Interoperability and the Future of Global Finance I Jon Kol

[Music] And for this one, I'd like to bring on John to tell you all about connecting all chains everywhere. Please give John a big round of applause.

Well, thanks for having me. Uh it's nice to be here in New York City, but uh we didn't come here because we just wanted to visit, you know, the global financial capital. We came here because we have a vested interest in crypto. We care about crypto. We want to advance it.

We want to grow it. And to me, and I think as you've heard uh in some of the fireside chats earlier today, that inherently means bringing on global finance on chain. Uh I think that's what we all in some way, shape or form want to accomplish through our work with crypto. Certainly what uh I'm working to accomplish through our work with crypto. But I think everyone in this room who has been working in this industry or spending a lot of their energy towards making this a reality, bringing global finance on chain realizes that we're not there today.

Right? We want the future of global finance to be open. We want the future of global finance to be permissionless. We want the future of global finance to move on chain. But there's many barriers to that um that stand in our way.

So today we're going to talk about exactly that. We're going to talk about what those barriers are. Why I believe that everything exists today to circumvent those barriers to get past them and how we can fundamentally end up in a world where it is ready for the scale needed to support global finance moving on chain. And before we get deeper into it, I'll uh give you a few things. So I firmly believe this will happen and it'll happen thanks to the work of many of the people who are taking part in this event, many of the other people who are not here today.

But again, we're not here today. We're not here. We're not there yet today because the scale required by global finance cannot be met by um the available offerings on chain. Second, global finance is going to move on chain not because we think it's more cool or more fun or more fair. Global finance is going to move on chain because the solutions that crypto will offer both on the demand side and on the supply side of global finance have to be superior.

On the supply side, we've made terrific advancements and we'll talk about those. On the demand side, not so much. There's still a lot to be desired. And to me, the gap there is going to be filled by an expansion, a vast expansion in the number of chains. Just this week, we saw two global powerhouses, one more cryptonative, the other less cryptonative, announcing or at least revealing their plans to launch uh chains of their own.

So, this thesis is gaining steam. this thing that many of the people in the room here believe that there will be a vast and expanding array of chains. It's materializing right in front of our eyes. But we need a way to seamlessly connect between this vast and expanding universe of chains or else we're not going to have global finance move on chain. So let's get into it.

You know, when you think of what blockchains are really for, I'd argue, and I think many of you might believe this as well, value transfer is the killer app of blockchains. Blockchains were meant for a global form of finance, for an open form of finance, for a ultimately permissionless form of finance. That's the thing they do best is value, transfer, value settlement. It's never been about transferring information. The fact that they're useful for transferring information is a nice addendum.

In so far as they are good for transferring any information, that information tends to relate to the value that is being transferred and settled. But before blockchains, we for years had no real problems moving information at a global scale using computers. It's not what we needed them for. It's global finance that we needed them for. Now let's take it a practical reality.

if global finance is going to move on chain. So this data is a little bit dated. A few weeks was when I looked it up. The most active EVM chain is, of course, Bass. BAS's single day high as of early July was 15 million transactions.

That's over a 24h hour period. The NASDAQ, a small but important part of global finance, the NASDAQ processes an estimated one and a half billion transactions every single trading day. Probably know the NASDAQ's open for less than seven hours a day. So even without having to adjust for any time differences on any average day the NASDAQ did more than two orders of magnitude 100 times more than the transactions at the most active EVM chain in base did on its single day high. So I consider this fairly pragmatic evidence that one chain is not going to cut it.

Anyone who wants to die on this hill like more power to them. I think the pe the proponents of a single chain architecture are losing ground every day. If you look at what's happening, a lot of financial activity is already moving on chain. In the last couple of months, we've seen the growth of crypto trading moving more and more on chain right now at the highest levels it's ever been with more than onethird of all crypto trading volumes happening on chain. That is great.

Now, if you think about this uh all of this activity, it's happening on an expanse of different venues across different chains. And unfortunately for us, it's not just that it's happening on different chains, right? If you look at call it over 75% of all activity on chain on any given day, it happens across four different chains and Solana, Hyperliquid, and of course, Ethereum and Bass. We crossed four chains, but we also crossed three different virtual machines. If you're a developer in the audience, you know that just building between multiple chains, even if they're exactly the same architecture, is a significant addition of complexity.

If you've ever dared venture into developing across not just chains but also virtual machine lines, you know what you're looking at in terms of the complexity addition. And this is happening today and I don't see how the incentives are going to slow down the creation of either new chains or new VMs. Why is that? Think about it like this. You are a new entrant in this market.

You want to help support global finance moving on chain. You're a new entrant. You don't have distribution yet. How are you going to differentiate yourself from the crowd? You're going to try and innovate on product experience, performance, or anything in the way of features.

