Supra’s Vision For Automatic DeFi aka AutoFi Featuring Joshua Tobkin

Transcript

The key fundamental thing is that we move away from just classical oracles doing just data price feeds, you know, to systems that can actually debate and reason and then in order to keep it safe, you need to randomize those the inclusion of these different models. They have to debate with each other and cryptoraphically sign off on their their output, which allows us to bring in qualitative data, not just quantitative data. Qualitative like what is sentiment, you know, all kinds of things that you can't get otherwise into a blockchain. Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the

views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. All right, everyone. Welcome back to Empire. Very excited about this episode. We have Josh Todkin, co-founder and CEO of Supra. Uh, Super has been a longtime supporter of Block Works across permissionless and podcasts. So, really excited uh that they made this episode possible and yeah, Josh, just welcome to Empire for the first time, man. Yeah, know it's great. I've been listening to your podcast for years. I learned so much from it and really love your takes.

So, it's it's such a privilege to be here. I have horrendous takes, but we bring on people with good takes. So, I'm glad that uh yeah, I'm glad I'm glad I'm glad to have you on. Um I think it so the reason I want to bring you on is you guys just released this uh white paper super 2.0 automatic defi and the future of decentralized finance. You rolled out this term that I had never heard of called autofy. And the way that my you know smooth brain thought about this was look right now in crypto uh there's a lot of actions that users have to take but what if you could run DeFi essentially on autopilot managing risks moving money in real time generating real revenues. Um, and obviously for that you need the infrastructure and I think that's what you guys are trying to

build. So I want to get into that maybe in the second half of this, but for the first half can you just give us the setup for this conversation like and and maybe the first place to start is just what is Supra and what are some of the design decisions that you guys have made to get here? Yeah. Yeah. So supra our point of view and our kind of general thesis is that if a layer 1 can handle more services than just one thing then it should if there's enough compute and bandwidth available uh to for these nodes to be doing more than one service simultaneously they should. So we our thesis is basically the opposite of the modular thesis. Ours is the vertically integrated thesis full vertical integration single layer one that also

has built-in Oracle protocol that's very high performing very secure uh crosschain communication and onchain randomness as well as automation the automation is a big one because it can enable many things but really the magic happens when you combine smart contract platform high performing consensus with uh you know parallel execution for smart contract execution with or access to oracle data. So you have all these different triggers in which you can uh do things and to trigger automations. Having them all together on a single uh single stack is really where the magic happens. Okay. How did we get to this as the philosophy, right? Because on one hand maybe you have like these general purpose chains. On the other hand, you have like app chains obviously it uh

vertically integrated. Maybe you could also say like purpose-built. You guys are maybe somewhere in the middle. I don't know if that's the right if it's dumbs it down too much to use that kind of spectrum but how did you arrive here you know uh the first origin of the idea is back in 2017 like November 27th San Francisco um you know uh it just clicked to me that we could organize the network into a very unique architecture we call tribes and clans and uh but in order to keep the shared security we needed randomness so we randomized the alloc of notes to different committees, right?

And to get randomness onto a deterministic perfectly ordered blockchain was a difficult problem. And in my naive kind of point of view like 8 years ago, um I was like, okay, we need oracles for this. You know, I was actually originally like back in the day very supportive of chain link and and link marine because I was like, this is makes so much sense that smart contracts can do so much more with oracles. And also uh you know uh basically just the way that a very naive approach was like okay with oracles we can take stock prices, crypto prices, weather data, combine them together to create randomness. That was the actually origin of this. Of course what we do today is is much more quick uh lower latency faster cryptographically secure unvisible unpredictable for the

randomness component. But that opened up the door of like yeah a blockchain should have built-in oracles. And by then uh you know or back then rather this was not a common idea. I mean people were still trying to wrap their head around oracles and that naturally led towards well what else is an oracle problem? Well it turns out crosschain communication is part of the oracle problem. Automation is part of the oracle problem. So yeah we as well as of course getting data on chain from the the outside world. So that's that's the origin and that's how we kind of uh got inspired to pursue this. And then ultimately just fundamentally I will say that uh um the advent of Salana uh really kind of shaped my worldview. I it was very much shaped about actually I went to blockchain trying to scale

Ethereum originally. I was a nobody but um that was my intention right and then Salana comes several years later after we created our our our our own crypto lab and um Anatoli really shaped my point of view in terms of like well you know these nodes can be doing a lot more and then that kind of just matured the line of thinking that we already had. um what um on the Oracle side of things. So right now if an like an Oracle data in Supra is able to land in every block as I understand it and again I'm going to ask some really dumb questions because I'm not too deep into the weeds of Supra but as I understand it or data actually can land in every block. Others I think uh don't do this because there's this right

it can kind of congest the blockchain which can hurt DeFi. So what you guys have done is make this design decision to actually land the oracle data inside of the block. Can you just um a tell me if I'm even right on this point and b expand on like why this is so important? Yeah, so um so our blockchain is super fast. Uh when things are on the fast path, we're producing three blocks per second. So we're talking about 300 millonds full tonality by the way. So very fast. However, um our Oracle protocol right now in the current version is 600 900 milliseconds to finalize that data. And we're not talking about producing the data. I'm talking about the data is ready to be used has been verified. So we can't necessarily update every single block

because our block is so fast. Our blockchain is so fast. However, approximately every two blocks or every three blocks uh if there's an update, there's an update. Now what we do since uh we're designing the system uh this way is we realize especially by looking at the history of DeFi there's been major problems with blockchains not being able to update oracle data when there's a lot of congestion you know because they have to try to enter the blockchain just like every other transaction. What we are doing is prioritizing giving priority access and block space to Oracle data that's generated from our system. So whenever it's ready to deploy or or when it's finalized, we we we let it in be included. It's it's outside of the scope

of block congestion, we prioritize it so that in case of high congestions, that's usually, by the way, where a lot of liquidations are occurring and such, we want to make sure that Oracle data lands. So we prioritize it. Yeah. So the the purpose behind it is primarily to make sure that Oracle data lands so that DeFi can continue to stay solvent, not not creating this like oh the Oracle didn't update for 20 minutes and then cause, you know, cascading failure for a period of time. This happened the other day actually. Yeah, I heard about that. Yeah. Yeah. Yeah. What what else are you uh what else do you feel strongly opinionated about in terms of like design decisions for building base layer infrastructure in blockchains?

