What's Next for the Cosmos Appchain Thesis? | Ethan Buchman and Sam Hart

Transcript

all right everyone so on Empire you obviously know that we talk a lot about the institutions coming into crypto and that is why we are super excited to share that we are hosting the digital assets Summit we've hosted this since 2019 it's coming up in London March 18th to 20th don't miss your chance to get ahead of the curve you can get 20% off with code Empire 20 we'll see you in London this episode is brought to you by toku the first comprehensive Global solution for both token compensation and tax compliance toku makes implementing Global token compensation and incentive Awards simple with toku you get unmatched legal and tax support to both Grant and administer your Global team's

tokens across the entire token life cycle make your token grants easy today with token all right everyone welcome back to Empire we've got uh Sam Haron I going to say Ethan Buckman Bucky you going to buy Bucky these days Ethan yeah nice nice uh s for those who don't know Sam is the head of product and strategy at skip also the founder at time wave and uh Ethan Buckman does a whole bunch of stuff in in and around Cosmos so guys welcome to the show great to be here thanks for having us yeah yeah of course uh we were just talking about this before we we hit record one of our most listened to episodes uh actually ever was a cosmos related episode with Jack and Zachy Zaki back uh maybe six to 12 months ago and so wanted to kind of

revisit the cosmos thesis and um so when I think about Cosmos you guys have nailed it with the app chain thesis uh unfortunately though it seems like the app chain thesis is kind of playing out uh not on Cosmos at least when I look at the industry it seems like some of that activity is happening on on Ethel 2s so what is I would love to maybe Sam you could kick us off with this kind of idea of the app chain thesis as you see it and how you how that is evolved as maybe it's happening not as much on on Cosmos or maybe I'm just wrong there so maybe it lead us in here yeah so I I think of Cosmos is kind of like late game technology um it's basically some degree of vertical

integration um within the application and when the application ends up owning its own stack and um you know from the consensus level all the way up to the interface then uh you end up needing uh some form of interoperability between different applications um so yeah we we built the the app chain stack um kind of in Reverse of what ethereum is doing um but for that reason I think we actually have um you know a number of Primitives that are really like fit for purpose um and really over the next few months um I

think you're going to see some some very interesting stuff um as as some of like the really unique applications come online um Celestia and dydx I think are kind of a an early indicator of some of the very cool stuff that's coming yeah I think uh I mean I think the app chain thesis is definitely continuing to play out on Cosmos as well uh I think it's uh it's certainly validating to see other ecosystems um adopt it and and push it Forward I mean that was always sort of part of the part of the goal part of the mission I think part of what we're seeing That's so exciting still in Cosmos is that the frontier chains like that are really pushing the boundary on new kinds of tech whether it's privacy

or or performance or you know new kinds of scalability um many if not basically all of them are actually building with the cosmo stack and so seeing things like dydx come to Cosmos seeing you know Celestia Just Launch using the cosmo stack and you know founding the sort of modularity um the modular era so to speak and you've got uh guys like anoma and penumbra really really pushing the bar on on privacy you've got uh you know new virtual machine chain designs or even just like new evm chains like bar chain using the cosmo stack and um you've got a goric you know with their with their new virtual machine so seeing a lot of the like Cutting Edge technology deployment happening using the cosmo stack I think is is very validating now it could be the case that

you know for where we are in the cycle or in the market or in you know the adoption of of these applications you know it doesn't make sense for every other dii application to have their own app chain right that and visioning sovereignty is expensive there's there's a price to it I mean that's that's part of the point and and you need to bear the cost of that and uh you know is it are we going to be able to finance that with uh you know infl new inflationary tokens indefinitely I mean that's not clear I don't think anyone ever really thought that was uh sustainable it was always kind of a you know bootstrap mechanism that that made sense at at some point in the cycle and and maybe won't make sense in the future but I think as we start to see some of these

you know other infrastructure chains get off the ground get adopted as we start to see some of the more advanced applications you know prove out the model then then we'll see um you know we'll see more apps kind of come back or launch using using the app chain thesis when it makes sense right the whole point of Cosmos was to open up the spectrum of possibilities for developers and communities to do the thing that made the most sense for them right and that that will be different things at different times and so I think that's all very validating can you unpack that a little bit more Ethan for someone that doesn't really kind of understand that of course we've seen like this explosion of l2s um now of course you have projects like dydx you know bootstop their own um app chain and as you alluded to that carry

some costs and that could be subsidized through inflation so you know as you think about like if you're a developer listening to this like what's like the the the like ideal protocol that would be suitable to deploy their own app chain like do you need to be of certain size of certain users of certain market cap for it to be kind of relevant or how should we think about this yeah I was going to say the ideal protocol is one with adoption but it's a little bit I mean yeah like uh you know it's a it's a heavy solution to have an an app chain you could say and it gives you as the

developer um it gives you kind of full stck vertical integration right so you can control kind of every part of of the platform and and of its deployment um and that's that's very powerful and so if you want that or you need that if there's elements you need to control right if you're if you want to experiment with new kinds of cryptography if you want to experiment with you know new ways to address Performance uh scalability you know whatever whatever the case may be having that full stack integration and control over the over the full stack lets you lets you do that now it comes at the cost of provisioning and maintaining an independent validator set right um now so how you afford that there are also different solutions that you know there

hasn't been that much I think experimentation in that maybe as as we would like there to be but but ultimately validators need to get paid and how they get paid uh you know right now there's really sort of two basic mods is like inflation of a token or uh and or transaction fees right and so ideally if you have enough adoption that you're generating enough fees that you can use that to pay your validators then uh then the burden is not that high and and it makes a lot of sense to run run your own app chain right um if it makes sense to you to to have a you know inflationary token and to use that as a bootstrap mechanism to attract a validator set and and to sort of buy the time to build the adoption and and the product Market fit then then that could

