loan where uh you know you basically just make this call and you don't have to have any kind of permissions you don't have to have any any even assets starting out um you're just kind of like uh picking up this free money that's on the street so what is the the dark forest analogy like kind of the the i guess the sci-fi analogy that here dan yeah so one of my favorite sci-fi book

series um the three body problem which was translated from chinese um is uh it's about well i think i don't want to spoil the the books or the um or especially even the concept of the dark forest which is it's a fairly philosophical spoiler um to give but it's a book is a philosophical mystery so i don't wanna i don't wanna spoil it too much um but the book introduces this concept of a dark forest where um you're in an environment where there are extraordinarily advanced predators um and the only thing that's keeping you alive is that they can't see you and so to publicly identify somebody else is as good as essentially destroying them

and so uh in this in this environment basically you uh the only way to be secure is if nobody is if nobody can see you and the problem the reason that this was a problem for us is that in order to pick up this free money that was sitting there on ethereum in this uniswap contract um we would have to make it visible we had to submit a transaction that that uh alerted everybody to it and then we just we just sort of knew that there would be that people would be watching and potentially would would steal it i was lucky that when we when we encountered this scenario that i'd actually heard about these generalized front runners from dion um who studied this and wrote about the flash boys 2.0 paper um and i'd never actually you know i'd never seen one of these uh bots are

far but we sort of knew they existed from the effects that they have had so did you see them in practice when you're trying to claim that 12k right so i remember phil's flash boy's paper and it very much seemed like okay in the distant future we're gonna have to worry about that right but are you you saying you saw it in practice here yeah yeah so when we when we encountered this scenario basically we wanted to be really careful because i heard about these things and we would only get one shot at this so i called in some some great smart contract security researchers like samsung um scott bigelow uh who who helped out with basically designing an obfuscation plan for this and so you know i didn't want to just directly call the uniform

contract that would make it really obvious um so instead we created a contract i actually created a system of two contracts um one of which had to be called by one transaction it would activate the other and then we created another transaction to call the second one and would only work once it had been activated and the idea of this was just to kind of make it somewhat more computationally difficult for the attackers to to detect what was going on actually and what was gonna happen in the second transaction until it was too late um unfortunately and you know like while we were doing this it feels kind of you feel kind of silly um because you're like seeing around uh to hide from from this kind of monster that you don't even uh uh you've never

you've never seen and aren't really sure exists and so whereas we were also on time under some time pressure because because of the way the the the contract was set up um anyone could accidentally even uh pick up this money by just by just making a making up with remove liquidity apparent call to the to the unit pool so we were we were on a tight time frame um unfortunately uh what happened was we actually we did get front run so our transaction when we tried to do this obfuscated scheme um the second transaction got uh immediately front running this was money that had been on the chain for eight hours but basically as soon as we submitted this transaction i was going to go pick it up somebody else liked it wow so one

of the monsters in the dark force basically identified the the free money went front ran you and stole it before your transaction could get could get through yep so this kind of reminds me of that story where um maybe it was darwin darwin like uh hypothesized the existence of a very particular kind of bird that had a very very long beak because in order for that this one particular flower on this one particular uh you know place place of land in order for that flower to even be able to exist it would need a bird to pollinate it that had a very long beak and he didn't know that the bird existed but because of the conditions set by the environment he kind of just was able to assume that this bird would exist and so dan you

were kind of doing that same thing he's like well there's these set of conditions and therefore i'm hypothesizing that this monster is going to be there ready to snag it up regardless of whether i know that that monster is there right that's right and in this case you know we we had some evidence we'd heard about people who had encountered a monster like this before but in theory from first principles you could figure out like this would this would be a risk and in fact when trying to figure out what kind of obfuscation tactics would work on it we had to we had to basically reason about what would what what could someone build um or what would be profit will be worth the trouble to build um yeah so dan so what like why does this matter like what's why why do we need to pay

attention to this why isn't this just like okay so like some people more sophisticated people can like have you know uh privileged positions that arbitrage versus others like why is this a big deal so i think the um you know right now there's sort of a limited set of cases where this particular kind of uh generalized front running is is dangerous it's mostly bad for white hat hackers um that's like that's maybe the people who deal with it deal with the most um but there was there's a general worry about mev extraction which is uh potentially the amount of minor extractable value that could come from um submitting reordering censoring transactions uh within a block or

possibly across across a number of blocks is potentially much greater than especially in a complex chain like ethereum much greater than the amount that you can get from transaction fees or from block reward and if you have a a blockchain where there's that much of a prize in terms of minor tractable value um potentially if miners are going to have to uh extract it or be out competed by miners that do and some of this i mean you know honestly the kind of what we saw here was was wasn't quite benign um but it wasn't even as dangerous as some of the others that you could imagine would be like censoring payment channel uh closures for example there's all kinds of evil stuff that miners could get up to they don't right now because that is you know it's kind of difficult to and a

