The Intense Competition Among Layer Two Solutions

Transcript

it's very fair to say that most of the people who are farming these points you know don't care about inner subjective forking so yeah I don't know if the market has caught up with what these terms mean certainly not that one hello and welcome to the protocol podcast I'm Brad C here with my co-hosts Margot nykerk Sam kastler so excited to dive into Today's Show with the latest news and developments in technology behind crypto and blockchains first please do not forget to subscribe to our Weekly Newsletter the protocol on

coindesk.com let's dive right into it today uh the three of us are going to be discussing a few of the hot protocol related stories from the past week and a couple just this week and there's a couple pretty big stories we're going to get to the igen layer igen token wide paper after the break and first we're going to go to Margot here Margot this story that we've been following for months and we're we've been a little bit obsessed with it I have to admit strangely it is not the hugest story but it's more it has some symbolic

significance which I think is is pretty interesting and it's the story is C chooses optimism concluding Bake Off among layered twos that was our headline uh Margot why don't you tell us about this story symbolic is kind of the perfect way to talk about this because this has been going on for months this has really brought out the Rivalry among the layer 2 teams when it comes to like um to showcasing their technology and trying to grab new users and new projects and you know this all started because cell uh you know a layer one blockchain

announced that it wants to become a layer two and mooved to the ethereum ecosystem and it was looking for what stack to go on and originally actually had said okay we're going to choose op stack um because as many other projects have chosen op stack it's easy to spin up it was one of the first ones out there um and then you know time went on and more and more teams started to pitch their own projects polygon through its hat in the ring um zky at some point did as well uh I think arbitrum did too um and so this really became like a competition um for one specific blockchain um and this was probably one of the most public ones because this was all happening on their public forum um

and then here we are eight months later nine months later I think and right back to where they started they they are they have decided that they're going to go ahead with OP stack and build on the op stack so yeah that concluded sort of the uh big competition it still has to be approved by their Community they have to vote on it but it's likely going to move forward um and the vote will succeed you know what I loved about this story Margo is that it was not a PR job there's so many of these announ ements that are geared toward okay we came out with a new thing or hey we won this new

project and you don't see kind of the sausage being made and here this was somewhat organic I feel like the way it kind of it just grew at first C was just they were just going to go with OP right and then but they do have this open governance process and so they kind of put it out there for a community vote and then they got all this in interest from these developers and they were making public announcements so it kind of the story kind of got away from them and they were suddenly the bell of the ball for probably a horrible analogy but then it

became a very public process that we were just all kind of gawking at uh I don't know what do you think about that yeah definitely I mean I think you know with these other other projects we're sort of told you know when we when we sit down with these teams and ask like why did you choose a certain stack you know what was the process like they always give some kind of vague answer about all this um but here in this case you know you could very publicly see in their in their governance forums like the different leaders of these different teams like you know wanting making their case for why they want to join and on top of that you know I think I I thought it was interesting because I I asked the cell folks um I asked Renee uh the co-founder of the of the cell

Foundation you know why at the beginning choose op stack go through this like eight month nine monthlong process and then end up right where you began that sort of seems like a waste of time and his argument was like actually you know we we this we feel even more confident now in our selection because we've had the time now to play around with these different Technologies and see how ecosystem fits well you know in terms of transferring certain you know technological capabilities onto a layer two um and so they really played around with these different stacks and have sort of evaluated and they and sort of gave them more confidence going in like you know what we like I we really trusted our judgment in the I really trust my judgment now with OP stack for

this ecosystem um so that was that was really interesting that was a that was a surprising takeaway that that I U you know heard from the from the cell folks yeah I think that was they they were pretty in the end when they made their decision they were somewhat merciful I think to the losers kind of the way they they spun it they made it clear that this is this we're not saying that op is the best team they were just saying they just kind of said it's right it was the best decision for us I feel like and they also you know they also mentioned you know polygon cinc has come out with their type 1 prover where they're hoping to connect different ecosystems to the polygon ecosystem um and solo had