make sense as well of course you know you're going to be subject to larger market cycles and and uh and fluctuations and so on but that's still a a fully viable path that that a number of folks have chosen now the other the other just benefit that comes from building you know using The Interchange stack and and the cosmos Tech and building your own app chain is is uh is IBC and you just get this like seamless interoperability with all these other chains um and that's something that you know shouldn't be underemphasized because it's it's so powerful to be able to like launch and then immediately have connections without having to build bespoke Bridges or you know custom infrastructure to to connect to everyone and be able to access that liquidity access that other functionality access

those users so it sort of comes with the larger ecosystem with which I think is also very powerful and drives um you know drives decision-making in some cases for for for chains to use the stack and you know to be a cosmos chain so to speak yeah I want to talk about two things one uh shared security um you know and and some of the validators that you know you could go about like for instance you know I L and some of these projects are creating like this validator community and that that like shared security model and how that would compare to kind of launching your own app chain and I also want to talk about just composability in the context of IBC because that's something that's often talked about in the context of l2s like you lose composability obviously Bridges

create friction but maybe we can start with IBC just how powerful that is relative to kind of the the current or the different other kind of uh value propositions out there um you know could you talk about like how IBC could work and how that from a user experience and from also from a developer experience how different that is from like friend and L2 skip we've actually played with a couple different interop protocols um IBC as well as Axel we're playing a bit with um know some of the ethereum Native um interop protocols and um we've had a really kind of great experience with IBC um it

is uh it's quite fleshed out so um the level of interop that you that you kind of see in in Cosmos is um is quite interesting I mean it actually kind of Rivals kind of shared um execution environment so you can you can do um remote execution calls get results back uh perform computation after those results have been um received uh there's a whole kind of um acknowledgement timeout model um so uh you get a rich set of information about um

the uh the form of execution that's happening on remote domains that can then be kind of like integrated into some um local logic uh so you can have like continuations after remote execution you do see these like multi-chain flows pretty frequently in Cosmos and I I haven't really seen that in ethereum yet where you're performing some uh you know a swap locally migrating back to another chain uh you you know performing another swap or like putting that into a lending protocol on on a remote chain you're just doing that as like a single you know a single signing event yeah and I want to kind of level set that because the current what

you're alluding to is like it takes uh up to you know two three five days to switch between an L2 and an L1 for instance um and what you're saying is with IBC if you're for instance you know one chain and then you're you're interacting with another say dydx and you want to do something else you could do that like IBC is this connectivity layer that you can do that you know almost atomically Atomic like yeah so it has asynchronous atomicity um so and the the consensus protocol com it was like built with this

in mind it has instant finality so um really you're talking about the the duration of like a single block time and then a message to be passed and then another block time on the remote chain so is on the order of like seconds um to to perform multi-chain flows um can be a little bit longer depending on the kind of transmission time that's kind of all stuff that we're we're working on is like improving loock times and and transmission speeds so you can really do these things it's like okay kind of like works just instantly and I'd like touched four different chains yeah I wonder uh one of the biggest questions for me when I first started learning

more about Cosmos um you guys raised around way back in the day for tender and IBC was like on the horizon then of course it took a little bit of time and one of the things for me when I think of Cosmos is it's it's kind of like the tech is really cool but just it for whatever reason like it just doesn't have the same BD muscle and attention or appreciation from the broader community and Ethan you're kind of like smirking smiling um why why do you think that is um you know certainly we've seen like dydx for instance like appreciate the potential like uh Facebook at one point was explor like a lot of like tender as

a consensus protocol I think it's super battle tested like a lot of people like have used it kind of in a white label manner but I'm just kind of curious what you both would attribute to like this lack of Love or appreciation for IBC and Cosmos in general you want to take that Ean I think there were I think there were a few questions buried in there my general sense is that there is quite substantial love let's say for for Comet for IBC um for Cosmos there was a I think a bigger question about why has the BD in Cosmos not been very good um or the marketing and so on um you know

one answer is Cosmos suffered a quite large scale organizational uh restructuring let's say to to be diplomatic that uh severely interfered with efforts to build kind of a coherent organization um and you know three years later like or four years later almost we're still kind of uh we're still kind of Downstream of all that and so uh you know that that was a major you know unlike almost every other ecosystem in Cosmos there isn't like a single place you can go to like get your you know to be routed to get BD needs answered um that that takes responsibility for marketing things like this right and so

Cosmos is kind of organizationally uniquely decentralized which has pros and cons um and one of the cons has been a lack of coherence around BD and marketing and that's that's uh that's I think had had a major impact on things um on the on the other hand I mean to just to just take some more direct responsibility for it Cosmos has always had a bit more of a um look we're not going to Market and shill something here because we want to play a different kind of game we want to play a longer game we want to build like you know transformative generational technology uh that is not based on any kind of single token dominating the whole ecosystem the way uh the way so many other um chains and prod projects

are are are sort of oriented and so that that kind of orientation I think has also um focused the project on more sort of technical matters than let's say uh market and NBD matters now that that doesn't you know having that orientation doesn't preclude marketing or or BD or you know it's not supposed to say that like okay those things don't matter um but organizationally we never really had the opportunity to build the coherence there um and you know there there have been various efforts but there've been um you know there've been setback along the way as well so yeah Sam I don't know if you want to you want to add anything to that yeah all those things are very true um I would say the the the kind of model that a lot of Cosmos developers have