lot of them are at least some extent altruistic but potentially they could be out competed by ones that do right okay so what that means basically is that we lose the credible neutrality of transactions on ethereum right so they're like it's no longer sort of a fair bidding process of kind of just simple gas fees there's this whole class of monsters in the dark forest that can just front run you and outbid you so it no longer becomes fairer there's a class system it gets even more unfair once miners are the ones actually doing this um especially if they're extracting some of the more the more malignant kinds of mvp um what interesting is miners being unfair was actually the solution that that samsung uh recently found to the

dark forest problem um which happened when uh last week when he uh a couple weeks ago when he found a 10 million dollar vulnerability in a contract that could potentially be called by anybody um really up in the upcoming weeks yep yeah so is this is yeah it was about a thousand times as as uh much at stake as when georges and i were dealing with it with our contract um the solution that they found was to bring in uh a minor a mining tool spark pool to basically include their transaction without propagating it to other miners and so why so the theory is though that you know spark pool should could do that just as like a service but also spark pool could then

take that same transaction and do the same thing we've been talking about where they redirect the funds to their own pool right as rationally incentivized actors that might be and maybe maybe spark pool are a bunch of good guys but like all the other mining pools in ethereum don't have to be right that's right and and potentially whichever mining pool is most malignant and most able to extract uh mev will out-compete the others because it can it can afford to spend more on hashgraph right so this is a classic classic moloch dilemma right where like whoever defects is the one that wins more money and so therefore everyone has to defect right and so like maybe maybe this was like the one time where spark pool would do

this but as soon as all these other miners are seeing this happen like well spark pool can't afford to not do it right or else they'll go out of business and so miners the the worry here is that miners are going to take a more active uh direct role in ordering transactions because it it means it means the world to their bottom line so in order to stay you know afloat as a company they have to do this yeah that's right and you know i think it may well we may well be some ways away from that really unfortunate state where the miners are are stuck in this yeah in this in this molec scenario where they have to um do this to compete um generally miners in both bitcoin and ethereum have acted like somewhat

long-term or or um sort of rationally altruistic parties um but i think it potentially could be only a matter of time before before the barriers entry on this get uh lowered so dan is it also the case that there's kind of an arms race going on here in the mempool in the dark forest between people who want their transactions to remain hidden and those i guess predators that are trying to seek out those transactions and front run them so you mentioned block native who just came out with and we're showing it here on the screen a a mempool explorer which is the first time i've seen this uh and it's a whole suite of api services that allows you to just basically see transactions in the

mempool and kind of program your own robots right in the mempool and so um before this we we put in a um a uniswap contract address this is liquidity pool for an ethical basically and we can see all of the transactions that are in the mempool that are pending that are like just rolling through right so you can see this one this is a tether usd one you can see um the exact amount of gas that is being proposed here right like the whole dark forest is visible to us in a block explorer so does this just create this entire arms race well i think um arguably any technology that that is available to like ordinary

users or makes it easier to basically see in the dark forest is potentially just leveling the playing field uh for this so that that could be positive on the other hand it's also to some extent accelerating this this inevitable future where where everybody has the tools to do this and so basically um uh mev i don't know over farmed i guess would be the term uh or potentially captured captured by miners okay so the the end state of this what we're worried about is that you know people that are the the bots that are front running these arbitrage opportunities eventually that software and that logic gets integrated into miners right and what this really illustrates is like while bitcoin and ethereum are trying to push control from the center out to the edges

at any one particular block there's actually just one person that controls what a block looks like right for so like while the whole entire system over many many many blocks is completely leaderless every single individual block has one single individual leader right they're the ones that mines the block and gets to propose it and proof of stake actually doesn't even fix this right it actually just kind of formalizes it and it just like allows people to take turns formalizing blocks right and so the the what we're really starting to worry about is that the minor extractable value for other blocks can be really significant which contributes to chain insecurity can you can you comment on that i'm sorry could you view the question so yeah so

since uh each individual block there's one specific person that is able to order transactions based on you know the activity for it that's included in one specific block that can make one block more valuable than the next block right and so the minor extractable value all the value that you know all the arbitrage bots could have happened goes to the minor for one block and that could be a lot of money if there's a lot of arbitrage in just this one block right and that makes the security of ethereum for the next few blocks up in the air right because there's a lot of opportunity to go back and mine that one particular block can you kind of talk about like what this problem looks like at maturity when it comes to chain consensus