And that inevitably leads you in the way of making at at best slight changes the VM layer and at worst wholesale uh wholesale changes almost starting from scratch. And if you look at it like this again back to those two giants that announced their chain plans this week. Both of them are opting for something that is mostly EVM completely EVM compatible. They have the distribution. They don't need their edges doesn't need to come in the way of performance innovation.

It might but it doesn't need to be but as a new entrant you don't have that edge that they have. So the incentive is going to lead you time and time again towards innovating at the VM and that's going to create a situation where inadvertently you're making the fragmentation worse. you might make the world of crypto more uh able to uh accept and uh comply with the demands of global finance in terms of the scalability requirement but you've just made the other problem made fragmentation worse. Now how are we dealing with that today? We deal with it through bridging.

Pretty sure most of you in the audience have had some experience with this. I obviously have, you know, part of this problem in a way, but I'll argue to you, nobody cares about bridging. I run a major interoperability protocol. I don't care about bridging. I don't like about I don't like bridging.

I don't think anyone wants to be subjected to it if they didn't have to. It's the best solution we have today, but it is purely a means to an end. It's not something that anyone would choose to do if they didn't have to. One thing that personally bothers me a lot, someone who's been in the industry for, you know, class of 2017, I talked to a lot of my friends about this. They say things like, "Well, it's not so bad anymore.

It's kind of fine." That position really irks me. I find bridging to be incredibly unpleasant. Just think of the last time you bought something online that didn't involve crypto. And imagine if it was in a crypto context.

Say the last time you bought something on Amazon. If bridging was to be involved, it's sort of like you'd have your money in your bank account. Let's say you bank with Chase. So your money is on Chase Chain and it's in the form of diamond dollars because of course that's the native currency of Chase. And now you need to get over to Amazon chain.

So you use some bridging app in this case your handy Visa card and you get over to to Amazon chain but no on Amazon chain they use Bezos bucks. So your handy Visa app, your bridging app also took care of that. swap. So now you've dealt with this immense amount of friction just to do that thing you wanted to do if you even remember what you wanted to do which was to buy the thing. So this is what we deal with every day when people have to deal with bridging all of that just to do that thing you wanted to do which was to buy something in a chain context.

I wanted to buy an asset on that other chain. I wanted to use an app on that chain. I wanted to make a loan, sell an asset. Whatever it is I wanted to do. It's untenable for us to accept that this is a you know real solution and very much unfortunate for us all of us together in this quest to bring global finance on chain that on the demand side of the equation the solutions offchain they're pretty good the experience that you can get trying to do any one of these financial activities offchain today is quite good that's not not really helping our cause in any Okay.

So, how do we get past it? Well, I've told you earlier that I very much believe everything we need to get past this already exists today. It's just not being used yet. It's all fairly new and fresh, but we're starting to see we're in the very early innings of these things getting put into production and starting to get used at some form of scale. So, I'm from Hyperlane.

I'm going to tell you about Hyperlane. This is what we've been working on for the last three and a half four years. And to get to a place where we can offer a bridging free experience, an experience that at least for the demand side of the equation, whether it's the users, the developers, the institutions that want access to global finance as it'll move on chain, they need a single point of access. a single point of access that can access any chain from the same interface and minimizes the complexities of dealing with these multiple virtual machines. To me, that comes from the combination of three components.

At the foundation is a message passing layer. So, hyperlane is an open framework for interoperability that operates on um I want to say five different VMs in production about 10 in varying stages then it's the concept of an interchain account an account on one chain that is a smart account that can own accounts on as many other chains as needed functionally commanding them controlling them allowing you to move assets between them sign from them everything you need all from one point and on top we need a liquidity layer to be able to move those assets seamlessly around in a way that if you think back to that example of I wanted to buy something on Amazon you don't think about the way the money moves from your bank account ultimately to Amazon's account or to the seller's account in the end we need to abstract that away and this is where that liquidity layer comes up so let's go into a little bit more depth answer that foundational As I mentioned, Hyperlane is an um open framework for interoperability. Today, it is live on over 150 chains, serves over five different virtual machines, completely open and permissionless for anyone to use. Anyone can deploy and operate it anywhere. And if you don't believe me, you can actually go on the Hyperlane docs right now.

You can download the CLI and you can deploy it yourself to any chain you'd like. And if the chains you want to deal with already happen to have hyperlane on them, great. Use the tooling, build your own forms of interoperability uh and do whatever it is that you need to do. In terms of security, a major major topic especially at Ethereum related events as we talk about this notion of interoperability. Hyperlane's modular architecture supports any form of state proof or state at the station.