mentioned that you know we're going to go ahead with OP stack but you know we can still connect to for instance the polygon type 1 prover so um that was a pretty clear signal that you know that they're that they have looked at other Technologies and sort of evaluated what works for them um and how they can sort of adapt using these new um you know new Innovations and yet it is super competitive among all these teams right Margo uh and and there was this other story that we were just going to mention real quick about the vulnerabilities on optimism uh Margo why don't you just

kind of tell us what happened there and why that's kind of amusing to to to watch right so we're bringing this up sort of under the framework of like the Rivalry between the the different teams right so um on over the weekend offchain Labs which is the primary developer of arbitrum had found two critical vulnerabilities on their test net related to their fraud proofs um and for those who don't know fraud proofs are pretty Central to optimistic rollups and how they function um and op I believe had them and then got rid of them and then now they're bringing them back um and that's sort of been like the the uh main criticism for for their technology and especially you know as we we're sitting here talking about op stack um and prior to this you know base had

tapped op stack World chain Sam wrote about that has tapped op stack all these different um you know major projects are going to be building with optimism technology and for the longest time they didn't have the central component to using an optimistic rollup um and so now they're bringing it back it's in testet um and offchain Labs had found some critical vulnerabilities and had gone on a little bit of a social media blitz um to show you know where we we found these issues um on our competitor and just like you know to back up a little bit it's actually very normal for competitive teams to test out their competitors Technologies that's sort of how they improve their own um capabilities um so it's not anything out

of the the ordinary to you know for offchain lab developers to sort of play around with optimism technology um but in the context of all of this it was interesting because arbitrum is you know the leading layer one in terms of TBL optimism sort of has the more the bigger brand recognition um and so this very public uh display of here's what's wrong with your technology sort of fed into this ongoing rivalry between the layer two teams in a very public way um so you know these layer 2 Wars which C was just part of you know this is another chapter as part of it we've seen in the past polygon and ZK sinks like you know get at each other uh this is just like another chapter in

this ongoing um uh ongoing conversation or or yeah rivalry is the word I keep going back to because that's really how what what what it is have the the Kentucky Derby for the horse RAC is coming up and often the the focus is just on kind of the the real contenders here and I feel like these teams they really are I mean we can't we're talking about these teams are the real contenders at this point the Front Runners for kind of dominance of of what the future landscape of smart contract blockchain ecosystem is going to look like and and so it is really interesting

to kind of watch these these incremental Skirmish faceoffs between these teams um any anything real quick before we move on Sam yeah I I was just going to mention like kind of going off this whole controversy we saw over the week weekend with the fault proofs not being ready fraud proofs fault proofs they call it kind of different things depending on who you ask but you know the name keeps changing on optimism side but it is a pretty striking thing that those don't exist and when you talk to teams that are going to deploy on um op stack often times what they'll tell you is that they're waiting for those proofs to exist before they actually introduce the technology so when I talk to

worldcoin um tools for Humanity the development for behind worldcoin I was just reminded because you mentioned them moving over there they they mentioned before this bug was found that they were going to wait until these truths existed um to to launch the the full version of their chain so the idea that these things don't exist yet again is pretty stunning because it is the core of how the technology works there's a lot that's been written about that that I encourage people to look up but you know um I I wonder if this race kind of changes as people realize that the tech isn't there quite yet and then one other thing I'll say really briefly is that optimism does seem to have the the community which might be why they've managed to win so many of these teams but arbitrum remains larger I I I

believe in terms of TV yeah no I think there are really great points I mean you know you you you just need to log on to Twitter and and or X and um everyone will go on about how stunning it is that fall proofs fud proofs you know is not on optimism I will add like I agree with the with the with the governance or the community kind of aspect that optimism has you know base I I keep turning back to bass in this example with OP stack because it's like sort of the big first example when it came to this I think what would be interesting to see with these projects moving forward um is something like a similar setup to what Bas and the Bas and um optimis like optimism Collective Agreement where they came out with these principles about contributing to the op Collective which