yep so there's actually a paper that um i think may even predate ethereum called on the instability of bitcoin um in the absence of the block reward and that talks about this problem in bitcoin um we're the only minor extractable value at least the only one that's talked about is just the transaction fees and the issue is that if you have transactions with really big fees potentially it's worth it for the next miner to reorder your block instead of um uh instead of lending your and that causes that causes a um a lot of rollbacks in an unstable chain um on ethereum potentially the problem is worse because yeah there's so much uh any view you can get and when you can do it across multiple blocks you have what's called a time band attacks which could potentially be even more even more serious um so one

it's not exactly a solution to this problem but i do think vip 1559 potentially improves this situation by basically socializing some of the some of the transaction costs and in effect spreading them out over a lot of blocks by saying like we're going to keep the block reward um we're just going to burn some of the transaction fees um so ultimately like the value of those transaction fees end up in the block report basically yeah so this is kind of a grim picture i guess we've we've painted a little bit like there is this um whole kind of arms race in the dark forest and you know there could be a future state where um transactions there's multiple uh parties and some parties have privilege over transactions versus versus others

particularly um those with capital those with wealth um is it all grim dan or like is there some light at the end of the tunnel here how do we how do we solve this so i think there's um there are i think a few possible solutions um so one is uh you could imagine technologically just figuring out a way to blind transactions um uh and this would either have to be done at the layer one um level or um uh or potentially you know within within some particular layer two system um which would be have some way that um transactions get ordered before the miner knows what uh is actually included in them um i think there's a lot of

potential questions about that kind of solution um a lot of arms race that could happen there but um there's at least potentially some promise just like a technical solution um that uh that kind of removes this problem and you can you could imagine an ecosystem that implements this kind of solution out competing one that doesn't because ultimately this really predatory environment no one's actually going to want to use it people if and and as a result um uh you know like the the predators won't have anything they won't be any prey so they'll they'll just like overfish the uh environment um i think another possibility and this is one where optimism which which uh full disclosure paradigm is is invested in optimism um

has been thinking about which is uh some mvv is is inevitable um you could you could call it benign um mvv and that's like the first trade on uniswap in a block for example um and then some other kinds potentially more controversial but you could imagine a system where um a dow basically captures all the movies this actually is also proposed by keeper dao we are basically a benevolent um uh cartel that effectively captures the the muv can redirect it towards other users can give it back to it back to users can potentially prevent some of the worst kinds of mev from being from being extracted and this this is this is sort of the escape from malik where you have if you have like a single leviathans that's that's powerful enough

not to be subject to the same incentives very cool dan um we've we've got to pause for a quick sponsor break to to tell folks about our sponsors but do you have a few minutes to talk a little bit more about that specifically layer two and optimism when we come back yeah i'm happy to meet him awesome thanks so much all right uh we want to tell you a bit more about our fantastic the bankless state of the nations are brought to you disguise they make bankless and state of the nation possible the bank list the bankless state in the nations are also brought to you by monolith monolith is a really important tool to help you go bankless but still let you buy your groceries at your local grocery store monolith will ship you a very sexy visa card that you can use

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state doesn't want them to be check them out at unstoppabledomains.com all right uh dan robinson is still here and we're going to be talking about we want to talk about something else that is exciting that is happening on uh in in the ethereum and d5 landscape so if that first segment got you a little bit down here's some optimism for you um and optimism published post this week they are a layer two scaling solution that kind of contrasts the you know this is a horror story ethereum is dark force the it's called light at the end of the tunnel all right and so for a very long time the context here is of course um ethereum has had a scaling

challenge and not just ethereum other blockchains have as well and uh for a very long time the holy grail to that challenge has been some form of a layer to um ethereum environment where you can run the ethereum virtual machine and all of the smart contracts metamask and infrastructure that you're running on the ethereum net can run in this uh layer two more scalable solution and it feels like finally we might be making some breakthroughs here uh dan can you tell us a little bit about optimism what it is and uh what they just launched yeah so um again just to repeat the disclosure paradigms invested in

optimism um and generally here i'm speaking on uh my about my own views and not those of the we're not representing the fund um or or the company optimism um but what optimism uh has built and is continuing to build is a layer two scaling solution for ethereum that combines two sort of innovations one of them is this optimistic roll-up um which reduces the execution costs of running smart contracts on chain within this within the fully vm environment um by optimistically saying let's assume that this that this worked and that the that when this was submitted uh the state was the state of the bank was valid um until

challenged um and then there's there's a basically a challenge response protocol um for actually saying no this was an invalid state transition otherwise you just have to show the blocks on the frame chain and you just say what uh what they do um what the resulting state from them is and after some period of time that state is finalized and it's possible to for example exit back onto the um on to lightning a1 um so that reduces you know right now the um the most serious scaling challenges and costs on ethereum are involve the state story job codes um actually just having data um and the and the block is relatively cheap um and that scales maybe bandwidth essentially scales a little better than