Yeah. So I feel very strongly that um the modular approach is a problem. I think that it introduces security vulnerabilities. It introduces additional cost and complexity for developers. uh it's also slower and okay let me explain why because now you have a layer one or layer two that has to communicate with the data availability layer that data availability layer has to finalize its proof that the data is available before you can move on to the next step uh same thing modular approach external oracle external network call they have to finish the protocol send it back to you um same thing with uh you know onchain randomness crosschain communication AK bridge as well as automation these are all typically

external internal networks. So you don't have the unified shared security. You rely on other networks for their security. And if your application taps into any of those services, your application security has now been reduced to the weakest component, right? But beyond security is it's cost and a big one is latency. So um we think that uh you know the whole world especially the last couple years we're moving towards this modular world. like a thousand flowers bloom and I love that too you know but Supra's philosophy is full vertical integration now there is a caveat while we we have been described as like a mega monolith we do have modular components meaning the consensus algorithm can update

without affecting the Oracle protocol the the you know the automation v1 to v2 can update without affecting oracle or layer 1 execution etc So it's a monolith but it's built in a modular fashion. Actually any global scale technology has to be built this way. So why not blockchains you know? Yeah. Okay. So as I'm understanding it so you've got this mega monolith um or maybe we call like a monolithic unified system where you've got these maybe modular components inside of this monolithic system. Um okay so and okay I'm just wrapping my head around this. And then you've got this vertical, you also describe as like this vertical stack. Um maybe my next follow-up question to that would then be

which part of the stack do you want to build and own and which do you want to outsource, right? Because one one of the early strategies of like, you know, L1 builders was hey, we'll just build the very bottom of the stack and then we want all these great developers and founders to come build. And now I feel like it's starting to actually change where if you talk to a lot of the best L1 founders, the the the new folks, I feel like they say actually we want to build more and more of this in house. I'm curious how opinion opinionated you are on that note. Yeah, actually we're very opinionated. Uh so first of all, Supra uh is led by Dr. Anak. Dr. Kate is the inventor of KZG commitments which is which underpins you know IGENDA other other uh you know uh ZKP protocols and

beyond u as well as even uh uh Ethereum's uh kind of data visibility uh roadmap relies on this this uh cryptographic primitive that our chief research officer is the inventor of he's the K and KZG we have him and we have other uh academics and former professors as PhDs they're on staff Now when you have that right fulltime that type of caliber on staff you got to understand that even myself as primarily focus on product right I can't say let's take shortcuts it doesn't work so everything we do has to go through a very rigorous process in fact we publish to multiple academic venues we've been

accepted to top ac uh some of the top academic venues in computer science in fact the top academic in computer science uh Recently we got three of our white papers into um uh CCS and uh the this is basically like the Harvard of academic computer science papers. So we you know as much as sometimes it's kind of a little bit frustrating for me it's like let's go let's go let's go we are disciplined to take a rigorous process peer review etc. So what why am I saying this? I'm saying this because the contrarian view is that we actually think we can develop protocols for each of these components that are actually

outperforming the other projects and it's because we assembled like the Avengers. We have an incredible team. Now that said, of course, if someone comes up with something better, since Supra is modular, we can always swap something out or make an adjustment, you know, so that's always on the table. Uh so the the contrarian kind of and I hope I'm not being seen as arrogant here but I truly mean this that a single expert team can outperform a thousand mediocre teams right and yes occasionally someone does something better and we can adopt it if it's allowed to uh or we can draw inspiration from it. So um more or less the kind of point of view at Supra is that um we study a lot

anything that comes out that's making impact we want to understand it and we want to analyze it and we always like to pay homage where credits do. So that's something very important to us and this is why we always site we have a rigorous citation process in all our papers because if someone came out with an idea before us and it's a good idea and we want to build upon it they should get the credit. Yeah. Um, yeah, it's very important. So, yeah, there there was a you're making me think about it. So, I tweeted this the other day, but I'll repeat it here. I was listening to the Acquired podcast, and there was this uh Steve Balmer quote. Um, and I'll just read it here. He said, "Platforms need apps. You want to own the top first party app that runs on your platform,

otherwise your platform can't get good. Office was the best first-party app on Windows. Outlook was the best first-party app on Exchange." You want to make sure that you actually own the first party app. in addition to just your platform, you'll get stuck in the mud if you're just a platform. And so my my take on that is look, if you apply that, Steve Balmer take who's, you know, obviously a phenomenal phenomenal operator. If you apply that to crypto, L1 should not only build the chain, they should also build a few amazing apps as well. Uh, which is very different than the current strategy today, which is basically outsourcing 100% of your app building. How do you think about that is applied to Supra? Yeah. No, I uh we actually are totally aligned with that.

Um we we had always originally planned to uh enshrine like build into the system uh something called a dynamic function market maker. It's a new type of AMM and this is pretty much meant to be socialized and be a social good in in our pursuit of value capture for the network. So that is something that is uh on the way and uh more recently I guess I can just go ahead and say it super is going to be incubating a couple of protocols including next generation perexes that leverage our stack you know for example we you know hyperlid really did incredible job with their product right and also their their kind of dynamics in terms of community the revenue share etc. I think they've done a really great job. Uh now that said, of

course, that's not going to scale behind be beyond like they're whatever. I think they launched four nodes. Maybe they're at 14 to 21 nodes today. They're not going to scale to hundreds of nodes, right? So there's always going to be that tension there. Nonetheless, the vertical integration there, that's a another example of vertical integration. There's a lot of similarities between their philosophy and ours, meaning they actually have their nodes running Oracle, right, for their price feeds. Um I think their automation is centralized but uh they also have built their their decks and they custom built this for you know uh for for what they're doing and I think somewhere in the middle is the answer meaning you want to have decentralization and at the same time uh the the the project that knows the infrastructure

the best why not launch products as well and in our case and especially in blockchain we are I'm really trying to navigate this towards uh we launch products if they're successful that capture the value for the ecosystem and other stakeholders, you know, instead of just the labs. Like I really want to um enshrine these, frankly, financial primitives into the system. Anything that's a primitive, aka it's always going to be on every chain might as well be owned by everyone. That's kind of my point of view. So you want to enshrine, you almost want to enshrine not just the like an ERC 7, you know, like you you I think you're talking about enshrining applications in a sense. Yeah. Yeah.

