Fireside Chat with Steven Goldfeder and Kartik Talwar

[Music] And without further ado, I'd like to bring on Stephen to tell you all about what's happening at Offchain Labs in Arbiter. Please give him a big round of applause. [Applause]

Welcome back, Stephen.

Great to be here. Thank you. Um there's a bunch of things I want to talk about um and kind of get your perspective on especially as u as kind of how things are going in arbitum ecosystem but the thing I want to start off with is um understanding a big item that kind of uh took over the the news cycle a few weeks ago which was Robin Hood announcing uh their their chain and especially building on arbitum. Um I'm kind of curious to know from your perspective how did that conversation happen? H how did they sort of land on this decision?

what were the things that we're uh trying to figure out or concerned about and um just the story from from your side.

Absolutely. So that conversation actually happened you know over the course of literally years. In fact you know you saw the very earliest public uh manifestation of that at ETH Denver two ETH Denvers prior where we did uh the first announcement with Robin Hood. it was a more limited scope partnership but but ultimately I mean I think as you know uh certainly for builders in the room and people that are building these relationship often like the best things take take a lot of time right you know you don't start off and go like all all the way in uh teams need to build trust and relationship so a lot of that was just you know getting to know the team literally over the course of many years but you know going deeper into um what their plans were and why ultimately they went the way they did I think it came down to a few different things number one is and you know not to underell ourselves. But the truth is, you know, Ethereum is a very important part of it.

Um, I think enterprises today and particularly Robin Hood are understanding the importance of being in the Ethereum ecosystem from a decentralization standpoint, from a uh narrative standpoint as well. And it's just an important uh and really the best ecosystem to do to be in if you're building anything institutional and arbitum is a very uh strong path to build in the in the Ethereum ecosystem. But going a bit deeper into I think the things that are important about them and the things that uniquely arbitum could provide. Uh number one is uh the arbitum ecosystem is unique because uh we have in the ecosystem a top five blockchain called arbitum 1 uh with deep liquidity and a very very mature DeFi ecosystem which is uh fantastic for them to be able to tap into but also a top chain stack in arbitum orbit and you know this is a very unique combination that you have this incredibly neutral chain that's really liquid and highly performant and uh very well adopted and also this stack and because in you mentioned the chain but in their case actually when they did this June 30th announcement they announced first that they're launching their equities on arbitrum one and the truth is to launch a chain out of stealth and just come out come out of the gate and say hey we have a chain is basically not possible you need a monthsl long cycles with like different infrastructure providers uh and just like there's so so many

big checklist of yeah

yeah so many and like you know the secret is very hard to keep um because you have to so many people involved uh but they really had this June 30th date that they wanted to come out and launch something and they needed to hit that date um but they also uh obviously the chain wouldn't be possible at that time and the arbitrary ecosystem uniquely was able to provide them the ability to launch an arbitrum one and then use the exact same technology stack so they can know that everything they're building would be continue to work when they extend into their own arbitrum chain as well. The other thing that's unique arbitum that uh you know is very appealing to them is stylus. Stylus gives you the ability to write smart contracts and arbitrum chains not just in EVM languages like solidity although you get that as well of course but also in traditional programming languages like Rust and C++ and as we move more into an institutional world uh that's going to be in my opinion more and more appealing because the developers uh both the legacy codebase they have and the others that may want to build alongside them um ultimately um you know will uh likely have a lot of experience in these other languages. is and the other point that I'll mention uh and this is something that Vlad has said a few times in particular of why it makes sense for them to launch their own chain. You know, I'm not actually so there are some people out there that will say everyone needs to launch their own chain and there are some out there that will say nobody needs to launch their own chain.

One of the nice things of us having both a top chain and also a top chain stack in the ecosystem is we're really not opinionated about that. I want people to build in the archive ecosystem. For some people it makes sense to have a chain for other people I think it doesn't make sense. But in the case of Robin Hood, uh why I think it makes so much sense is, you know, they're they're not like looking to a chain to say, okay, who are the users in this chain? You know, we'll try to pick up those users.