this sequential computation and state accesses so um that's a way to relieve some of the bit of the of the um burden of um these of these complex uh calculations on layer one by saying layer one just test to see the uh the blob of data that represents the block and um what someone asserts to be the state that results from it um the other innovation that that optimism has included including in this is having a sequencer um and this is the one that's that most directly relates to mev so this and this is this is orthogonal to um so the optimistic role of you could have the sun is a role have this even without a without a roll up at all um

this it's it's this gives priority um in terms of transaction ordering to a particular um entity so by basically giving the sequencer a monopoly um in the in the short run there's i think maybe a 10 period um on the ordering of transactions you eliminate this arms race to get the to get your transaction included so as long as that party is is honest they can potentially um just confirm your transactions and tell you so this reduces latency um and they can just not front run your transactions and and therefore um uh mitigate front running does that mean dan we're trusting that entity though so in the in the short run yes um for

for particularly uh mmv extraction although um arguably what it falls back to in the case of a dishonest sequencer is not that different from um the ethereum l1 assumptions or at least possibly the the inevitable uh results of them um in the long run i think the uh and this you know this is i can't speak that much tomorrow's long term roadmap but the idea is there should be um there should be a government governance mechanism that ensures that the sequencer can't just uh uh extract all the value on this now uh even even without that kind of governance though you can always exit it's always safe to exit the the roll up and go back to the main chain um so a

rational sequencer may not want to uh to extract uh that enemyv and this is different from a rational minor who might have no other choice because they're in this in this molex situation the sequencer is somewhat more aligned with the long-term goal of keeping everybody on the roll up and therefore not interfering with the way they use it it always feels like with these coordination tools we're like squeezing the balloon right like a little bit right where we're trying to like get the mev problems somewhere else we come up with a solution to kind of solve it for a while but we're squeezing the balloon and it starts to seep in in other places so it just does feel like this perpetual arms race i want to talk dan really quick and we can come back to mev in a second but

just about the benefits of optimism and i think hayden adams uh who is the founder of unit swap kind of kind of put it well how big this potentially could be to have an ethereum native evm running l2 so you get security from ethereum right so um this is not like a side chain this is not like a an exchange you are actually imbuing the lt with ethereum security you have the scalability benefits you don't have the data availability issues that are present in other layer 2 solutions like plasma notoriously you've got interoperability with other daps on the layer 2 so you preserve at least within

layer two this composability this money lego type nature and it works with ethereum infrastructure so people don't have to rewrite what they've already created so so that means like um you know metamask can work more natively out of the box unit swap and synthetics are much easier to port and he lists these other benefits as well do you think hayden is kind of overblowing some of these benefits or do you think this is that big of a deal dan i think in the long run these are these all are exactly um what makes us so excited about about optimism um i think you know there are costs of trade-offs that come with with using optimistic roll-up as a solution rather

than been something else and those include there's there's a there's a withdrawal delay to the main chain um uh to allow this fraud uh uh proof process to happen and how long um uh so i i i'm not actually sure where they where they've landed i believe it maybe it may be one week but don't quote me on that um uh but it's it's you know it's configurable and it really depends on the security assumptions of that of the roll-up um the uh the other the other one is you're limited ultimately by the uh date availability um uh throughput of the main chain but what what is really exciting about this is that you know with their eve two there's been a lot of progress on it um but some parts are

still really far off but one thing they're they're pretty sure they know how to do is massive scaling of data availability uh throughput through through phase one uh shard chains and so if you combine eth2's ability to like basically have a ton of data availability proved um without without having to worry about action and then uh the optimistic roll-up approach of um all you need to all you need to prove is data availability and then execution is proved with this with this interactive process um there's there's a lot of great synergy there and that's one of the reasons really excited about is we think that the problems like some of the challenges optimism are exactly the ones that we think are um there's been serious progress being

made um at the scaling layer one thing i don't think that the average person uh is uh quote-unquote pricing in to like the future of ethereum is like the compounding nature of all of these solutions right and so one solution one domain can really complement another solution in another domain and while any maybe any one particular solution wouldn't have worked in in silo when you kind of combine all of them together you get something like that that's greater than the sum of each individual parts uh so there there seems to be a lot of you know optimism about optimism which makes me optimistic so uh that i'm cool and so thank you dan for helping i know i know um uh the optimism team has been very uh complimentary

complimentary is that a word uh about paradigms uh support of them and so you know thank you for being good stewards of of the ecosystem and and i do want to bring this all the way back to mev right which is kind of where we started this conversation on you know ethereum is this dark forest with these bunch of monsters that are coming to eat your arbitrage right and you know this the worst case scenario for this is that you know this just is a re-centralization of power and control over these supposedly decentralized systems right and so you you mentioned like the optimism has this sequencer that uh allows the the what is so incredibly valuable which is the role of sequencing transactions to be formalized right and i think in the social contract