is this you know group of people or everyone that sort of falls under the optimism ecosystem including these Builders and users um but you know it was an exchange also sort of for I think it was like 117 million need to sort of check the numbers again but I think it was 117 118 million tokens Opie tokens so um you know I asked the cell folks is there anything sort of similar here going on they wouldn't they they said no but um but that they would be able to tap into some of the grants that's um that optimism is sort of uh giving out uh which includes Distributing op tokens um so that is sort of thing something to keep an eye on with everyone building on op stack like what does it mean in terms of op Del you token delegation um so

that's you know that could be you know if we're if we're if we're talking here about essential component of the technology that makes an optimistic rollup an optimistic rollup is missing yet everyone is building on this technology um you know where what are sort of the other draws to this technology um and so it'll be interesting to see what that means in terms of uh how they contribute to the op Collective and and um and token allocations well yeah I we talked this was the whole subject of of our podcast a couple weeks ago with Casey moremar and run it's all about being able to Jin up new fungible tokens and these projects they come out with

they have the money printer and they use it and then that is what's used to fund their ecosystem growth and it's one of the most fascinating things because it's not really regulated even though there might want to be regulation and this is what wall Street's bread and butter was to raise money Capital raising and now these projects Just Launch a token and that's what we're going to talk about after the break uh which is Renzo they had their we're talking on Tuesday here Renzo they had their token launch today it's a big liquid staking protocol that's been super controversial and then uh and igen layer which announced their token plan so and Sam has been digging into this story so

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innovation at consensus 2024 [Music] and we're back and we're GNA talk about Igan L's big announcement yesterday which we've talked about Igan layer quite a bit on this podcast we had shiram Kan and the project leader on uh probably about a month ago and Sam did that big story about how they sort of went live on mainnet and weren't really even ready and now they're sort of coming out with their big token white paper and everybody's scrambling to figure it out and there's a lot of

questions uh Sam why don't you maybe just start at the top with some of the with the facts and then we can kind of try to move into what the what the hot take is there okay um well I I think it is fair to say um as a fact that it's has been a mess um on both the Renzo and the igen layer front in terms of how these aird drops were facilitated and the community response which we'll talk about later um I'll just kind of mention on both fronts like kind of what happened um and what has kind of like invited the most scrutiny um so on the Renzo end this is a raking protocol or a liquid reaking

protocol that kind of deposits user money into aen layer that reaking protocol that we've talked about a bunch on this podcast won't get into all of that here but essentially you can stake with them they put it into igen layer and they give you a derivative token in exchange um and the way that all these platforms worked Igan layer on up um Ian layer Renzo ethery so on and so forth this whole kind of community um cottage industry of reaken startups has used points and so people farmed a bunch of these points which are just score counts that belong to each of the projects we've talked about this on the podcast too and the idea was that these points would eventually entitle people to some you know unknown amount of of tokens now the reason why this works is Regulatory

and we can get into that but essentially uh they can't actually or they they they don't they being the teams never confirm that a token is coming they just give you these points and let you kind of make your mind up on what they are and so people put tens of billions of dollars I think aan layers up to $16 billion and the overall summary here is that in both the Renzo case and the igen layer case users feel like they have not been entitled to the number of tokens um or the kinds of tokens that they would have wanted under their kind of vesting schedule um based on the points that they farmed based on the amount of deposits that they put in with the expectation of tokens I said I was going

to break it down but at a high level that that that's that's what's what's what's going on um does that give us enough to talk about or should we get into the specifics well I mean on Renzo specifically Omar gold buet our our colleague wrote about this last week and basically they came out with their plan last week right yeah thing happened today but the plan was released last week and people were so angry about it that the thing deped from ether oh it's it's ridiculous so what happened on um like terms of you know how how this has