Yeah. I mean uh yeah. No, absolutely. And uh so there's all there's certain things that all chains need. They need the ability to exchange value. They need ability to do that efficiently. Um now I know that this is a little bit of topy touchy uh kind of topic. Um, this I want to make clear this does not preclude other protocols from launching on us. In fact, they can tap into the products. If you guys build the best decks, can anyone go build build a DEX? Yes, they can. Anyone can do anything. Can they really get traction like would you support them and stuff like that? Yeah, actually um more activities better for the ecosystem. And we would not shun anyone down at all. In fact, we would

just say, "Hey, like if if your product is better, let that win actually." You know, um the thing is if we developed anything with, you know, foundation support, etc., then it really should be owned by the network, right? So, um there's some nuance there because, uh some things can be quote unquote socialized. Don't, you know, I am an American and I want to be, you know, draw the line there, but there somewhere between like democracy and like communism, there is probably a sweet spot there, right? I'm not saying that's Europe either, but uh but in blockchains, you know, um the value really ought to uh accumulate to the stakeholders and there's more than just uh you know uh the stakeholders include node operators, they include DAPs, they include token holders, community etc. So

we we are designing a system that is meant to make sure that the value is captured by the way not by a small set of sophisticated MEV connoisseurs which are very smart. you know, it it's it's like the value is getting sucked into a thousand people out of tens of millions, you know, whereas what we're trying to do is make sure that value is kept into the ecosystem, keeps the ecosystem alive, and this is a kicker. If we do this successfully, we hope we can wean off of block rewards within two to three years, so there's less inflation and that's good for everyone. Yeah. What are your thoughts on I mean, I know you strongly disagree with the kind of modular thesis. What are your thoughts on other L1s like um who seem to be doing quite well right now like the

Salas or Bass or Hyper like I mean you could say Hyperliquid's a uh you could say they're an L1 because they say that they're an L1, right? Um but what are your what are your thoughts on those guys? Yeah. No, I well let me start with Salana. So supra actually um we we've paid a lot of attention to but we always knew that proof history was like a inefficiency in consensus is it'll never perform better than a classical consensus algorithm. More recently with their outlow they finally got the uh the academics involved here that shapes this up and it's it's very very good direction. In fact Salana is moving closer to what Supra is doing. They're using BLS

signatures. to do an alltoall communication. They're moving into a classical BFT algorithm, right? That was a bit of a scare. I was like crap. You know, like I always knew that Achilles heel was proof of history. So like, you know, we always knew that we're going to outperform them, right? But now they're making these changes. And by the way, they are um making changes that are in line with our existing research. So um what I'm saying is like actually just a couple days ago we re re uh released a paper called hydron hydrangeia. Hydrangeia is a new type of consensus algorithm that is in the same kind of network assumptions that Salana is moving towards. We also pointed out some things where um we have more resilience in them etc. But Salana is um you know

the pursuit of high performance is something that I think we all have to pursue uh because that's what users want and demand and expect. Now um when it comes to hyperlquid um the vertical they're they're also an instantation of vertical integration right layer one with Oracle with uh bridge with um uh DAP right so they they basically cement our thesis we were kind of alone for a long time there in the modular world everyone was in the modular worlds like this is going to be incredible but we were like well you know there are some major drawbacks which is latency security costs right which are do affect the end consumer. Um more or less I would say that um it actually has been a

little bit of a lonely path in that we were standing out as saying nope we think this is the wrong direction. We think vertical integration is very natural for technology. It always happens in every field and um yeah we think that as long as computers and nodes have enough bandwidth and compute they should be doing more than one thing and uh yeah that's that's kind of our point of view. are these uh do we draw inspiration from everyone? The answer is yes, we do. Uh we are kind of like very much a curious research firm and an organization and we we love good ideas. Let's put it that way. Yeah. Um speaking of good ideas, can we talk can we talk? Um yeah, for sure. I would uh I would love to just

hear your vision of what the world looks like in like 5 to 10 years as it relates and and where blockchains fit into that and then we can get into this white paper. Sure. Sure. Sure. Sure. 5 to 10 years. Of course, these are very hard to predict, right? uh nonetheless I think it's very natural for folks to you know the things that don't change like the whole Jeff Bezos kind of quote about you build a business in which you know that these attributes are always going to remain aka people will always want cheaper prices at faster delivery right that applies directly to blockchain people want better performance with lower latency and at a cheaper price so that's always going to be there now the things that are missing from blockchain

today include as you mentioned at the beginning of this podcast automation meaning right now people are manually having to try you know set this transaction etc or you do use an automation service but sometimes it doesn't trigger and it's not uh deterministic it's not um it also adds latency because they have to decide to do it or not and then submit it to the network there's no onchain automation really there's definitely not a layer one with Oracle with automation that's actually where the magic happens you need all three um so the other component is also in relation it's 5 10 years from now I mean AI is going to get AI ain't going nowhere let's put it that way you know that that is going to be it's a major platform it's a new computation

paradigm so to speak I think everything gets reinvented with it um to a large degree and u we need to figure out where does blockchain AI intersect the problem with AI is that it's not deterministic it is it can hallucinate right and that's the opposite of blockchain blockchain is perfectly ordered transparent and clear, but how how can they work together? And so we think in the next uh 5 to 10 years uh you're going to have high throughput you know paralyzed execution with access to AI to do things on chain uh in a very safe manner and also we think that um automation is going to play a big role