of optimism is that the formalization of these these sequencers allows the users to have say as to where they still get some amount of their value extracted because that's what sequencing does but they at least now have some say in where this value goes can you talk about that component i'll expand on that component of optimism a little bit more yeah so i think it's really important and part of what optimism is doing is to um not build too much of a of a moat or barrier uh to people running their own optimisms uh optimistic roll-ups or people they're running another one so there's some competition at the at basis of the roll-up level um that will incentivize a sequencer to basically be a be a a good sequencer um

and so uh you know that's that i think uh that's very important because you don't want sort of capture of this by something um that could could either yeah censored sensor transactions um or or extract uh malignant mev um but it can be valuable to have um to basically delegate the ability to sequence your transactions to this to this uh party in order to get all the benefits that we talked about avoiding the mvp arms race so one thing that concerns me is that like this while it's good that we are able to harness the power of mev and direct it it kind of returns us to a very age-old problem of governance right like and it seems to be that like with optimism and

the sequencer like they are creating this oil well right this oil spigot that's coming out of the ground and also there's only one of these things right and so all of a sudden like the value of being able to capture and coordinate the value coming out of this oil well out of the ground is becomes politically very strong right it becomes a very very powerful force and you know humans as as you know as coordinated as we can be we tend to be we tend to succumb to things like governance right like when there's a money printer like there is a lot of uh incentive to try and capture it right so why and the optimism team seems to be again optimistic that they have overcome this governance issues do you know why they're so optimistic about

like this not being a problem well i can only speak for myself but i think part of it is what i was saying before about competition um which ultimately um at least in my view markets are often our better often better coordination mechanism um like this is the governance and there's always this this exit right um from a from a roll-up if uh if the sequencer is malicious and that's that's independent of what the of what kind of the voice process is for for choosing um the sequencer and who governs that um that said again i think it partly may just may just depend on um yeah on solving some of these problems with daos and i think uh it is kind of cool how the defy

uh revolution um has has i think really pushed daos forward because now there's something very valuable to govern um there's a lot at stake here um with a lot of these defect particles and with something like optimism and i think we're gonna find that there's pressure now to basically yeah to try to develop better governance mechanisms i don't think we're there yet right so so the git coin model is uh you know donations and funding from the market right and so you know no one if you go to get coin you donate your money and then you get quadratically matched and so according to the free market only good grants get funded because the free market tends to fund those and that seems to be like the same kind of thought process with like sequencers maybe maybe there's a

a sequencer which is donating toward like towards like money laundering or human trafficking and so people like opt out of that sequencer for something that you know is is a sequencer that promises to send money towards you know covid research or cancer research or something like that is that is that the kind of the idea um yeah yeah so i think that and or just you know if a roll-up is a bad user experience because there's a lot of that maybe on it then potentially people can people can switch off of that sure sure dan uh this has been fantastic thanks so much for uh telling us about optimism so for for folks that um are just kind of prolifer uh just just viewing this from

time to time optimism now is in test net so synthetics has gone live with a test net version of it there's going to be an incentivized test net so we'll be monitoring how that progresses one of the most exciting things i think about optimism is with layer 2 you're not just solving a technology problem and a security problem you're solving a coordination problem and to see um at least you know chain link synthetics unit swap sort of step up and say hey we're gonna do this together is um is very encouraging i think for the layer two and ethereum scalability space uh dan thanks so much for spending time with the bankless nation we really appreciate it uh we

will be looking at your work in the future as well as you explore how to um stymie and stifle the monsters in the dark forest thanks so much for having me man cheers thanks dan all right excellent all right guys uh wow um there's a lot there david i mean like i am um blown away when i think about um optimism and when i think about kind of the dark forest and the mev all the implications there we've got a podcast coming up that's going to get into some of this right do you want to tease that a little bit yeah yeah absolutely and i feel really really strongly about this too so like you know i've been working my work quote unquote well let's go ahead and say i've been working my ass off ever

since like 20 years 2018 learning learning how to produce content like learning how to write learning how to write in ways that uh that people resonate with and then learning how to make make podcasts right and so now i'm pretty good at it and so so now we you and me ryan created created this platform that a lot of people listen to and now i'm now we're going to try and do something a little bit more direct a little bit more intentful right and that is uh injecting the thought of and process of moloch into people's brains at the peak of the bull market rather than at the bottom of the bear market right and so we're bringing on amin soleimani and kevin owaki two guys who are are basically if you wanted to say uh sum up their job in a very simple