It's the opposite. They have a product and they have, you know, all of these users that will actually follow them and their decisions. So, you know, their users are coming to crypto not via arbitum or Ethereum or Salana. They're coming to crypto via the Robin Hood app and they're going to go exactly where they tell them to be. And if you think about, you know, operating a business model and why actually running an L2 makes so much sense, um, is because you get to basically, you know, not be a tenant, but actually be, you know, the landlord of that chain, right?

So for all the activity they're driving to their chain, if they went to a a public chain, um, they'd have to a pay fees for users or pass those on to users, but also all the ancillary activity, right? Maybe some other app is say, "Hey, we're going to build on on this chain because we want to be, you know, uh, colllocated with Robin Hood and their equities." Or maybe there's a wallet product that succeeds. All that ancillary activity, you know, goes to someone else. It's like you have a hotel room, but, you know, someone else that's also coming because they want to be, you know, go on vacation with you.

You're not sort of benefiting off of that. But if you're actually driving your own users and other users to the chain as well, then it makes a lot more sense to turn your operating expenses into actually revenue um as well. So I think for them particularly because they have a strong user base, it made a lot of sense for them to uh launch their own chain and ultimately arbitrum with the flexibility of the orbit stack um stylus and also this dual uh ability to both launch immediately in arbitrum one and expand onto your own blockchain. It was the the right solution for them. I mean that's awesome and and thanks for that kind of backstory and the insight.

I mean this is a a multi-year process would would not have been my guess. It was like maybe three months, four months, six months, 2025 alto together. Um so I guess the the followup question I have is that Robin is just the the one that in a way made the biggest splash but they're not the only ones. Um and you've kind of done this with a few other big companies and uh maybe the similar question there is like was it the same timeline for all of them or was it just the first one was the hardest and then immediately everything else just became simple quick and easier.

So it's actually interesting if you look at the arbitrum orbit stack um we actually started off I would say a bit behind others had you know earlier adoption before us. If you go back, you know, to about a year and a half ago, u January, you know, previous January, January of 2024, there was there were no Orbit chains. The first one was a chain called Zy, uh, a gaming chain, uh, you know, very, very strong chain as well. And that was the first orbit chain and we were a bit late to the game. But then we had because the nice thing about the Orbit stack is it has this customizability.

So you can use your own gas token, you can add privacy. You have, you know, chains like Plume and Kinto that are doing institutional things really like you have Apech Chain that's building a cultural community for uh NFT holders and and collectors. There's so many different things that you can uh you know do uh with the technology. So we saw a lot of you know um a lot of different developers coming and choosing the arbitrary stack. Um in the first year there were you know today there are over a hundred chains uh building on the arbitrary stack.

Uh but we had like to be honest no like massive like institutional names uh in the first year. It was a very you know long tale of extremely strong product projects but mostly like cryptonnative uh projects. So and those are I guess a little bit faster in terms of their business cycle because you know they don't it's not like you have something else to risk or lose. It's like

or an approval process.

Exactly. So yes um you're you're sort of you know like in in the space and and it makes a lot of sense. Um I think one of the place where we were you know to be honest a little uh slower and and you know uh behind was in terms of these like big names institutional brand chains. I think this year uh we've definitely done a good job in uh adding that to uh the offering as well. So we mentioned Robin Hood.

Another big one is Converge which is the chain with securitize and Athena. And uh this is going to be a continued theme uh throughout our focus through the year. uh not to say that one is more important than the other but ultimately you know our goal as we've said many times is for arbitrant to be everywhere and that includes supporting both the cryptonative projects as well as you know the world's biggest financial institutions. So as you kind of think about this goal, what does kind of the time allocation look like here? If is it is everything at a point where the tech is done and you just kind of have to effectively sell it well so that everybody can understand it and and make that transition or do we still have unsolved problems or just we know that there are still bottlenecks that uh will hit and the engineering focus goes to that to enable that world to be true.