all been you know handled and the the outcry that you've seen on on on crypto Twitter on crypto x what happened on Renzo and these are two distinct cases Renzo and igen L which came later on Renzo several things happened that that got people angry we'll start there the first thing is that they um only allotted 5% of tokens to the community and some you know o over 50% I believe it was like 60 some percent but don't quote me on that um were allotted to um investors and um the team itself and to add insult to injury when they released a chart on their website showing how many tokens had gone to different you know places they put you know two buckets of 2.5% that like you know

filled up like 20% of the of this pie chart basically they made a pie chart that made it look like the community um and ecosystem quote unquote were getting a much larger allotment than they actually it was it almost feels like it must been ridiculous it was it's comical um it looked like they were just like trying to sneak one by but you know 2.5% does not make up 10% of a graph it's just that's just not how it works so people were really angry they you know let their anger be known on Twitter and then on Discord and Renzo actually you know first started delaying responses on its Discord and then shut down the Discord um entirely essentially as of today which is when claims opened up all the outcry started last week when they

announced the plan and there's been a big deep haging which is when The Ether asset has kind of become more valuable than the Renzo version of ether that derivative token that we talked about before all that matters there is that a bunch of people who poured points into this thing and then used this Renzo derivative in order to farm more points and farm more money um just through D D5 protocols that D pegging meant that a bunch of people were liquidated because they opened up positions thinking that Renzo would be worth this certain thing um yeah I'll stop uh there there's how they explained things but I think that gets right to your point about the system and this that it's the

system in many ways is built upon expectations that are not remotely codified in any specific way it's all just but if you're in it people do actually have very specific expectations and that's the risk right that's the point stuff we've talked about in this podcast before where they're transparently giving you points they're saying hey we don't know what these points are going to be tied to neither do you um just you know we're we're just telling you how much you've invested and you know maybe they'll be worth something I don't know like they won't even say that um we we grilled Mike from ethery on this um before um ethery another one of these liquid

reaing protocols and they eventually did aird drop a token even though on our podcast he was kind of like like oh like I don't know if we're going to launch a token based on these points but Ian layer I think that expectation things that you say it it ties to that um I don't know if we want to get into that yet um let's get into it I mean Mar the one thing I was thinking about Margo was uh there's always complaints about these things and we saw it with starkware right with their Stark token and and remember how many questions Ellie benan I he had to answer a million questions he's this sort of Crypt graphy expert and he's sort of in a position of defending the decisions of who gets what on the Stark

airdrop no I mean I was gonna I was going to bring that up as well I mean at this point it just feels like every air drop I mean I don't know to what extent um you know Renzo cases a little it's a little bit more easier to digest but but Stark net was also quite a complicated um airdrop and a lot of people were very angry with it and you know same with Igan ler I think also a lot of this question goes around like how much are investors how much are early contributors getting in proportion to the rest of the community the actual users um and that sort of also gets out a little bit of what's going on on Igan layer um so you know messy angry airdrops just seem to be um part of the game at this point um yeah

yeah that's really well said Margo well said what what happened on aan layer was a little bit different than Renzo where they've not been accused of miscommunicating things shutting down their discords and and so on and so forth the thing that happened on Ian layer is like you said Brad people had expectations they thought that this would be the biggest airdrop of all time um and that they would you know they being investors would be entitled to you know um a bunch of you know uh new tokens as a result of how many points they've AC Creed and those expectations were shattered once the plan was explained to people yesterday in a white paper so the key things that people took issue with were first off um there's

going to be pretty strict VPN blocking so people um well first off people are not going to be able to claim their air drop if they're in the United States that's part for the course that's a regulatory thing there's a lot of reasons why that you know we we I I want to talk about that maybe if not that's a great story but you're right it's it's beyond the scope of every time we talk about an air drop you can't claim in the United States but people work around that with vpms aan layer has instituted additional things to make that much harder much harder to claim if you're in the United States and people are like you're based in the United States talking to Anan Labs the the team behind this the investors are based in the United States that are getting the tokens so people were really upset about