sentence it's they're each trying to slay moloch in their own particular way right and so maybe you guys are kind of just tuning in to what molock is uh well that's a what the podcast is going to be about um and and in order to prepare for that podcast you can read a recent market monday that i wrote but then also read the meditations on moloch blog basically moloch is the god of human coordination failure right and it's it's basically the reason why we can't have nice things and a really good example for this that maybe a lot of people can resonate with is like when we were delegating uh people when people were delegating yams in order to save yams right they were foregoing uh the opportunity of earning more yams from

the yam staking system so other many many people withdrew their yams to delegate yams to save yams but then that made it more lucrative for other people to defect from that in order to earn more yams right and so there for every anytime there's a human coordination success there's incentive to defect right and that's the god of moloch and we're going to talk about this concept with amin and and kevin and i truly believe that like ethereum is this platform for learning how to slay moloch right learning how to coordinate with each other and anytime there's like a new yield farm anytime there's a new project like ethereum 2.0 itself these are all coordination mechanisms that are tools and infrastructure for humans to coordinate

more effectively which is like the great going on in the s p what is up with that man dude and it's not just the smp right so like i think the if you take the dxy which is the dollar index uh chart and you flip it it like lines up so perfectly with the eth chart right and so what this means is that like when the dollar becomes more valuable ether becomes less valuable right and bitcoin is also doing this as well and which is really frustrating for me who like totally signed up for an uncorrelated asset inside of an uncorrelated industry and it's just like uh it's just not happening for so for some reason you know there's a perfect storm of things happening in the world that's making our industry super correlated with the rest of the world which it's a little bit

frustrating so this is a uh a the bankless date in the nations are also brought to you by matched with nasdaq and you can see how kind of the lines just sort of match together and i think we're seeing a lot of that so when does it end i guess this is the question right now it seems like um a lot of crypto is sort of responding to what's going on in we call macros so what is the fed doing with respect to printing money what is um the dollar doing is it going up or down relative to other currencies what are stocks doing when does that stop and when do we finally get our uncorrelated asset david yeah well at some point we do have to think that like there what is going to be correlation when these things mature right like they're going

to fit into the rest of the world and when they fit into the rest of the world then they're going to be have relationships with the rest of the world so like at some point it's inevitable that things these things become correlated however i'm not ready for that yet because like we still have ethereum 2.0 we still have eip1559 we still have staking and all of these things are things that only ethereum has right and so in the sense that these things are valuable those things should be that should make ether uncorrelated until maturity right like i don't consider ether as an asset mature in the slightest right like that's why i'm bullish like you're buying in before it's mature right you get to ride its maturity wave up uh and so i i'm hoping that like the phase zero test night gets

up and running and we can start staking our ether and some of these like novel investment theses start to become really really salient and that starts to decorrelate us once again all right man that's all the time we have for that we're just for two minutes so we're doing okay on that so let's talk about another thing that happened last week and this is the uh coin hack so kucoin is an exchange i've never used it myself but it is a fairly large exchange and over 150 million was stolen from their hot wallets a lot of these wallets uh contained bitcoin ether and also erc20s um i felt like wrote a post on this on monday so just yesterday i felt like this served as almost an asset an acid

test on how decentralized these d5 protocols were because we saw is a lot of the tokens and a lot of the assets and even some of the non-ethereum blockchains just they they press their freeze button right on the the tokens um and you know some people see that as a pro but i think that is definitely um yeah it fits into a protocol sync thesis on if an asset is not in a protocol is not decentralized right it's it's not going to settle to the bottom if an asset can be frozen or there's governance or there's a small party that can affect its credible neutrality it's not going to be a good base layer for all sorts of things for you know property for the world or for money what's your take on

this david yeah no i think you got it exactly right and really what this whole event was was like a big uh a big test as to whether or not there's decentralization theater going on right and so you know when when the time comes when when you know something happens that you didn't intend it to are you able to do something about that or are you a completely trustless decentralized permissionless platform right and so and and there's like a spectrum here right and so like kane from synthetics wrote a blog post about or a tweet thread about you know how he doesn't think it's worth his time to like put in a proposal to freeze funds right and so like what that's suggesting is that like synthetics may have the ability by vote to freeze funds

but he doesn't think it's worth it and he also doesn't think that it's like it's a net positive in the long run other protocols just went straight for it including ample fourth right like amble force just said like press the freeze button right like top which is kind of odd from a money that's trying to be fully decentralized and fully governed unless they just decided they decided to govern as in instead of non-governing which is kind of in their social contract so that's kind of weird uh and then there's also bitcoin and ether like you said that just no one has that ability whatsoever so it's not even a conversation right it's a very very interesting spectrum going on here yeah so david i i don't know what podcast we talked about this it might have been our protocol sync podcast it might have been another state