here part of AI major thing about AI that's going to help us is automation of workflows but these workflows exist in layer ones as well whether that's a sophisticated strategy um you know it could be a trading strategy or hedging strategy whatever it might be there needs to be automation so AI and automation go hand in hand AI blockchain and automation go hand in hand how do we do this though and our conjecture is that you need to vertically integrate to do this and uh but remember vertical integration does not mean centralization that's the key tension here we're designing yeah we're designing these systems to be decentralized okay let me read let's get into autofy a little deeper because in instead of using this word um

verticalization, I want to get like maybe into a little more of the specifics. And there's this one line from the white paper that I'm going to read. Um okay, by embedding um skip skip auto transforms block fi uh okay is automatic defy for people who missed that at the beginning. Autoifi transforms blockchains from passive settlement ledgers into proactive real-time economic systems capable of autonomously coordinating liquidity provisioning adaptive vault strategies arbitrage and liquidation. Tell me what this means Josh and and importantly how you how are you guys doing this when when other like

I think this is an ide a commonly held idea that AI is going to change things and the world will get more automated. A, what does this actually mean? And B, how are you guys able to do this? Yeah. So, today blockchains today are these passive ledgers. Things happen, it's recorded. After it's records, someone triggers something for something else to happen. Usually, when you have automation built into it. So, the way our automation service works is every automated task is registered across our layer 1 itself. Every node has this information. So, they don't have to communicate and run another consensus algorithm to decide, yep, we should do this. They all know if these triggers in this block are correct and these conditions are met, we automatically in the same block execute this right and we

run automation every block which means up to three times per second you know so it's very virtually instantaneous now that alone will help you automate onchain transactions based off of things like Oracle data or state changes or transactions that or trades you you can say hey look if this happens and these other conditions are met do this without human intervention while you sleep. So it's like autopilot. Now this idea of autonomous this is a little bit futuristic but we're so close to this that it's worth talking about is that not only can it run on its own with its own logic the automation logic but it that logic could be tweaked with the

introduction of a secure AI oracle. you know you need when I say Oracle I'm saying this is a something outside of the layer one itself that is bringing information into the layer one so we do have something called threshold AI oracle which basically what they do is there are committees of AI models that de debate each other in natural language it's actually in English and they go back and forth they have to agree and if they agree they cryptographically sign it you have to hit a threshold what this allows us to do is get decision making done in real time by these autonomous agents but not just a single actor. It has to be a committee of them who one might be programmed to be pessimistic, you know, like very pessimistic like no no no and another one might be looking

for opportunities and then they still have to kind of reach agreement before it's brought on chain and this can power adjustments to automation. So it can kind of you know be this reflexive system based of real world events. So you've got these you've got these agents. So the okay threshold AI or threshold AI oracles TAS these are really agents that you've pre-programmed to essentially vote on what should happen like I use vote in quotes but like direct the protocol and the and and things to happen. What are um how so how many agents do you have? Is it like seven and you need four out of seven or is it like 700 or Yeah. What does that look like? So it's so early this this

idea we went from idea to paper to prototype in less than 3 months and so right now in our prototype which we shared online um it's only like uh four or five agents but this is supposed to grow and we're going to invite it's it's going to be permissionless meaning anyone can stake anyone can participate there's going to be models that are fine-tuned for various use cases right and there's a lot more to do here but the key fundamental thing is that we move away from just classical Oracle is doing just data, you know, price feeds, you know, to systems that can actually debate and reason and then in order to keep it safe, you need to randomize those the inclusion of these different

models. They have to debate with each other and cryptoraphically sign off on their their output which allows us to bring in qualitative data, not just quantitative data. Qualitative like what is sentiment, you know, all kinds of things that you can't get otherwise into a blockchain. Yeah. And I'm trying to wrap my head around like what this actually like a use case of this. Um, and I think I've kind of got something in my head, but so if you combine AI and these oracles and a blockchain and crosschain communication, what is the thing that that allows you to do? It's like uh I think you mentioned on the on the bell curve episode with Mike. It's like when the price of Bitcoin is X and the price of ETH is Y and CPI CPI comes in lower than Z then buy this amount of you know ABC token or something like

that right it allows you to do to do these more complex automations. Uh it's almost like more complex if then statements. Is that am I am I am I thinking about that in the right way? Absolutely. That's exactly right. You can even throw into the mix um if the sentiment of uh you know X token is X Y and Z as well do this. So you can add these conditions right and how do you calculate sentiment? Well, there's not really an oracle price feed for that per se. Um you may have to analyze the news the world events you know and uh you know so it basically just expands the aperture of things that can move on chain to trigger automations. Basically what this means is individuals can have their custom strategy and their uh their their own world view as to what moves in

markets and they can you know do what they want with that. It's it's basically just giving you more tools to decide how you want your your your your assets to be managed. Hm. Uh, have you thought about Mike and I have been just thinking non-stop about prediction markets and like what what they will our take is kind of like a poly market and call shoe might be V1 and V2 is going to be might might look a little more uh intricate. What are your thoughts on prediction like this? Maybe this is because in my head I've been thinking about prediction markets non-stop, but how do you think about deploying this new autofy tech into prediction markets?