So I think we always yeah we definitely still have lots of unsolved problems. You know, if we look back to where we were a couple of years ago, we've come a very, very long way. You the way I think about the space and actually the role of Offchain Labs is to solve the hardest problems that are, you know, holding back, you know, um, worldwide massive adoption. When we founded Offchain Labs back in 2018, that was clearly scaling. And I think, you know, both us and others as a community have done a very good job at addressing the scaling issue.

And then what happens is you're not done. I mean you could be but the number two on the list pops up and now you have another really really big problem and I would say the problem that we have today in our ecosystem and this is increasingly becoming our focus and not to say we're done with scaling because scaling is a cat-and- mouse game right you scale there's more demand you scale again you're never done scaling um but I think we're at a pretty good spot right now but the bigger problem we have is at least this perception of fragmentation that we have and I don't really like things

between orbit chains or

just actually so It's interesting you you've asked and I'll clarify this and this is something that actually we differ on I think from some others in the space that are building chain stacks. I don't I don't believe in interorbid interoperability as an end goal as a priority. It it happens to be for some technical reasons it's easier but you as a user probably like don't care like oh you don't you as a user as a developer the set of chains you want to inter interop with is not going to also be the set of chains that I successfully did BD for right it's going to be you know whatever set of chains you want it might be a base and orbitum it might be salana you just want to get to wherever you want to go you know the analogy I like to give is I have two pizza shops in my town and they hate each other but I eat at both of them and that's okay and I understand that, you know, we might have these like depolitics when it comes to the chain stack, but our developers and our users want to interop with every single one of those chains. And my goal is to actually make it easier for not I don't want to create a walled garden around orbit chains. If you're a user that wants to go from arbit to Salana, I want to make it as easy as possible for you to get there.

And the reason is if you really want to go there, you're going to get there, but if I add friction, you might not come back. And um

so what's the approach here? like is like in a way every every L2 on Ethereum has to solve or simplify bridging. Um are you saying that you're going to get to bypass some steps here or kind of shortcircuit the existing kind of status quo or like how do you kind of simplify that on the engineering side for arbitum?

So I think it's there are a lot of different solutions that work in different ways. For example in the orbit world if you're building two arbitrum any trust chains any trust is a data availability solution we offer. it happens to be we have this feature called fast withdrawals that allows you to go back and forth very very quickly between them. So that's one solution. Uh just yesterday we announced our acquisition of zero dev which is um a smart wallet provider that you know also is one of the leaders in chain abstraction and there are really UX uh level like wallet level features that you can do as well.

Ultimately I think there are fantastic solutions like layer zero and across. I think the piece that we're missing and this is increasingly becoming our focus is how do we package these up for users in a way. So for anything you want to do there's probably a pretty good path to get there today. I think the problem we have is the UX is not presented to users in a way that makes it intuitive for them. You have to know okay I want to go from A to B.

Oh let me use a cross for that. Uh let me use layer zero for that. Uh for that I can use the native bridge. And you just sort of have to be a specialist and an expert in all these things. you need to know what you need to do which is not a not a good assumption