So if you're just getting started, you want something simple, you can stick with validator at the stations, whether it's with a stake attached or not. If you need something beefier, feel free to use the state-of-the-art in zero knowledge proofs to secure your transfer. And as the state of AD uh state-of-the-art keeps moving forward, you can adapt these interchain security module through hyperlane for your needs. You can weave it deep into your stack like teams like Veladrome have done with their super swaps, like Calera has done with their metal layer or one beautiful example we're going to talk about Taui has done with their Bitensor trading app or you can just use it at the edge integrating it for your chain or for your asset. It's totally open, yours to use as you please.

Then we have that notion of the interchain account. This is a very cool concept that is live today with Hyperlane. In fact, how we use uh Hyperlane ourselves as the core team behind it. But singular account can be on any chain you choose. Most likely you'd want it on Ethereum.

And that account becomes your single point of access for any other chain you want to manage contracts from. Different forms of an interchain account are deployed on the chains you want to be connected with. And then all the signing, all the management happens from that home base. So effectively the interchain account becomes your command and control center for your onchain universe. But that's not enough, right?

We need to be able to move the assets around. need some form of liquidity and what's been highly touted as the effective panacea for the fragmentation issues has been different forms of intents. But if you if you happen to be in this niche of the world, if you've been paying attention, a lot of people learn in the last six weeks or so that the engine for intents, the solvers, the people who actually do the hard work of filling the orders, many of them are struggling to break even. and many times find themselves finishing the month in the black and this is with fairly limited chain coverage. So how can it be that this is going to be the thing that allows us to solve fragmentation and make crypto ultimately acceptable and able to meet the demands of global finance if the engine of this solution finds itself running out of gas pretty much on a monthly basis.

So we don't believe that's the case. We think that it has to be a passive form of liquidity provision. And I'd argue to you that onchain activity didn't really take off until we had the innovation of the AMM that made a critical difference switching from an active mode of liquidity provision to a passive one allowing much more liquidity to be provided and for trades to really take off. Before unis swap we never had any material amount of financial activity specifically trading happening on chains. So idle deposits from users who are bridging to any new chain that they want to reach while those are sitting idle are used to facilitate the transfers anywhere else.

But that's not enough. You need to make sure that when a user wants to go back home that it's always there for them. So you need an onchain native rebalancing system. So all of this is stuff that we built and we just launched very recently with the hyperlane warp route 2.0 product.

The name change pending. I know it's not the greatest name. So all of these things come together to create a single point of access pretty much for all chains, but we just talked about all this in the abstract. You know, it sounds really great, but how would it actually work? Where can I touch and feel something like this?

And so luckily it's already live. A narrow version of this already went live as I told you before with uh Tali. So you may have paid attention to what's happening in the Bit Tensor ecosystem. A lot of excitement around this ecosystem, but it's been proven that it's fairly hard to reach it. It is not EVM compatible by default.

It is a substrate chain. the wallet infrastructure tends to be of the polka dot js uh variety that is not uh the user experience that we're now used to in Ethereum world where we have a much improved meta mask experience we have things like raby and now phantom that feels much better much more accessible so what tali has done combining those three components that we talked about the messaging layer through hyperlane the interchain account and the liquidity layer They're now allowing any user to connect from their wallets on base or Ethereum and very soon from Salana and access those hard-to-reach Bit Tensor tokens. What's happening under the hood? You connect to the Bit Tensor app and in your first to the TFI app and in your first interaction, TFI launches an interchain account on your behalf on Bit Tensor. So all of your signing actions happen from your home wallet, whether it was on Ethereum base or Solana.

As you try and make that first swap, the funds through the liquidity layer move from your home wallet again on Ethereum or Base over to TFI. You didn't have to engage in any bridging. You just click swap. The funds arrive into your interchain account where they're swapped for the home asset. And then you're done.

that asset is in your possession in a wallet that you functionally own and control through your home wallet. You've never had to deal with Bitensor. You've never had to sign on any different app. You've never had to manage wallets. You've never had to think about any balances.

All of this happens from your perspective in the background. And now this is a narrow experience, right? This is focused on Bit Tensor. But why not broaden it? Why not make it larger?

And today that is what an increasingly large number of developers including ourselves are doing with the stack with hyperlink creating single points of access to the onchain world. And to me as I mentioned before good interrupt is invisible interrupt. It's when you don't know that it's happening. You barely even know that it's necessary. None of us investigate the movements that the the an app sends us through as it moves us through different cloud regions.

Right? I came here on an Uber today. I didn't know if I was on AWS East 7 or if I was on GCP West 9. Didn't want to know. But in crypto, we have to know at least today.

And we have to get rid of that if we're going to see global finance moving chain at the scale that all of us are working to. So if you're interested in this, feel free to uh engage with us with Hyperlane. We can help you bring this type of experience for your app, for your chain, for whatever it is that you're building. So, don't be shy. You know, I'll be here.

We're also easy to reach online. And thank you all for your time. [Applause] [Music]