that expectations broken another thing that they were upset about is there's these weird lockup periods so you're not actually until for you're not actually going to be able to transfer your tokens so tokens are going to start vesting for investors they usually have like and Cliff there's an amount of time in which investors are not able to spend their tokens and can ACR tokens um but investors are going to start vesting even though they can't transfer their tokens while normal users also still can't transfer their tokens and so there's like an unknown period of time where nobody's going to be able to transfer tokens investors are being allotted tokens and users just can't you know cash out on their positions and some people you know it just totally changes the time Horizon that people were thinking about um and again these

were based on assumptions um and not you know anything concrete from aan ler who didn't even say that a token was coming and there's a bunch more examples that kind of are in this vein that have really upset people who had expectations around these points um the system's insane yeah let's just talk about and I I I know we're just starting to report on this ourselves and try to figure it all out they dumped this big white paper yesterday but they have this whole system around what they're calling inter subjective forking which is just such uh so many syllables yeah for but and but a lot of that seems to

be oriented toward addressing some of the concerns that vitalic butan has laid out which is that this igen lay is somehow going to Nuke all of ethereum at some point but with all the risk uh but I what have you what have you come to on that so far Sam in your reporting yeah I mean so the idea behind igen layer is that you can take eth that you've staked to secure ethereum and then you can stake that eth on igen layer to secure a bunch of other protocols the idea being that instead of a bunch of protocols each being like Shar andon on our podcast the head of Ian layer instead of a 100 protocols being secured by a billion dollars you have hundreds of protocols each pooling their billion

dollars and having a hundred billion dollars securing them and the idea being that in a proof of stake system like ethereum or these actively validated services on igen layer the amount of stake that there is the amount of people who have put up money to defend it that's the amount of money that it would take for an attacker to come in and take the money so if you've got a hundred people or 100 different protocols secured by hundred billion dollar an attacker would need a hundred billion dollar now to take money from any one of those protocols that's a a dumb down version when I say take money but to attack so the idea of why this might be risky is because the whole thing that you know keeps this system afloat is the idea of slashing none of this exists yet by the way um but the idea of slashing

where a validator who has participated in this system who has staked money gets penalized they get some of their stake revoked if they try to lie that's the whole way that this whole thing stays safe but if somebody lies or if um somebody lies about somebody lying and then some of this pool starts disappearing the details get kind of um complicated but the idea is that that ethereum the social consensus meaning the group of people that you know are you know stakeholders in the ethereum ecosystem might decide oh my God like igen layer is blowing up I'd rather just restart not just igen layer but ethereum like let's start a whole new ethereum chain because the economics have gotten so screwed up over on ethereum as a result of what happened on Igan lay and

they've released this thing called I and I think it's purposefully convoluted I I've decided like 44 pages on this I think Ian layers thing like they want to make it convoluted but interest objective staking is their whole Gambit to kind of separate ethereum social consensus from Igan layer social consensus so if igen layer blows up it can't or a product on Igan layer blows up an AVS an actively validated service it doesn't blow up ethereum people can use this token and Fork this token and create new instances of these apps on igen layer to kind of accommodate the blowup um I don't know if I that more complicated right but it's also theoretical but it's all but it is it

Margo you the history goes back to kind of the Dow hack is that with the where they they did the fork to try to reverse what had happened right and that's that's sort of in the back of everybody's Minds here oh for sure I think so and I think you know and I think also you know I'm sure vitalic and Sham have spoken at some point you know it's not like they don't have any interaction and V like you mentioned vitalic has been very public about what this would mean for you know the consensus the ethereum consensus and so um you know maybe I can't speak for for the igen layer folks I can't speak for Street room but part of me feels like you know they did not expect this to be