internalized is that um that Cosmos is more of this um stack or design pattern than it is like a singular technology um so the fact that like ethereum has kind of adopted this app chain rollup model is like actually kind of a cosmos win in a way like because if you kind of treat it as a pattern like ethereum has adopted the cosmos pattern right um and we're actually you know very collaborative with like a lot of these folks that are trying to develop app chains on ethereum um in our view like that is adoption of Cosmos um where you kind of swap wed out

a couple of components like you've said okay well I want to use my own custom bridging technology and I want to like Outsource uh block production to a third party potentially or data availability to a third party so you've kind of like chosen your stack um and there's a bunch of teams that are like working on Integrations there um so the I guess there's just like a different frame of reference about like what success even looks like um we are like promoting the adoption of that pattern and we were actually very successful in getting ethereum to adopt that pattern um there are individual components within that stack so Comet

and iidc that we think are best in class and those have made their way into some interesting domains so um comets being used by a bunch of like ethereum protocols like individually just as a uh just an off-the-shelf solution um ibc's been adopted and gotten Integrations into polka dot and Avalanche and um there's a bunch of ethereum ethereum Integrations coming um we've been less successful in kind of getting the like ethereum rollups to to use IBC but um that's kind of okay uh so there's still kind of like validation of

this this General pattern um I would love to see like greater adoption of some of the core components um and you know one of the results of of this kind of restructuring that that Ethan is referring to I think is like stronger ownership of of some of these individual Technologies so um you know we I think we're better positioned now to to be doing a little bit more of a concerted BD effort um that that's led by by organizations that you know are building Cosmos SDK or building Comet um because there's kind of a a direct um benefit

to you to the bottom line there Ethan what did you think about run choosing a fork of salana for uh for for maker instead of potentially becoming an app chain on Cosmos Samra a very good uh all right then we can we can throw this summary about why they should choose Comet yeah Ur Cosmos yeah yeah it was one of the reply guys in that like gigantic post that that ruin had um and we've been chatting to ruin a little bit first of all the my understanding is that there's still evaluating um he was just kind of like Salon a pilled a bit um if I'm

being honest I don't like fully understand the uh product requirements that they have um it seems like they may be trying to do like a payments thing which is why salana is a good option but I'm kind of reading between the lines a little bit there um yeah I had like a pretty detailed like why maker might choose choose Cosmos um or like the cosmos stack um and maybe you can link to that at some point um and I I did a kind of followup uh they asked me to do a like a discussion with one of the goo folks just as like a compare and

contrast um so jur is still out um but salana is also just an excellent set of technology I mean I we've been in conversation with Anatoli for a long time like they've borrowed a bunch of uh design elements from from our technology like we're very supportive of that that community so um I I really think that people should should be thinking about the selection of the underlying components like from first principles like what are your needs um what are

your needs from a functionality perspective um from an integration perspective uh you know wallet support um what is the the kind of governance model that you're looking for and um just kind of like reverse engineer what what what components plug into that um and you know there's strong evidence that like one or more of the of the cosmos components actually serves customers quite well yeah Ethan I know you were half joking when you unmuted to give the little Salon of plug there but um I'd actually be curious to get your takes on maybe the op stack versus

salana and if you weren't building in Cosmos and you had to pick maybe uh op stack or something on arbitrum vers salana where would you tend to Trend towards me personally yeah uh I guess it depends on what I'm building and and what I need and how much uh you know what does it come down to like eth alignment versus performance or something right so which gods do I need to make the sacrifices too uh I would I would I would I would be doing something in the in the cosmos uh philosophy I mean I don't know exactly it would very much depend on the application so I I don't think you can

answer that in general and I think that's that's kind of the point of Cosmos is to is to say that you know you can't make these kinds of decisions in general and it doesn't make sense to think about these things in general and that you actually have to reason about particular applications particular needs particular communities and use cases and deployment strategies and and what you actually want out of the system and just trying to build generalized general purpose infrastructure for every single use case doesn't make sense I mean that's not how you build scalable social Technologies um and I think you know ethereum is sort of coming to terms with that in a in a kind of roundabout way where they're realizing okay maybe maybe we're not going to build a world

computer for every application we're going to build a world computer for settlement across application specific you know computers um whereas salana is maybe doing something different but but I think even sana's use case is very particular they want to build you know very high performance high performance Global State machine right um and that's not going to serve every use case and and I think they know that and you know I sort of make the joke oh it's a it's it's a cosmos chain I mean totally makes that joke too but in a sense it's not a joke it's real because they're they're building under the model that they have you know particular Community particular use case and and they're designing for that and they need you know control of the whole stack so that they can meet their requirements right um and that's what

that's what has made salana so great uh frankly is that is that they get that right so I think that's um you know that's uh that's important to understand now so again I can't answer that in general it would depend on what I'm building and and who I'm building it with and and for what purpose yeah so does everything become or or can become a a cosmos chain with IBC like you know yeah that's the hope that's the idea um if I had to wager a guess like the reason that people are choosing the op stack today is basically because it has a bunch of out of the box like wallet