And if there's any sort of crossover or I don't know if you've maybe maybe you haven't thought about that much, but Oh, absolutely. And by the way, if you guys want to work on this, let me know, but basically basically the threshold AI oracle is um can resolve the prediction market without human intervention. So, uh, Poly Markets relies on UMA, Oracle, UMA, and there was a recent attack where there's a governance attacks. Someone had acquired enough UMA tokens and voted incorrectly to arbitrage their position, right? And I think they made money off of that. So, that's like human in the loop, right? Uh, but Oracle, if it's robust enough, can just resolve the answer to all the things at the end of the prediction market deadline. The oracle can just, you know, run it protocol, cryptographically, sign it,

reach the threshold of the system, and then just it's done. No humans required. Uh so this is something that could speed up the settlement process but also remove human bias at least. You know of course AI is going to have it it its own challenges. Um nonetheless this is why we introduce committees that debate each other. Yeah. There's a sorry sorry to interrupt that. I was just thinking there's an interview uh that onchain times did with uh DMER who's the number one trader on Poly Market and there's this quote he said which I didn't know this existed. He said there's a cott uh there's a cottage industry of users on Poly Market who actually specialize in trying to convince Uma uh in the dispute process and there's all this like sch

smoozing and back I forget the actual details because the article is like over a year old but all the sch smoozing and backroom deals involved and it uh he's like he's like look it borders on like fraud. Um but he's like you have these token holders with a vested stake in uh he was saying if poly market had a token it would actually make a lot more sense because you'd have token holders with a vested stake in poly markets success where they would be the people deciding the resolution in unclear markets and as it stands right now UMA votes on the disputes but their interests are a little misaligned with poly markets. So anyways, not to go down rabbit hole. No, no, I I I I can see that. It's a little bit not surprising to hear that there's that smooshing and kind of hey what if

you change your vote and you know um yeah but uh and and I want to say that threshold AI Oracle especially in unclear situations may need eventually human intervention. Uh but for vast majority of use cases I think probably 95% of the use cases uh maybe 99% you're you're smooth sailing fast response. This is definitive. this is it. Yeah, it's only when like they cannot come to an agreement that humans might have to be be be involved there. But yeah, back to kind of what you're saying is like for autofy uh pretty much like automating your strategy is really what it comes down to. I'm trying to do like for example, Bitcoin doesn't have smart contracts. Well, bring wrap Bitcoin a Supra and tap into these, you know, access smart contracts, automation,

Oracle, you know, to to do more interesting things and to trade your asset. By the way, some of these strategies with threshold Oracle, you'll be able to do on Supra that you can't even do on a traditional deck. Sorry, sex. You can't even do this in Trafi, you know. uh which is really interesting because um we think that this is going to be a compelling reason why folks will over time we're actually rolling out a supernova crossing communication bridge. We think in like maybe less than two weeks uh this is layer one to layer 1 communication. We think that when that's implemented folks over time will start to have a strong reason to bring their assets to Supra to execute these things you just can't do elsewhere.

Interesting. Like can you say more examples of what you can't do elsewhere? Yeah. Yeah. Yeah. So, uh big ones are sentiment. Um of course you could do this in a centralized manner. If you're a sophisticated developer can set up the data pipelines and all those things related to that, right? Um but for the average retail user, these are just it's a no-go. But imagine a you know strategy builder that's AI assisted. You're just talking to it in natural language, even just voice, you know, where you're saying, "Hey, this is what I think. This is what I'm trying to do. Can you help me set it up?" And then it can help you set up your strategy, but you don't want to quite deploy just yet. You're going to want to back test it on historical data. We have Oracle data, you know, sub-second kind of finality, many ticks

that you can start to test it against as well before you deploy to make sure your strategy does perform or outperform the market. Um, other other things you can bring on chain. Yes. So, sentiment is a big one. World events may include like start or ending of a wars, interest rate cuts, another one, technical indicators, many things that you might not otherwise get. As long as we can bring it into the blockchain safely, which is an oracle problem, then you can mix and match all these variables and the combinators are very large. So, it's kind of unpredictable how people use this. At the center of a lot of this is the super treasury, which as I understand it is this basically auto vault. It's this vault that's like a programmable vault

that sits at the center and dynamically allocates capital to different autofy strategies. Can you just expand on like what the purpose of this of the super treasury is? Yeah. Yeah. Yeah. So this you know this decentralized treasury is actually meant to be networkowned. It's actually meant to be a public good, right? So and we should definitely talk about like how it plans to capture value. Um but the idea is that we have these strategies that are built into the system through what we call auto primitives such as auto liquidations and auto arbitrage meaning community goes first but any opportunity that's left the system level automation can kick in and we can rebalance DeFi we can make

sure that any liquidation that was not triggered we trigger it keeping D5 solvent by the way this is good for everyone but these also tend to come with uh significant revenue All right. So of course uh community can go first but they're also paying for their gas for execution fees etc and automation fees. But any opportunity that's missed this treasury at the system level will capture those opportunities become a revenue source for the treasury. Now the treasury moreover will take that revenue and first of all that revenue is is designed to be split across DAPs where the opportunity came from becoming a new revenue stream for the DAP. They may not be capturing they're not cap necessarily capturing this value today. it's being leaked out to these very sophisticated MEV searchers extracted from the network

right whereas if you are adapting you created this opportunity whether it's liquidation or arbitrage you really deserve part of that revenue cut that's our point of view we capture it we redistribute it in real time to where it came from but also and we can talk about this a bit but we are trying to remove toxic me as a revenue stream and incentive for node operators this is very sophisticated how we approach this um but we replace it with this revenue capture revenue share in real time. So node operators have you know yeah we take we try to to mitigate toxic MV but we replace it with a new revenue stream the treasury let's just say that maybe it's 50% to the treasury which represents the network and community what we do here is the idea here is that we build a accumulate the treasury the

you know I mean this is eventually going to be completely governance base where you know we could do buybacks we could do reinvestment into other initiatives. It could be protocol development. It could be um investing into promising DAPs. But also where it gets really interesting is with automation, the treasury can slowly um with approved DAPs that have deployed in our community, the treasury could actually deploy as a liquidity provider starting with a little bit, deploying a little bit, monitoring it. How's the activity? What's the ROI? increasing the amount that's deployed slowly over time, right? Uh to provide liquidity at you know uh you know not by not you know and