as big as what it is right now and so this is this is as this gets bigger this becomes more and more of a concern and so maybe this is again this is all just me digesting what has happened over the last 24 hours but this could be a way of just sort of mitigating and understanding you know as igen layer is be I think I read somewhere igen layer is actually the second biggest dii protocol like out there um but um you know there's there's there yeah so um so yeah there you know I'm I'm sure shrim has not gone around you know the the industry without hearing these concerns over and over and over again especially

from the people who were there in 2016 um so yeah there's podcasts too where you can hear shum debating vitalic I think it was bankless had one a while back um to promote another podcast I guess on our podcast uh but it is honestly worth listening to that um they they brought a different host in and kind of just go back and forth and this was over a year ago I believe or several months ago at least where vital kind of you know sparred a little bit with Sham about sham the head of aan layer about those to you know these you know dueling um the idea that this could all blow up ethereum but uh one one thing I'll add here too is there is that regulatory angle um and the reason why all this

exists and like I don't want to just you know I I I don't want to just uh harp too much on Ian layer screwing up they're trying to be conservative and regulations are not clear in the United States around crypto and how tokens should be launched and um there were the Ico boom in 2017 now we have these points the idea of making adding a little bit more transparency but opening up a bunch of other problems we didn't even mention that there's a lot of people who aren't going to be entitled to tokens that was like a huge part of the blowup is people who had re hypothecated their points on other platforms are we don't know when they're going to get you know it's not going to be a oneto one pairing in terms of points to to to aird drop but anyway um

the whole reason this exists they will tell you is because of the unclear regulatory framework in the United States that has forced this weird Norm of like Labs Foundation you know you know whatever issuing authorities and Cayman Islands you know um stuff going on all over the world it's just it's a mess um and aan layer might just be trying to be conservative um which is different from the BRS of thing where they've been really kind of attacked for um you know charts that are insane um uh yeah we should probably wrap it up pretty soon one thing I was just thinking about was was Casey romar's perspective and I think it's

kind of hard to push back against his perspective that it's all just a giant game really especially with the DJ and the points farming and they're try they want to make money but it's really just a game and but it's at the same time the world's most complicated game and you have to understand all these angles and understand the technology and understand how blockchains work and understand how to do specific things with the wallet and and Defi and and uh and then you have these teams people who are serious brainiacs

building this stuff and they're forced to engage in these games and it's pretty it's pretty amusing to watch uh and it's just it's just kind of where we are in this industry right now I don't know that that might be one perspective what do you do you have any quick thoughts on that Margo yeah I mean I also think you know Sam was kind of getting at this that you know things are made out to seem also more complicated than they actually are I mean the igen Tok like you know he was saying 43 pages of the igen token white paper the igen layer white paper I think is 17 pages okay like like a lot of these things are made out I mean it is complicated don't get me wrong but a lot of this is also

jargon and added on top of it to make it seem like it's even more Innovative than it actually is so it's it's that's part of that game too and but yeah I I agree and at the very least you got to imagine that most of the people investing in this stuff aren't reading that white paper most of the people who are farming layer aren't reading that white paper whether or not there's anything real behind it which there's you know I I don't want to um you know slander um Ian lay I do think there's a lot of people very smart people working on that project even if they you know write in a way that's super opaque um I I do think that Mo it's very fair to say that most of the people who are farming these points you know don't care about inner

subjective forking um no so yeah I don't know if the market has caught up with what these terms mean anyway um certainly not that one okay well uh this has been a pretty fun discussion I have to confess uh we've had some good good stories to talk about here and Sam's continuing to dig into that one and Margo following it as well and so there's never a dull day in crypto and uh so all right well let's wrap it there that is it for us this week thanks for listening to the protocol podcast thanks to our producer Michelle muso if you have any questions

about any stories or comments please reach out to us at podcasts at qu des.com subject lineth protocol you can listen to US Weekly on coindesk podcast Network or wherever you get your podcasts also please subscribe to our Weekly Newsletter the protocol on coindesk.com thanks a lot