Integrations and di5 protocols can deploy there relatively easily and then there's like some kind of Norm that's set that you can get you can onboard eth liquidity eth users those are fantastic reasons to choose a stack um they really have nothing to do with technology more to do with what like user aggregation basically like the all the users user and developer aggregation yeah it's yeah and like that is an amazing reason to choose technology um so the cosmos Theory here is that like aggregation historically aggregation of demand has been around the L1 right people are hanging out in like arbitrum defi land they're hanging out in ethland and your guys's theory is

that that that has to end right apps be and that applications end up becoming the the real user aggregators like like they do in web to I think so yeah yeah I I mean I think eth and I maybe came to this from a slightly different place but I was like very interested in this like platform Co-op type model um where it's was like okay we want there's these like giant giant web 2 applications where there's no user ownership and they you know they have a kind of an outsized power um so like can we can we actually like give users on the platform more agency

um and you know Ethan I think came from came at it from like a very kind of monetary localist perspective um a little bit more grounded in economics but I I me by and large I I would say that's correct like Cosmos is pretty focused on like communities um and arbitrum is a community I would say it really has kind of a life of its own at this point um but it was kind of like importing a lot of the liquidity users culture of of ethereum originally like I want to focus on the case of dydx uh at some point the team

realized hey it's not I mean I think they made the choice when there were there wasn't as a robust of an L2 ecosystem today but they they had there's a great detailed post of uh Antonio I think that goes into the the rationale for deploying on Cosmos I want to get your perspective one um how how more like are we going to see more Dy DXs of the world that at some point side that the cosmos chain is is sort of like a the more viable um kind of path forward versus having their own L2 or a fork of salana and if so I'm curious if if there

are particular applications that um or type of protocols that uh might might do that versus others that just may not yeah I think so I've worked with ZX a fair bit um and uh it's definitely of this class of user that um that wants to have very specific functionality that kind of requires some degree of full stack control um one of the things that they are doing that is kind of common to a bunch of

Cosmos chain is is asking their validators to to kind of perform extra work so um they are holding an order book and um performing matching operations um they're going to be involved in uh the kind of future Oracle um updates most likely um and these are things that uh a rollup potentially could do um one one the even the Ro Frameworks that are out there today are pretty kind of they're kind of like smart contract plus um like there's actually a there isn't a lot of access to like low-level

Primitives um and that's just because these Frameworks are pretty new and and they haven't really been like sufficiently explored in my opinion but um you don't really see these projects like leveraging the validator set in the same way or um you know they'll add like a single op code or something that's kind of like the degree of of customiz customizability that that you get um they're not um modifying the consensus engine um and that's the kind of thing that that you're going to be doing in Cosmos and that's that's kind of what DX needed at the end of the day all right everyone so we talked a

lot about the institutions coming into crypto on Empire Santi and I are both headed out to London March 18th to 20th for blockworks his 8th ever digital asset Summit Das this is an Institutional buttoned up conference that we've hosted since 2019 I like to joke that it is probably the last remaining kind of suit and tie event in crypto people are still wearing suit and tie it's pretty funny but you'll actually hear from a lot of the largest institutions in the world coming from Standard Charter FIS JP Morgan framework folks coming out winner mute vanc Goldman Sachs there are a couple big themes of this conference one Bitcoin C list the having and the spot ETF two A View From the buy side three rw's tokenization and stable coins four

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leading companies in the space including protocol Labs dydx Foundation Min Foundation hadera nosis safe getcoin and many more reach out to toku that is tok.com Empire t.com ire click the link in the description or DM me on Twitter and I'll get you connected to the team on the point of uh validators Ethan I don't know if you have an opinion on that but I want to just we've talked about you know getting a validator set and how important that is to launching your own app chain um walk us through like who are these folks like like um you know how easy is it to bootstrap that um and what are the options in terms of the secur like shared security

model can you borrow it from another rchain and then like pay them some sort of you know like a referral kind of fee of sorts um what are the different options and and and how easy is it to bootstrap does validator set or get some shared security yeah I think there's a growing number of of validator companies out there and and uh I don't think chains have had a hard time recruiting validators I mean some test Nets become like overloaded with validators and and validator sets on on new chains tend to be quite uh competitive quite quickly um and so you know you even find validators who were who were pretty active like dropping out of the set kind of quickly because they they just don't have enough stake um so it seems like actually recruiting validator sets hasn't been

that difficult now maybe keeping them sufficiently decentralized um or you know or or ensuring that the sort of longtail of small validators are are financially viable that's been a little bit more difficult with with you know especially during the bare cycle and with inflationary you know um mechanics and and all that sort of stuff but you know of course now we're seeing uh an emerging set of options around around shared security so um you know one in in particular particular has been the uh interchain security offering from the cosmos Hub so that hasn't really been used for launching new chains per se uh yet I mean it's not the the current version that that's released isn't

really um isn't really that scalable so so to date there are two two chains using the The Interchange security model with with the cosmos Hub so those are Neutron and stride so Neutron is a you know cosm wasm smart Contracting platform that inherits its security from from Adam the cosmos Hub and stride is a uh you know Cosmos wide liquid staking um liquid staking token provider and and we expect to see others but we're also you know there's a lot of work on U on actually making that protocol more scalable so that it can be really a um a more viable uh Launchpad let's say for for other chains or for uh for existing chains to sort of segue in and you know give up their validator set or or transition them over to leveraging the

hubs validor set or at least I mean what's interesting that about what's what's emerging there is that it doesn't doesn't necessarily need to inherit the whole validator set from the cosmos Hub but it could use the staked atoms on new validators or a different set of validators which is sort of interesting um possibilities that's being explored so I think we're going to see a lot more um options over the coming let's say year or two years about where new chains can Source their security and validator set from and I think we'll start to see like more interesting markets for that which will be really interesting I think there's a whole like you know area of mechanism design around recruiting incentivizing validators and obviously connects with you know me and and and this kind of research that folks like skip are doing and and others so I think