exactly but the user just wants to like go and you know go to the chain or I just want to buy my NFT in that chain I have my funds here I don't really want to engage even with these technical details the analogy I like to give is you know if you go to YouTube you know imagine you go to YouTube and you get this popup that says would you like to watch your video on uh AWS today or on GCP and you just be like I really just want to watch my video I don't care about your backend service And maybe it's ironic for me to say that because I'm offering one of those back-end services in the space, but really we have to give the user that that abstracted experience that their wallet and really I think it's at the UX level. You know, there's I come from a research background, so I'm okay with what I'm about to say because I'm kind of uh you know um taking a stab at my myself here, which is there's a lot in our community, you know, we have a big research team in our company. Ethereum is very researchoriented that think this interop is a deep research problem and you can get into a room with a blackboard and some smart people at the end of the day you'll build this complex protocol and you solved interrupt and what I'm here to tell you is you will never solve interrupt that way. I think it's important but I would say 90% of the problem is UX and packaging up these things for wallets and there's a long tale of things we can get better but actually if we stop the research today you know there might be some griefing vectors and other risks the things that we can improve with deep research but actually it's packaging this up for users right there's no reason today that if I'm a user on arbitrin one that holds ARP and the gas fees in arbitration one are in ETH and I want to buy a NFT on APC chain and um and there the gas is in Ape right so Now what I have to I have to have to change exchange my ARB for ETH bridge to Ape uh buy the NFT maybe bridge rest my ape back convert it back to AR because otherwise I'm going to totally forget that it ever exists. Um there's no reason why that experience exists.

We have all the solutions that and we just need the packaging up for users and I think smart wallets which is you know one of the reasons that we acquired zero dev because packaging this all up together for users and again in a way that's not even arbitrary specific that's can can serve any know zero dev serves 30 plus chains and I have no intention of you know uh of removing any actually like to expand that

what does it mean for a a chain to acquire in a way a dev product so you think about that integration here

so that's a great question so to To be clear, and I'm glad you asked, Offchain Labs acquired uh the product. I work at Offchain Labs. We're a service provider to arbitrum, but ultimately we're a venture-backed business and you know, we'll run ZeroDev as as it was. Um but ultimately, you know, um I care a lot about the success of Arbitum as well and we have a lot of obviously say in the development of Arbitum. And the nice thing is and we did this like so just a little history of the company, we started off with Arbitum as a layer two.

We actually first moved down into layer 1. We acquired Prismatic Labs and we today built Prism which is the leading consensus client for Ethereum layer 1. And now we've moved up the stack and we've acquired ZeroDev and you'll see us more work from here both in terms of some M&A activity but also uh products that we uh add. And the goal is it turns out that if you build these things together you can do a much much better job because you know if if ZeroDev is building by themselves they can't go ahead and say they're they're kind of limited by the exact API that we give them right. So they can't go to an arbitrage chain and say hey I just need this one hook that's not there.

I mean they can ask us and you know we might do it but like ultimately if you build these things together you're going to do a better job. We'll still run into that issue because like I said we're not just building interoper arbitr chains but hopefully we'll be able to influence the market there uh more by building these products together. But to be clear offchain labs is the one that acquired this is not owned by the arbitrum foundation or the arbitron dowo. uh it was our funds uh that you know paid for this deal and our and we will ult ultimately be the ones that uh continue to develop it.

Amazing. Uh I've been asking this question to a bunch of other speakers today too and um it's I think kind of relevant for for you as well. Um what do you think about a lot of these announcements of uh new layer ones for stable coins and uh how they're kind of going about sort of going basically from scratch? uh general thoughts or pros and cons or advice to a lot of the others that are about to consider this

bearish um I actually don't think it makes much sense uh for the following reason if you're building like uh building a new a new layer one um first of all like I'm a big believer in decentralization and security and that's one of the nice things that actually leveraging Ethereum the most secure uh blockchain that exists. Um just we have this option and it makes sense and you can do that and we're seeing you know not to mention specifics but we're seeing some of these launch with you know less than I would say stellar security uh assumptions or decentralization assumptions which again you know it's they're forward about it you understand what you're getting into but that's ultimately not the way that I'd like the industry to go right if they if we fast forward five years and somehow one of these chains became dominant to Ethereum which I don't think will happen I think there'll be a big step backwards for industry for our industry because ultim imately the thing that got me here. I think the thing that got a lot of us here is the promise of decentralization and security. But but actually like if you think about again the the business model it doesn't even I don't even understand even from a business model perspective because you know people like to say oh there's some maybe there's L1 premium. The truth is depending on the weather outside it's there's an L1 premium or L2 premium the the uh market kind of cycles in between these two.