by the way these these types of activities are still feenerating. The motivation is still simultaneously value uh revenue generation for the treasury but also redistribution. This can help DAPs that are you know have been qualified mean maybe they've passed the audits and uh you know maybe there's a docs team and you know other things if they pass this this kind of rating system or communitydriven kind of um review system then the the treasury could automatically start to deploy some capital providing liquidity to dexes or lending protocols and then scale that as performance improves providing you know and and doing this not in a mercenary manner. It's actually completely

missionary. We don't have to charge as much either. And the idea is that we will uh the whole point is to it's really important for sustainability that we do the treasury for the network sake for the stakeholder sakes collect this value but it is meant to be a public good and redistribute. Uh so that's the the intention behind it. Do you think there's an idea that actually the best business for a lot of L1's and L2s to be running is more of a fund is more of a fund type model with their treasuries because there was this moment in time where you you were kind of able to capture you were able to get a lot of money into a treasury and I've seen I've seen other founders of L1's and L2s actually think about this as well which

is uh I mean you guys could take this to the far end of the spectrum. you say the instead of the treasury being a public good and the business being the infrastructure, you could flip it where the infrastructure is the public good and the treasury becomes the business model. Have you thought about that at all? Um, a little bit I would say. I mean the thing is the treasury would still have to be for the benefit of the stakeholders. So the network instead of just team investors, right? Um, so it' have to be for everyone. uh but certainly it it makes sense to allocate in in diverse manner. So uh if if it makes sense uh you know the treasury should allocate to

other VCs frankly as well but we also can allocate to at least that's my opinion currently um but at least um you know the system is designed to cap capture some of the revenue that's lost to me otherwise and then to redistribute it to to DAPs and ecosystems. These things can be governancebased. So, uh, lending protocols to dexes for liquidity. By the way, these are still fee generating activities, right? Investing into other DAPs, ecosystems. It could be uh we want to invest in education and have like a hacker house in the physical world. Whatever it might be, these are things are possible. But uh I I do think there's a strong balance between

the ultimately the treasure becomes a completely public goods for the public good and that's its mission right uh but should it allocate to other fund managers almost like a you know like a fund of funds the answer is yes in my opinion I think they absolutely should and we intend to do this by the way. Yeah. Um but uh step one is we do have tokens allocated for treasury but step two is to actually uh implement these kind of this flywheel. We have automation going to mainet a couple weeks from now. Implement the auto arbitrage auto liquidation generate the revenue capture redistribution mechanism which we already started working on. As we build the coffer so to speak those funds should not sit there idle. We want

to put to work help the ecosystems. Of course in the short term that could just mean purely just um capture the value lock it up as you know basically buybacks. uh but also instead of burning the token right we are we are thinking to introduce something called freezing where those tokens are frozen for let's say three years removed from circulating supply for the 3 years period having the same effect as burning but 3 years later it becomes accessible to the treasury and the network that can be deployed according to you know what what is required at that time but a big one is we do want to get to the stage where we generate as a system enough revenue through auto arbitrage, auto

liquidation, automation fees, layer 1, oracle transactions, etc. such that we can wean off of make block rewards minimal so there's less inflation, you know, like uh remember these blockchains are supposed to eventually wean off of block block rewards, right? Especially because super is a fixed supply asset. So we need to do that. So we need to focus on revenue now. So our our kind of like our moonshot kind of aspiration is to be off of like 90% of block rewards within three years. driven purely from the other value capture that we're able to that's frankly leaked out to me. I'll be talking a lot about this and getting into the details of how we do it uh in my keynote at permissionless by the way in in a week. Yeah. Oh, nice. I love it.

Love it. Um yeah, people should get a ticket to permissionless. One week out. Let's go. Um okay, let's talk about revenue because you've mentioned the word revenue a lot. Um, I just while you were talking I actually just uh pulled up your guys' white paper and did a command F for the word revenue and it's mentioned 43 times which I think is the most I've ever seen in the white paper for an L1. Tell me why. Um, I was going to say tell me why this is important. Obviously, everyone knows why revenue is important because it gen, you know, generates the money and, you know, you generate money and stuff like that. But tell me your view on like how there's obviously like the revenue meta on Twitter and like fundamentals and it's funny that it's even like a meta to make money or but uh tell me how you think

the industry is changing and maybe like this shift into fundamentals and shift into revenue being important and I'm curious if you would agree or disagree with that take. Well, I totally agree. I mean, I think it's how do you have a sustainable system, you know, that's not dependent on good feelings, you know, and memes, right? Like, oh, we're in it for the we're going to change the future someday. But like, you know, we need to get back to reality like, you know, traditional finance and startups, etc., SAS, they all need to prove this stuff. Now, let's talk about the various fees out there. So, a base fee, the transaction fee, what is that really there for in a decentralized network?

It's actually It's to prevent spamming DOS denial service and it's also uh fees. Those base fees need to be there to prevent the system from like buckling, right? So, it has to get exponentially more expensive as you approach your bandwidth capacity as well as execution capacity. Now, super is designed to handle so much throughput that we probably won't hit that for a long time. That's where our fees are minuscule. You can't b build a business model when your fees are minuscule, right? So once again base fees are there to you know blockchains frankly should be public goods and fees are there to these base fees are there for just to make sure that you can't expand the network and cause a livveness

failure as well as if the system is approaching its execution limits it needs to spike up in fees so that folks back off right so that's base fees base fees are not a good business model as a result because they're designed to be as cheap as possible sure if the network is constantly at maximum capacity then it works. But like you know our system can handle hundreds of thousands of transactions perhaps, right? And yet the whole industry combined is less than like 15,000 transaction per second. So we're not going to hit those limits anytime soon. AC fees is not a good business model. Now there are a couple other avenues here. So um in the world of blockchain, it'd be so nice if we could do first come first serve and

prove it. But the reason you can't is because these nodes are distributed around the world. data is submitted from all people around the world, they land at different nodes at a different time, right? So the block producer actually has a lot of control over the ordering of the transactions. Okay? And therefore the introduction of like priority fees or tips has been introduced like oh there's a high value uh you know transaction I want to be at the top of that or above this other one. I will pay you a priority fee to include me. Right? So this is kind of a typical thing that's happening on Ethereum Swana where uh you have you pay for higher your fee the the higher probability you're included in the block. Of course first