it's about to get um pretty interesting but it's it's really just starting and and for like perhaps the less in like the more uninitiated like Cosmos person like for context like one of the common criticism I've heard of Cosmos or Adams is in theory the cosmos Hub is you know like you could you use atom as like a stake you stake your atoms and validators do that and then you know you it wasn't clear that that would like the atom would be like the security substrate of all these chains so like if that makes sense and that's a common criticism ier it over and over it's like yeah we get the model it's super interesting the tech is very interesting

but unclear if adom will be like that de facto like security substrate or just like the native token like you could have dydx versus Adam and so the value AC cruel is so in a world where yeah you really nail it you have so many protocols launching their own chain um and they may use their native token for security and for validation and not even use Adam for that is that like is that a valid argument or or not I'm just kind of curious because I I have heard it over and over again and I get it but I'm not 100% sure it's correct or in practice why would

that be any different than ethereum rollups well I guess the argument for ethereum is you know if you have a world where l2s really scale the amount of transactions that can happen in L2 and then there is a settlement at some point happening in to the L1 and so the L1 does benefit and so there is some acrel now of course the big TBD in my mind is what's that ratio um but yeah yeah so this is like kind of gets down to the a core tenant of what Cosmos is I guess which is we just like think about settlement in a different way like

settlement in the cosmos world is a a process that happens between two parties you are settling between two parties the rollup and the counterparty or the shared security chain and the counterparty um and ethereum kind of has this like okay all settlement like occurs on on the ethereum Chain you're kind of Outsourcing some like Ledger uh like temporary matching and then like uh doing some settlement back on ethereum um so yeah I guess that kind of like frames scalability in a slightly different way

but um the way I think about security is um generally it will be uh if you're thinking about security specifically just from a a cost of capital perspective like it um then you're probably going to want to use like the most pristine Capital that like has has the lowest cost so like Bitcoin or ethereum is going to be a really good option um if you're thinking about it from a functionality perspective um if you want to like integrate with the ethereum with ethereum block space like you're going to want to use ethereum if you want to integrate with Bitcoin block space or the Bitcoin Community you're going to want to use

Bitcoin um and what the cosmos Hub has to do from that perspective is um is provide a differentiated service that people want to integrate with um and there's some ideas about what that may be um but I think that's still like an emerging um narrative uh one of the things that the cosmos Hub is exploring right now is like pairing security with lending um so you would get some kind of like protocol on liquidity along with security um which seems to have some some traction at this point I think one of the one of the core value propositions of the Hub is to be a

kind of sa stable and safe you know I call it an anchor in a thrashing sea right while there's it may not always be the highest market cap you know chain it may not be the you know fastest most most Innovative but the goal is for it to be sort of around the longest so to speak and to provide a kind of you know safe home for for long-term um stability and and so to reduces the surface area of of the main chain but within that to offer a strong you know compelling offering of interchange security and you know interchain capital or interchain money depending on um uh how you want to think of it but also also governance right right and so the cosmos Hub is one of the most sort of active and um uh you know engaging let's say uh uh governance

communities and and that sort of differentiates it I think from a number of other uh large market cap chains there's there a lot of community engagement and involvement and in sort of what it's doing and and and what its future is and the idea with interchain Security is to start by just extending the core functionality of the Hub and offering you know new features new Services as atom secured chains like what's happened with with new and with um and with stride and and to continue that and in addition to extending its own functionality through you know these kinds of core uh core services to also offer a kind of Launchpad to leverage its um to leverage its security for other chains right so even if other chains aren't using it to launch for their security it still can

extend its own functionality using its interchain security offering like what it's like what it's doing now right U but with the with the innovations that are coming to to en security hopefully over over the next year it'll be a lot more compelling um and uh and easier and scalable for for chains to Leverage The hubs um The Hub security offering and then sort of Sam mentioned there's this effort to differentiate uh you know one One Direction that's being explored is uh what we call Atomic iidc which is basically the ability for these chains that are secured by the cosmos Hub to interact with each other uh uh atomically and so they can have you know composable synchronous operations um that execute sort of cross chain um within a single uh within a single block

so that's potentially very powerful and to differentiate the hubs or security offering from you know shared security offering from those of um of other providers yeah apologies this is a really stupid question but I want to touch on scalability a bit in a world where everyone leverages atoms and leverages shared security is there an upper bound that you guys have said in in a similar manner like that perhaps ethereum May face um like if you have hundreds thousands of chains like does a cosmos help at some point reach like a limitation of performance um or the ability to it certainly will I I don't really

see that as the objective um I think Hub specifically should try to kind of aggregate um a smaller number of like really uh highlevel operators um that actually have like select for the best players um we're we're really talking about like the reaking market uh as a whole here so um yeah security has like other dimensions but um when we're talking about kind of like differentiating within a security uh within a reaking market um you want like Blue Chip players that have um you

know tight integration with your core functionality so um if you want some form of synchronous state with with some of these um applications if you need to like tap certain um liquidity flows then that's going to be you know one of the reasons that you would you would choose this this domain how does a lot of this uh Ethan I heard your talk from modular Summit how does a lot of what we're talking about start to unlock kind of new forms new new actually applications and new products and new ways of kind of interlinking Finance yeah well uh I've been thinking a lot for a long time about you know what the actual use case and

applications of all this technology we've been we've been building is um you know a lot of people are out there saying yeah what are we really doing here a lot of people are out there talking about oh stable coins are the killer app but I mean if we built all this infrastructure so that we can just trade you know vouchers for dollars in circle's bank account then I mean frankly we failed um and so there there has to be more than just you know custodial stable coins um as the as the killer feature here I do think that that money is really is the killer app um I don't I it takes a while to really unpack what that means because I don't think any of us really truly understand money or the changes that are going to come to the monetary system over over