But the truth is if you're if you're a uh um you know a stable coin provider or a financial institution that wants to launch a chain uh launching an L2 actually is I would say a much more financially sound thing to do because what happens is

so you're giving a financial sound argument instead of like just the time and engineering complexity

there's that as well right you can customize you can choose which parts of the stack you want to customize everything exists but actually even from just from the basics I think and the reason I'm giving that argument because I think what I've heard is and this is a big misconception And the argument for it, all those arguments are so obvious that like why would you go into this and not launch a layer 2. So what is the argument for it? People think there's some premium but actually what happens is if you're a layer launch a layer one you have to pay validators. So you have to not only like take all your transaction fees but typically you have to inflate by 12% or something like that to actually just pay the cost to operating the chain. And by the way that's true if you have zero transactions doesn't scale with the number of transactions.

Whereas an L2 gives you a much much better model. a because you have better customizability, you have better uh security from Ethereum, but also you you know it's a fantastic deal. Some people say it's too good the deal that Ethereum gives to to uh to L2s where you know Arbitum today has about 93% um margins. So it pays about 7% of transaction cost to Ethereum. What that means you can actually retain 93% of of the transaction fees for growth but but more even more important it actually scales with you.

So if you have fewer transactions, you're not, you know, it's just financially fixed cost kind of capex notion of running your your validators. Exactly.

And then there's also all the like arbitum orbit is the most customizable chain and you can uh pinpoint which you know what you want to do and where you want to focus and everything else Ethereum and the stack just take care for you. So ultimately I don't really understand uh um why the market why some are going in that direction. I think it's I think it's a mistake.

Maybe that native token goes to $2. You never know.

You never know. Uh my last question to you before we end this is um just overall I guess how are you doing? It's been a busy year for everything that's been going on at offchain and arbitrum. Uh how are things on your ends and uh what's been uh taking up most of your time?

Yeah, I am uh thank you for asking. Uh I think I'm doing doing pretty well. Uh it's definitely a very busy time. is an extremely uh competitive time both in our you know smaller uh set set of uh industry companies but also more broadly but I think the thing that excites me most is we're seeing you know the vision play out and the vision that I was probably most excited about 10 years ago 10 years ago or a little more now actually when I first got into this space it wasn't uh hey these like new more fringe experiments that got me excited it was hey how can we actually build and revolutionize the core system, everything they were building today. How can we revolutionize the financial ecosystem?

I think over time some people lost this vision a bit and they kind of viewed crypto as oh there's the real thing and then there's this like toy things that some of my friends do and one friend made a lot of money so you should take a look at that right that's like what crypto became to uh to a lot of people but now we're actually seeing the institutions come back and the institutions are are interested not in like the 2017 private blockchains are actually interested in Ethereum and building real things on Ethereum and I'll I'll close with you know back to the Robin Hood announcement the coolest thing about that to me they did a side by side where they showed the US app in their in their announcement. They showed the US app which is powered by traditional brokerages and they showed the uh new app that they launched in the EU which is powered by arbitum. Their equities on arbitum and the cool thing was that they looked exactly the same and you didn't have to learn how to, you know, download a wallet and set up a wallet and download a seed phrase in order to actually benefit, you know, get reap the benefits of using the blockchain. And back to like the YouTube GCP point, that's where we succeed. It's when there will be millions and millions of users using the technology, benefiting from the technology, but don't actually even have to engage with the details.

That to me is the most exciting thing. So, um, personally, I could not be more excited for uh, you know, the leap that we've taken as an industry and I think uh, only more excited for what is to come.

Well, kudos to you and the rest of the team for not only reaching stage one, but actually helping uh, scale Ethereum. Thank you so much.

Thank you. [Music]