of the nation but we've kind of speculated we've probably talked about a lot but we've kind of speculated okay what would happen if a criminal stole money what money would the criminal uh prefer uh chances are that the money the criminal prefers is the most credibly neutral money the the most decentralized the most unstoppable money on the planet liquidation process so we could we could view all this in real time on chain and um the the address of the hacker had all of these funds including uh ample forth which was frozen and snx uh and other assets that could that couldn't be frozen and what does the hacker do immediately tries to sell them for eth on uniswap right tries to go to the most credibly neutral money

that is available uh to him so i i do think that is um maybe i guess some more credence uh some more evidence of the protocol sync these as if we needed any more yeah and i think you know there's there's obviously um there's obviously the counter to that uh i think that that that people would say so you're saying ryan and david that the only people who need crypto money or these base monies are criminals right well not quite i mean dissidents fighting for their freedom also need credibly neutral money that their government can't stop so do companies that compete with one another if one company can influence the monetary policy or freeze a transaction that's

not good so do countries at war so again we need a credibly neutral monetary system and property rights system to essentially solve what we were talking about earlier which is these moloch these coordination problems across humanity so it's not just for criminals but it is i think in enlightening when you see an actual acid test of how decentralized these monetary systems are and these assets are and you see what criminals effectively do with the assets so super interesting i think another take to have here is that you know once again this is another centralized exchange that got hacked right and so yeah when we think about like a d5 protocols with rug polls that steal

10 million dollars 50 20 million dollars or there's a contract bug and people lose a few million dollars like this was 150 million dollars and it could have been even more like they're they're still up in the air as to how large this was right and so anytime a centralized exchange gets hacked compare the size of that hack to like the most recent d5 bug exploit right because like every single time the centralized exchange hack is orders of magnitude bigger right and exchange hacks don't happen on d5 like they don't happen on you to swap and so like it's a good reminder as to like why we want to live a bankless life is because if a bankless life is at all at all possible it's because they're the systems that we're using to do to live this life are unhackable right

absolutely now let's talk about our next topic because everything you just said doesn't mean there is not risk in going bank list we emphasize this just about every time we we talk about something or have a podcast or to have some sort of conversation there have been a number of a token debacles let's call them that have started to happen in d5 so one was few right um which we could talk about another is the e m n token m token which which happened just yesterday right um it was a token that a whole bunch of people poured into there was a a flash loan hack and apparently money was stolen i don't know eight million dollars something to that effect it's getting to the the point where i can't keep up with it

it came into existence and then was hacked in the same day like exactly what like this already happened well and that's also the story of hugh a few excuse me it was just like an hour and hour and a half long um sort of episode and uh we're still talking about it so what's your takeaway from these token debacles like like few and like emn david right yeah so so with few i think you know so few i think happened right after our last date of the nation ryan where we were talking with jordan lyle who created the meme token and what meme token was was like some people just minted a token called meme and then they figured out something to do with it after the fact right and so like i think what happened with few

was like kind of that same thing where like let's make a few token and then we can figure out what to do with it after the fact and so what a bunch of people did is they got a bunch of other people into a telegram to help bootstrap this thing right and so they wanted they naturally wanted to pick the people that had like influence and and had reach and so they brought in people with a following into this telegram say hey we're gonna we're gonna top down this token we're gonna call it few it's gonna start off as a meme and then we're gonna figure out how to bootstrap it from zero to one right and so a bunch of people just randomly got pulled in some people maybe were thinking like yeah i'm totally gonna get rich off of this by dumping it because i'm part of the the

you know the privileged few in the the telegram group others people just got added into telegram without even knowing what the hell is going on so there's a massive spectrum of people who are involved with these in these things and then there was the that person that took a screenshot of like you know people saying like yeah we're gonna we're gonna uh you know dump this token and then others and anthony suzano got caught up in this and he said it was a joke and me as a as somebody who you know talks to anthony a lot it was a joke like anthony was joking maybe it was an irresponsible joke but like he doesn't deserve to have gotten the backlash that he got in the slightest but i think the through line here is like things are hairy and especially on twitter especially when there's

personalities and reputation at stake because like when you even mention a twi a token itself it's almost an endorsement especially if you have like 20 30 40 000 followers right and so i'll let you hop in there yeah i mean it's funny because it that came off our conversation with with jordan right we were talking about meme and the whole meme for meme is don't buy meme right and so like even when if you say hey this token has no value and um like don't buy this token it becomes like an endorsement in this weird defy subculture that we're in yeah but like so was what's striking to me is the whole few thing blew up and there was um like mass outrage and i think part of it