come first serve would be the best but it's just doesn't work in a decentralized network because the the distribution the nodes. Um so the priority fees it's it's basically the thing is this right who gets those fees it's that node operator at that particular time account. um it's not the old ecosystem. It's not all the other stakeholders. It's not necessarily to the DAP or to the token holders. Now, folks introduce burning as a way to kind of uh provide benefit to everyone. However, when you look at the numbers and when you compare it to the actual value that's being extracted through me, maximum extractable value, my understanding is it's like less than 5%. the burning is

less than 5% of the value that has been extracted. Also, um Salana at the moment in this example, I believe has something on the order of 5% inflation recently and it's also like less than 5% of inflation. So, you're still inflating 95% something like this ballpark, right? And uh meaning they're not really having an effect, you know? So, if you don't stake on Salana, you're you're getting inflated away, right? And the the intention was to have fees that are burned that benefit everyone. But if you're only burning a small percentage of the base fee and these priority fees, whatever it might be, and they're only 5% of the inflation, then it's doesn't really do anything. No. Moreover, on this kind of lane of thinking, what's happening is back to priority fees is

how do you incentivize node operators to include your transactions or your bundle? Because they might not even know what's in your bundle. They're just looking at, oh, you're willing to pay me this much money. Okay, I'll include you, right? Because they're revenue maximizing entities, which creates this kind of toxic MEV cycle, which is you have the searchers. They're looking for the maximum opportunities for front sandwich attack to to create the largest opportunity um so that they who they keep like 70% of their revenue, but they can say node operator here's 30% of it.

This is maximum extracted, you get paid more, include me. What this translates to though for the end consumer is worse worse ex execution, right? Yeah. Yeah. And that's not great for the end consumer because in in the end we're here to serve the end consumer. Uh and if they keep on not getting the execution they expect that becomes a problem. Now imagine you had a system where you could capture that that that behavior the extracted value and redistribute it in real time. Now that is where I will be talking about and presenting it with slides and everything and going deep into it in permissionless. So do show up um in a week I think right it's it's really around the corner uh this is going to be a very uh compelling conversation

because how do you what you have to do and the reason why it gets a little bit technical is because you have to have mechanisms where you mitigate toxic ME. You also have to delineate between what is good me versus bad me. Toxic Mav is front running sandwich attacks. Good ME is arbitrage and timely liquidations right that keeps spreads tights that keep D5 protocols solvent. Now we want to prevent the toxic MV through our various mechanisms we have now I'll go into it in the presentation more um but more or less we do randomized execution.

We have localized femarks to make it expensive to spam and then also encryption decryption just in time decryption. So you don't even know what the transaction is in the first place. So you can't front it. So so suppose we have that but we also have this um good me right which is timely arbitrage and timely liquidations meaning it's it's better for the end consumers. This is nuanced but uh I think some of you folks your audience would would understand it. Arbitrage is not bad. It's just neutral and having tight, you know, good arbitrage allows spreads to be tighter to the actual market price, which results in better execution and more liquidity generally for the end consumer. They they get what they

expected. Right now, it's not necessarily happening on Ethereum. Sometimes you there was like a crazy thing where someone put 250k in and got 5,000 out of it for a swap, right? Like three or four months ago on Ethereum. Um that that was wild. But anyways, the the other is liquidations. Why is that so important? If you have a D5 protocol that is underprovisioned, it actually is underwater. You need to solve that to keep this the solveny of the system. So you want to have fast resolution of liquidations. This is why a chain link and slashbots are collaborating. Uh my understanding is that a has oracle driven liquidations.

Chain link when they when they're producing their price feeds, they that may trigger a liquidation. By the way, liquidations are large revenue generating opportunities like uh it could be up to 5% uh or more. But let's suppose 5% on a million dollars is 50,000 to trigger that transaction. Okay, that value is usually being siphoned out by external actors. I think obviously intention here is to work with chain know when that liquidation or that that price is going to liquidate that position. work with flashbots to bundle it and route the value back to the a and chain link and flashbots ecosystems capturing it. So my point here is saying that is the apps are not necessarily capturing any of this me nor is the

layer 1 ecosystem. Now what we're doing is we're designing a system where you can capture this um and this is achieved by as I mentioned we have automation first and retail goes first they pay for their automation fees but at the end of every single block any opportunity that's missed super will run our system level automation to capture the arbitrage to capture the liquidations that were missed capturing that value and redistributing it treasury to the DAP where it came from node operators um and I This it's important to mention that um we also have a the auction allows us to create I'm sorry the automation allows us to create

an auction model where folks we believe will bid on priority execution of automation that gets basically executed at the top of every block or after the oracle update rather now what does that mean and I'll try to keep it simple well the best analogy I have or the comparison is what drives 80% of Google's revenue, 95% of Meta's Facebook's revenue is ad networks. They run auctions basically. And why does that work? Because there's a limited amount of capacity. Uh there's a limited amount of ad units out there and folks will bid for priority display of their ad unit to drive traffic to their website. Similarly, in in

blockchains, there's limited amount of execution capacity. there's limited amount of automation priority. If there is a large position, let's say a $10 million or $1 million liquidation potentially about to happen that is worth $50,000 like a 5% liquidation fee perhaps, right? People would actually bid to be the first one to execute that starting maybe a,000 bucks. Eventually, theoretically, someone might bid up to $49,000 to be the one to execute that knowing that if they are the one that executes it, they make 50,000, right?