the coming decades um you know probably were were on the cost of sort of large scale constitutional change and reform what what we've been focusing on what I've been focusing on is really um really looking at real world debts and grounding ourselves in the in in the sort of real world payment system and the network of liabilities that exist in uh in sort of commercial activity right so in the real world there are there are uh extensions of credit that happen between businesses all the time this is you know Trade Credit the Trade Credit market right anytime someone issues you an invoice that's a form of credit right um they're uh they're they're extending you credit you don't have to they ship you Goods or offered you a service and

you don't have to pay them for 30 days 60 days 90 days right um and what we're looking at now is okay can we build that can we use that use case as as an ideal opportunity to surface New Opportunities um for people to clear their debts and essentially what we want to what we want to think about is can we build a payment system that is designed to clear the most debt with the least amount of money and you know right now the way the payment systems Works no one no one's really thinking about that problem of reducing debt with with less money right of really optimizing the payments graph in general now that's a very important problem for banks themselves for financial institutions themselves who get together in what are called you know

clearing houses or or clearing clubs where they're very concerned with clearing the most debt between themselves using the least amount of money right these are all liquidity saving mechanisms and and and Banks and Fin institutions have been doing this for centuries right it's it's a major part of what's enabled them to grow to become so powerful is that they form these closed clubs where you know where where you can only get access If you're sort of part of the group um and within that club you benefit tremendously from clearing debts with each other uh but but access to those clubs is not accessible to the rest of the world right it's not accessible to you and me it's not accessible to to the average business and so we're all sort of locked out of these um out of these clearing arrangements and what we're what we're

looking at now is okay can we use uh you know the blockchain technology privacy preserving technology and and the potential to do sort of atomic multilateral settlements right executions that that run across many agents at once to enable anyone to participate in in clearing and and sort of seize back the power of really being um you know sort of in the in the in the club so to speak right everyone's running around talking about oh you know Bitcoin is like a a bank account in your in your pocket right um but what's really power ful about about Banks isn't just control over the assets it's the ability to discharge liabilities right and and and so no one really in the blockchain space I think is is thinking about um the problem of of the structure of liabilities the ability to clear them

um you know access to credit all this all this kind of stuff and so we're trying to open that up um by looking at what financial institutions have been doing you know for centuries really and trying to make that the these clearing systems uh much more open and and accessible and so you know that's a project we call um collaborative Finance uh because you know the these benefits really only approve by collaborating in these clearing clubs and this is something that again banks have been doing forever and we've all been basically systematically excluded from being able to do and that's led to you know the the current you know monetary system we have today and the way Banks and central banks are are sort of printing money and and doing all this stuff in ways that you know there's much to lament about and so we think we can

we can really do something fundamental there um using blockchain Tech in a very practical way uh for that that really benefits real world users and actually has the effect of reducing overall systemic risk improving you know improving the cash flow of individual businesses improving their ability to you know uh reducing their leverage improving their ability to access Credit all kinds of things like this and that actually can make cryptocurrencies themselves more useful in the real world um yeah so I gave a talk on all this at the modular Summit um that sort of goes into a bit more detail we've been working on a white paper that we expect to release soon um yeah is the L L's idea that so block so historically defi has been settlement

like uh settlement for everybody Kofi are you calling it Kofi collaborative Finance is settlement plus clearing for all is that the really Layman's one one sentence overview of it that's kind of the idea yeah so banks have been like look um we're going to keep clearing for ourselves and we're going to off and we're going to force you to use our rails for settlement right and then blockchains and defi kind of come along and they're like well clearing that involves debts we don't like debt let's just let's just open settlement up for everyone right and but that's not sufficient and so we're kind of saying look clearing is actually really important let's make clearing available to everyone yeah so that's right what do what does informal systems do

Ethan a lot of stuff I mean we've been we've been leading development of the cosmos hub for the last um last year so we built and and shipped interchange security and we actually just passed a a governance proposal to to have our team funded Direct ly by the cosmos hub for uh for continuing that work in 2024 um we also lead development of comet so the consensus engine for um y for Cosmos we work we built uh we built Hermes that's uh sort of the the one of the main IBC relays is we laying I think most of the IBC traffic out there uh we also run a security audits business called informal security we run a validator informal stakings you can stake with us on some you know 20 plus different networks uh and we've been building um Kofa

so I knew you so I I didn't mean that in a derogatory way of saying what what what in the world are you doing but um when you think about what you guys will be doing in 2024 and 2025 H will it start to be more on the front end building these applications instead of just working on I not really what I'd call the back end but like the Hub and shared security and stuff like that yeah so a Kofi is sort of our effort to build a real world application that actually actually takes the technology we've been building and that everyone's been building uh for years now to Market in in a sort of more dire way and uh interestingly we're actually trying to build it as a fully Web Two product first and just like push as far as we can um before we actually need uh before we

actually need the blockchain tech and and we're getting we're getting pretty close to that but we really want to like you know have there be no question of why blockchains are necessary for this use case and really prove like look there's a this is a fundamental thing that benefits real people that just cannot be done the same way without using this technology and that's been really what are your learnings from governance uh having run informal for a while and participated in Cosmos because actually when when talking to other ecosystems like you talk to a lot of other l1s and l2s and they basically have the inverse problem that Cosmos has so they problem is hey look we're really really good at execution we can ship really quickly we have no Community we need we need engage we need people engaging on our proposals we need to we