is you know part of it is justified right and i think there are individuals we should be vigilant i i would say i think there are individuals who would prey upon d5 in the space um but what happened yesterday i think in in like did we learn anything i don't know because um yesterday a token comes out a few um d5 twitter accounts start talking about emn andre's name from wifi gets associated with it and people don't even know what they're buying right and they pile into this token there's still website there don't even know what this does yeah people it's like the the token mempool this is like the yfi mempool where people are trying to front run the next thing that andre's built they have

no idea what's going on here what they're purchasing and they pile into it um what happens within the hour or something within like two hours uh it gets drained um i guess the the takeaway here guys is uh at least at least for me if you choose to ape in to follow into a token without knowing what the heck it is or why it's valuable and you lose money you know who you have to blame right you got to blame yourself right right like um i i understand that uh influencers and builders and creators also play a role i'm not downplaying that at all they totally do 100 but you as somebody who's on the

bankless journey also play a role right if you're just chasing the next big thing and you're going where you know you agree tells you that's not a good way to build long-term wealth in this space but if you do it only do it with a portion of your funds and don't be surprised when this sort of thing happens right right so um like we have to as people on the journey take some personal responsibility for the things that we're investing i mean people who bought emn token nobody pushed the button on their ledger they did it yeah right so and um i don't know it's just so so there is i guess there's there's an interplay here there's definitely an ecosystem of

builders and you know people who um are influencers and there's a ton of people who need to take some responsibility here but you individually take responsibility for what you're doing what you're buying as well and make sure you know why you're buying it before you do it you are always the final backstop to like your bags right like you are the reason why your bags are what they are right and also at the end of the day like if you've been listening to the bankless podcast and you've been listening to me and ryan articulate why ether is valuable like you already have so much more information than anyone else in the world about about the value proposition of ether like it's a triple point asset staking's coming eip1559 like and so if you understand these things you are in

like the point zero one percent of the world that understands these things you already have such a strong lead over the rest of the world with just owning ether that like you should be satisfied just about that right and so like if you're trying to like shoot for the moon like and get to the moon like this year and then you get rug pulled like that's kind of on you because you have ether that is like super safe and also the roi is so insane to begin with right and so at the end of the day you you kind of need to compare everything to ether like what is the what is the rug pull chance and like the the shitty uninformed influencer risk to like aping into some random token that's some random three letters verse the value of ether right

like at the end of the day we should be satisfied with the value proposition of ether that's that that's something i think um ethereum community can continue to learn from bitcoiners right which is this time preference idea of like not necessarily uh chasing the short-term gains all the time all the time and i i felt like we had that in the ethereum community even at the first half of uh 2020 and certainly in 2018 and 2019 but with the yield farming mania of the past three months it's starting to fade a little bit as it did in 2017 where everything went manic and and bananas so um yeah just keep these principles in mind this

is the marathon it's not a sprint um if you're going to try to get rich overnight just do it with a small portion of your funds that you can lose don't do it with with um you know like your main stack that uh that you're trying to hold for the long term um david we i think we went overtime on that one but let's talk about one last thing and this is the uh how do you pronounce it the new ethereum two test net that's just firing out spinalda i think spin all that okay perfect yeah fake fake sweetener all right all right so it's like splenda espinalda okay all right so this test net is it's it's the last test nut net for eth2 before the actual phase zero is that

right yeah it is the the final dress rehearsal so like full costumes you know for i'll put the the full effort into it it is the last thing right and so that went live uh this morning apparently there was a little bit of a hiccup i think i'm gonna i think it was because there wasn't enough participation there weren't enough party people participating which kind of makes sense because it was started at four in the morning my time uh pacific time so that's pretty early for for america uh and so i'm gonna chalk it up to to that as why it didn't go start off so smoothly but it is it has started it has started uh and like it's a three-day long test net which is the last testing phase of the deposit contract basically all the actions to spin up phase zero and once these three day this three-day

test end is over like the only thing that needs to happen between now and the start of phase zero is nothing right like everything needs to just continue according to plan like nothing needs to change so this if this test net is successful and then nothing else happens we got we have phase zero like lock it in very cool very cool very exciting i think a lot of people are going to be surprised there's been a long-standing meme that eth2 is never going to happen uh when it does start to happen i wonder what the critics will say um i'm certainly going to uh be be excited for that and i think the entire ethereum community is going to be excited to see this progress so we could be months uh maybe even weeks away from the

launch of the eve to weeks not months that's it uh david i think that's all we have time for man so this has been a fantastic roll up around my friend um yeah so all right guys this has been state of the nation number 16 thank you for joining us as always risks and disclaimers everything we talk about eath is risky uh the crypto is risky in general so is d5 you could lose what you put in but we are headed west this is the frontier it's not for everyone but we are glad you are with us on the journey thanks a lot