So, that automation priority auction that revenue also can get captured by the treasury to the DAP where the opportunity came from, redistributed to node operators, replacing toxic MEV. So, this this all is this is what we're going for. And this basically socializes ME to the good actors of the system, the stakeholders, the believers, not siphoned off to very sophisticated genius level uh ME searchers, right? I mean, what they do is really fascinating. It's really smart, but it's not really fair because it's like 1% is of these really insiders that are just so brilliant that that uh they're they're able to take this value from the other 99%. But what if we can capture it, mitigate that? It's a more fair

system. Yeah, that's basically our philosophy. Nice. Love that. That's awesome. Josh, um I'm excited about the presentation at Permissionless. It's gonna be good. Um maybe we shift gears a little bit. Um you guys there this is a more le less focused on Supra and more just I mean you guys launched the token six months ago. Um what do you think about there seems sometimes it seems like in crypto there are the the like halves and have nots or it seems like some people are like in with the cool kids or like deemed cool by like the in crowd and others are not. Um, how do you think about this dynamic in crypto? I don't I was actually just talking with the with the founder of another L1 the other day. They've been around for like seven years and just for like one reason or another haven't

really gained track. Their token's been out for years and years and years. Um, and he's like, I just don't get it. Like we're just not in like the cool kid crowd. How do you think Yeah. I just How do you think about this like weird dynamic that exists in crypto? Yeah. So there is such thing as the cool crowd. There always will be. Whether it was in high school, it's in life in general, but does it always make sense? And the thing is this, right? If if you cannot necessarily get into the cool craft, right? And Supra struggled with this a lot, you know, because uh as Americans, me and my co-founders, we left America to go to Asia. And you know, when you're in Asia as a foreigner, you're not always accepted either, right? And um uh the you know

part of that though is that we tapped out of the we didn't really tap into the cool crowd by not being in the states directly going to all the USA events meeting like you know you guys years ago we only met last year first time right and um the thing is there's basically one you're in the cool crowd and you get a lot of boost in the beginning but you still have to prove yourself or you're not necessarily totally into the cool crowd yet and especially because Supra, you know, we are so contrarian. We're not friends with layer 2, so to speak. I mean, we're not super friendly, of course. You know, I love the developments we all do, but we're our thesis is counter counter to

that. Uh, as and that was like the the main kind of focus of the last two years. We're also um competing with oracles. We're also competing with bridges, right? We're we're competing with pretty much we're also competing with layer ones. So, we didn't really get that synergy of oh yeah, you know, we're working with layer zero. By the way, we would love to work with layer zero and chain link and others. We're as a layer 1 itself. They will have off uh services that we don't offer, you know. So, this is totally allowed. I just want to make that clear. This is not like we don't allow them in. No, no, they're welcome to deploy. We're welcome to work with them. I'll personally guide them.

That's that's fine. We would love that. Um but still you know there's kind of always a little bit of friction there because we're competing with everyone like literally layer ones layer twos oracles crossing communication protocols automation etc right and and and uh as a result I think there's less cross promotion you know um the only way to get out of that kind of bucket to actually get the attention when you're in kind of that position is to do something no one else is able to do that actually has product market fit. This is why you just have to become a popular product on your own right, you know. Um, so this is why we we we actually really

believe their one smart contracts with Oracle data, threshold AI, Oracle tow automation. We think this is going to have product market fit. We're we're moving automation to mainet very soon, like in a week or two. And we're building all these automated open source automated primitives that anyone can mix and match and do things. We're maturing that stack. We think that this is going to be a very powerful tool for retail uh and you know uh to to craft their intention on chain and to execute these automation running their strategies. People I think it could be very fun in that they'll start to monitor their performance relative to others and adapt it in real time and it's it's it's real stakes so it's real money right so to speak. Um so you do want to have

security, you want to have determinism, but also um it I I think it can bring out that competitive nature. Now we all have also seen cases um I don't want to punch down here or anything but uh we have basically our major competitor uh going to market was movement labs because we're al we're the third uh layer one to be move language base. By the way we are rolling out EVM support. It's already on test net. So it's it's coming. we're going to be a multiVM um execution environment. But back then, you know, I also never understood I was like, "Wow, like um these guys are really great at promotion and connection and and and and getting support, you know, cuz you know, they're young. Um you know, they're articulate um seem

ambitious, right?" And I was like, "Wow, I don't understand why you don't why we don't get that attention either." Of course, they spend most of their budget marketing than technology. But my point though is that our we've also been accused of almost being too straight edge, made too research focused, too no back door back room deals, too not not doing OTC deals, etc. And we're just like, well, we just want to we we we avoided the FTX collapse, Luna collapse and other things by keeping it simple, not playing, you know what I mean? So like we're like this is our habit is just just to keep it simple. Now that said, um I think for us it's up to us to just prove it by building things and

showing capabilities you can't do elsewhere to attract actual activity, real activity, not just speculation. And I think we're going to get there like very soon in the next several months as it becomes more apparent as more DAPs deploy that um are using automation to do things to automate things like auto liquidations they can deploy that capture themselves you know that they may not have uh elsewhere. So yeah, I mean it is you know the truth is uh Koss media outlets uh they do to a large degree uh VCs but really media is you guys kind of do have a tremendous

effect and influence on the ecosystem to some degree kind of like gatekeepers. Um but also like but that's natural. I think it's very natural way for things to to evolve. So I think there's nothing wrong with it and and I think it's my job and super's job is to keep on deploying be steadfast build something people actually want to use you know for example um Hyperlid you know build a great product it's not as decentralized and actually our our algorithms are better both Oracle and consensus are are performing what they have but they have like 10 nodes we have 10 times larger network right um 20 times sometimes maybe 20 times larger here. Nonetheless, they

built a product that got so much traction that they earned attention. And that's pretty much my attitude is we're not going to beg and say, "Oh, why why not us?" It's more like, "No, well, it's our job is not to just have another layer one. Let's do something different. Let's bring the industry to the future like build something that people will need very soon. They may not even see it today." And that's kind of our point of view. So, I think I think we'll become the cool kids by next year. But uh yeah, it'll take some time. Nice. Well, Josh, congrats on everything, man. Excited for uh excited for Autofly and everything you're building. And yeah, again, thanks for being such a big supporter of Block Works. And yeah, excited for the uh presentation at Permissionless next week. Yeah, thanks for having us.

Appreciate it. [Music]