need to like drum up the the the decentralization basically I would say Cosmos suffers from the inverse of that which is uh sometimes a lack of execution ability but a really really really strong uh community so how how do you guys think about that Sam you're smiling so maybe uh you can start yeah I've done a bunch of work on the governance system on the Hub and just in Cosmos um did a bunch of product work there uh so you're right cosos has a super engaged governance Community um part of that is because of the inbuilt um delegation system so validators uh are also delegated governance um powers and um users can override their their

validator if they they wish um but validators are yeah become this kind of intermediary that um is supposed to be informed about governance and and participates and there's a so we know our validators very very well because they're they're quite active um and they solicit delegations through um their their kind of external Communications and and their interactions through governance um I the cosmos governance system is nowhere near perfect today um it was a first stab um I think it does surprisingly well despite uh kind of its rudimentary

design um I'm pretty excited to to see an evolution of that system that becomes more application specific actually um so really when you know what the purpose of the application is and and really how it should function then you can start to drill down and delegate specific responsibilities to um to interested parties you could potentially do some kind of uh elections or um uh the the deli folks have been kind of pioneering this um uh this like Borg model um in in Cosmos which I think is quite interesting where you kind of like have an integrated legal party that has um

limited limited liability Cosmos is kind of painted as being a dramatic ecosystem um that is just a direct result of of like very strong user engagement um and like high agency uh which is something that all l2s will you if they are decentralizing like will experience um so it's it's kind of a byproduct of of that that agency not you know any anything that's specific to the cosmos Community Ethan what do you think about this because in you guys had a onetoone system right was kind of more set up

like a co-op kind of like one one person one vote at least a year ago and we talked is that is that a similar model still yeah um so informal is uh is is set up like a a workers Cooperative so you know after you're with the company for nine months because you get uh you get your one vote that's uh you know the gestation period of a human um dayt day Sam you don't like that you know does humor belong in corporate governance yes um yeah I think it's I think it's important for employees to have representation I think what you don't want is to overburden your day-to-day operations with government the reality is that governance is very expensive and you know one of one of the major things I've learned both from

running informal and also from from CMOS is that often you have a desire to to formalize and follow like you know rigorous good strong practices and all that is good but it can also be uh it can also be very very expensive and and sometimes you need to be able to sort of make practical um trade-offs and I think at some level The Hub is actually learning this and has done a decent job at this and it's been sort of interesting and you know on one hand I think things um in terms of governance have have professionalized and proove on the Hub I think you know other times there's just like you know sometimes something needs to pass just to sort of send a signal or to follow through or to not just create like significant added

burden to um to kind of do it again at inal you know I think we're learning sort of similar lessons so we don't it's not like every decision in the company goes through a full vote that would be sort of insane um the voting just comes down to like the big decisions like the the board of directors so for instance we actually did just um we elected a new director because because one of our previous directors um stepped down he was moving on to other things and so we had uh you know we put together like a nominating committee and we nominated someone and then you know uh we brought them into our all hands and they were they were grilled by like 50 employees uh which was kind of a crazy experience for that board member but then um pretty interesting yeah but then but then we

did the vote and and you know elected him and so now um now now he's joining the board so um so it's not you know so what we don't want is to have that kind of level of Engagement daytoday because that's just a huge um it's just very costly and there's a lot of overhead and so we've really been trying to understand um understand this problem sort of sort of more deeply as one of like information ecology right so you know people often you know they often run around sort of like just demanding like complete transparency of everything or you know the involvement in every decision everyone got an opinion everyone wants to participate but that's not necessarily useful uh you know making good decisions requires requires context competence and experience and if

you have people trying to be involved that don't have you know at least one if not two or all three of those things context confidence and experience then then it's not really it's not really valuable right and so just trying to do you know radical transparency for transparency sake or like radical engagement for engagement sake isn't necessarily isn't necessarily useful if you have people chiming in that don't have the context confidence or experience then you're not you're not necessarily going to get good results just because you did governance right um and so we're trying to be a lot more um a lot more real about that and and and about how we engage and and and how we how we structure things and how we um how we enable the members of informal to actually you know contribute in the way

in the way that's best and how we actually how we reduce the overhead say on the on the executive team on for sort of managing a more more complex governance um procedure and and that's been really interesting to sort of navigate the company through and I think I think the cosmos Hub is going through a sort of similar thing right like sometimes you hear from very loud voices who have very strong opinions on governance but frankly they don't have the context competence or experience to actually uh to actually cont contribute in in in a valuable way and so you know that's uh obviously there's lots of people that that do and it's sort of interesting that you know these these open systems you kind of can't restrict people from participating and that's that's part of what's so valuable about them but you also need you also need

ways to manage the sort of information ecology effectively so that you can Surface the right information so that you can have the right conversation so so that you can make the right decisions right so I think at the end of the day like one of the major takeaways for me about all this stuff is that look humans are Political Animals that's like part of what it means to be human is is is to be able to engage in politics politics typically has like a negative connotation you know Thanksgiving dinner and you just talk about politics and everyone hates each other or whatever but I think there's I think there is a um a positive side to it but I think the key enabler for that really is language and and having you know having good language to be able to talk about things and discuss things and have the right

conversations right your the the the sort of Nature and and quality of your politics I think really comes down and by politics I don't mean like an individual's Pol like political position I mean the quality of like the the political institutions really comes down to the language you use and the kinds of conversations you're able to have and so by by focusing on like sort of having better language and and having better conversations I think that's really that's really the most important thing more than any kind of formal governance procedure or you know voting mechanism or any of this kind of stuff I think it's really about the conversations yeah one thing I'll add to that is that like the the most effective institution is like is not the one with the least amount of conflict um you know conflict

is an important part of negotiation and um and kind of surfacing information that's that's kind of critical for good decision- making um but this gets kind of mudded it's it's very easy to say that this is like this is a waste of time or this is toxic or something because like everybody's arguing um you know you need to balance that correctly but um the we should really be trying to index on what institutions are best for for the kind of key stakeholders um and that is something that Cosmos has

not nailed um but at least we're like trying to think about in a in a relatively clear yeah way guys we think about wrapping this up any uh anything that Santi and I have missed in terms of like really exciting things that you guys are thinking about going into 2024 that that we that we haven't talked about yet um one kind of theme is um Cosmos is kind of making its way into kind of unexpected realm so um there is a Bitcoin reaking project that's like very directly integrated into Cosmos called Babylon um we're working with the ion layer folks on Cosmos Integrations into

reaking so like I I actually see the cosmos is like G to be this interesting mesh that like exists between many different platforms um so the Hub will basically be this like shared security provider against Celestia ethereum igen layer Bitcoin is that is that kind of where you see that going say Celestia is a DA provider so like the the quality of that security is is a little bit different um like reaking and data availability are are um complimentary C may do its own restake I don't know um but yeah in terms of reaking providers Bitcoin The Hub um and

ethereum are all are all kind of like options that are on the menu and and then there's also this uh this mesh security system in in Cosmos so you could you could do kind of bilateral reaking relationships between different different chains and um you now the question is like why would you choose one versus the other and um you know it may not come down to it may just be an economic question um in which case maybe just go for the lowest cost of capital um but I I think that these things are going to be kind of paired with economic Integrations and political Integrations like okay we're going to do a partnership and we're going to allow one another to slash each other's change

under certain conditions um and you so you can you can hold each other accountable um you can layer that in with a liquidity sharing agreement or some kind of you know direct utility that's that's offered by your app chain yeah yeah that's really interesting um you know the the the common the two big themes that I'm seeing es you know are rehypothecation of security which ties directly into you know as really validates open intended kind of the ability for projects then say oh wow like I can launch my chain as we said at the beginning of the episode when you talked about which type of project is suited to launch their own chain I think

that really lowers the cost for the the hurdle to do that um and then IBC I just see it as that kind I've always been of the mind of it's going to be a multichain world and IBC to me when I first learned about it um was kind of that huge unlock that would allow you to connect pretty much anything um and so of course that took time and you know but but nonetheless I mean I think it's to me is one of perhaps the most important pieces of of technology that exists out there because it ties directly into no no matter how you want to see it whether you're a salana Moxy or you believe in salana purely or you believe in the L1 L2 kind of construct or like just I like there's no version

where you would be critical or you wouldn't like see the value that IBC delivers no matter in what camp you're you're you're at because at the end of the day it just creates a more seamless connectivity between any chain and and that's huge in my mind so um I really appreciate you guys kind of uh bearing with us because of course we ask really basic questions uh as you could tell um you know my my interaction is always with the cosmos folks just I think you guys are probably one of the smartest communities out there and so sometimes we try to level it down to us kind of lizard brains to to really kind of understand it but um I guess what's the best way to keep tabs to the cosmos ex ex it's and what you guys are working on

I know we kind of didn't do that as much at the beginning but um where can we where can we go if we want to learn more about what both of you guys are building follow us on Twitter I'm uh Buckman b h m an s r and uh informal do systems is our uh our company and so you know we post our post regular blog updates there on on all the things we're working on yeah uh yeah and I'm HX RTS do uh on Twitter if you want to play around with IBC as a user I would recommend going to ic. fun which is like a little demo website that we we made to just do like transfers and swaps um you can onboard

from ethereum there and I mean everybody in Cosmos is super friendly so so just Reach Out say hi um we can point us stuff except for Ethan Buckman at 2 am over at chessboard I will tell you that much monster I wasn't friendly no I just remember when they came to close down the bar mad yeah wait just one one stat like how big are your teams and are you hiring yeah s you leing what I say you looking for a job this has been a prolonged Beer Market I that dollars are not not trickling down in Empire no I'm kidding

no I'm just for me it's like one of those like interesting stats because there's just some teams that are massive you never heard of them they're like you know 50 people 100 people but I'm curious yeah we're like 50 people uh I think a bit more um there you go we are H hiring a couple roles so you can you can check that out in formal. systemc careers yeah great how about you skip is 15 um we're also hiring some technical roles but there's like eish core teams and it really depends on what you consider core team in Cosmos um that vary from you know five people to to 20 people um building different different components um it it's more of

a kind of flat flat system um there isn't the same kind of like ethereum foundation and then everybody else it's just like everybody's in more of this like peer group um doing development together then you've just got one person at block Works effort Capital just putting in the work effort oh my God that's that's our plant bless him your plant yeah the mole that's the mole he made it in hey guys well this has been really great um we'll link to IBC I'm definitely gonna want to check that out because I uh I think that's a huge eye opener but really appreciate you guys coming on and talking about this stuff and and bearing with our very basic line of questioning um was great hopefully we

can have you guys back on and and talk about um more of the developments as a you know transpar the next couple six 12 months yeah sounds great thanks for having us yeah take Sam thanks so much for coming on hey everyone thank you so much for watching today's episode really hope you enjoyed it we wanted to take a second to just remind you about our upcoming digital assets Summit in London March 18th to 20th Santi and I got your back seats are limited and we hooked you up with a 20% off discount code it is Empire 20 if you heard it earlier in the podcast there's a little competition running at blockworks to see who can drive the most number of tickets so when you register for the digital asset Summit make sure you use our code Empire 20 see you in

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