Fireside Chat With Sergey Nazarov, Chainlink, & Kartik Talwar, ETHGlobal I Pragma London 2024

[Music] we are ready for our last interview for the day and then one more talk to go so please join me in welcoming Sergey nazarov of chain link to talk about the future of how oracles have been evolving right without further Ado let's welcome Sergey on stage Sergey super excited to uh to officially chat with you on stage we've uh done a lot of these informal chats but never when it's been recorded yeah my pleasure always always great to speak with you cark and great work to everyone and you on putting this together as well as the hackathon I think it's a real achievement where you've got e Global and kind of the scale and the amount of insight people get from this really appreciate that um I want to talk about the history of chain link to start and we'll kind of go into sort of what's up and coming and what you've been working on so I'm curious on how did actually chaining began and what made you actually start this as a as a protocol yeah sure so we were building uh something called smart contract.com um in 2014 and 2015 basically when ethereum was for forming and there were all these different theories about what smart contracts were ethereum emerged and did a very good job at creating the onchain part of smart contracts so the blockchain itself and the smart contract State machine onchain being a flexible kind of thing and a number of people said you know let's compete with that let's make competing chains that really wasn't our view because we felt that ethereum was doing a good job in creating a good onchain State machine and so we knew from buildingsmart contract.com that oracles were a critical part of making onchain State machines useful and this is purely just the notion that you want to be able to query data outside of a blockchain to use it somehow or or was it more specific at that point it's not just quering the data so what Oracle networks do Oracle networks is what chain link basically invented and originated and what Oracle networks do is they generate consensus about non-blockchain things so blockchains generate consensus about whatever is going on in the code of the state machine and whatever the record is in the blockchain kind of data structure thing Oracle networks generate consensus about everything else so if you want to generate consensus about Market data weather data if you want to generate consensus about offchain computation that isn't onchain if you want to generate consensus about cross-chain interactions so the goal was not just to create a simple dumb connection between two places it was to get that connection to the point of Val verifying and proving the validity of whatever you were connected to to the degree that it can control the value in the contract that's kind of the standard that we uh sought out to meet and we saw a lot of people building uh chains but we didn't see PE many people figuring out how do you verify things and make them guaranteed cryptographically guaranteed consensus driven and uh then that led to a lot of um data basically going onto ethereum we were I think the first ones to put Market data on ethereum and then that connected with the need for Market data from defi but that's just one small example of how verified data of a specific type gives birth to a specific type of smart contract in that case defi so defi was really where chain link ended up booming and it was a sub 100 million uh in total value locked industry when we when we started um with maybe 10 15 total systems protocols total teams across the whole ecosystem and then it grew to over 200 billion with shiling powering the vast majority of of those uh of those protocols that needed external data so that was the first thing that kind of proved that the ability to verify information in as an oracle network was very important and so far the system has now enabled over 10 trillion in transaction value primarily through defi primarily on the market data side but it all kind of emerged from this need for smart contracts to interact uh with other systems um starting with data moving on to other types of data and now into the cross chain World which has the same set of security concerns was it always clear to you back then that price feed is just the first step and and you kind of had to evolve it to something more or was that the goal or rather like was it natural that you kind of decided to expand it or was that like not even known as as a problem because you started when etherum wasn't even fully mainnet yet and uh anticipating what the world would look like uh a few years down the road may not have been that easy of a task yeah it's it's not super super easy but our our view was always that smart contracts have this term this word smart and smart in traditional web world land means connected so the direction from which we approach smart contracts circuit 20145 was connected things like Smart Homes Smart Cars Smart cards smart means connected and when we realized that smart contracts were not connected uh that is a big gap that we sought to fill price data was simply the first place where that Gap met real demand um and then the system expanded you know far beyond that um but yeah the so maybe let's go jump right into that so how has it evolved since then now now you're kind of powering data for for a lot of things and it's just a broader platform uh walk us through the last few years of the evolution sure so Market data was the first uh big category of data that once aggregated and made uh verifiable gives birth to defi that was kind of a big moment for both Defi and chain link and I think the crypto world then the next question was what other categories of data can give birth to more smart contract types um and then we started putting all kinds of data on chain weather data gaming related data all all kinds of data then we realized that proof of reserves was a big uh use case and so proof of reserves has been live on chain link for I think over three maybe over four years and in terms of the amount of applications and the amount of value secured it's by far the largest provider of of proof of reserves and now you have proof of reserves being used by um external non- crypto companies as well and and this is just so we understand proof showing that I have this money on chain from some other part yeah this is verifying that something is happening a certain way in an external system but not about piece of price data but about the solvency so proof of reserves is really the beginning of proof of everything and anything you want to prove to a counterpart party for them to transact with you usually for them to manage risk so proof of liabilities proof of solvency proof of the carbon credit is valid proof of whatever right proof of everything really um so then after that identity was another area where chain link started to to do a lot of work because identity is important for proving things about the people involved in transactions basically we started or I started to view chain link as a set of offchain uh systems that create trust minimization that verify things in a way that allow trust minimized Data Trust minimized identity trust minimized proof of solvency reserves whatever to be injected into into onchain transactions that allow those onchain transactions to both come into existence and become useful then the next question was actually computation how do you get various offchain computations such as automation computations commonly around even things like time right telling contracts what time it is so they can operate in in accordance with like the timing of of certain transactions so then um automation was released a random number generation system was released then functions was released which is a slightly more advanced well much more advanced computation system but the point of all those computations is to inject additional computation into blocks right into blockchains l1s l2s and so on and to do computations that blockchains don't do can't do don't want to do but to do it in a trust minimized way and then the third category uh which went live uh last year also at a eth event at ECC was ccip the cross chain interoperability protocol which really fundamentally is is a similar security problem so Oracle networks solve the security problem of how do you get different nodes to come to consensus about something that a blockchain will not come to consensus on for you and that includes data that includes various computations and now that includes cross-chain connectivity and because chain link has so successfully secured trillions of dollars in throughput um and the security model of Oracle networks that obviously works for securing value of different types and data transmission of different types the cross chain problem is actually a very uh similar problem right because you're moving data across chains and you're moving value across chains but the value takes the form of data basically so it's actually the same fundamental problem of how do you connect external data sources and how do you connect blockchains at this point chain Link's goal in my opinion is to be the system that brings everything into blockchains out of blockchains and between blockchains right so the question is how does all the information and value flow into chains how does information and value flow out of chains how does information and value flow between chains that's the fundamental question what chain link doesn't do is it doesn't have a chain doesn't create a chain it doesn't make blocks that is something that ethereum does very well the ethereum 2.0 L2 model does very well the need is how do you inject various pieces of data and connectivity into those into that L1 and those l2s and how do you allow that to create more transactions that have value is there more to simplifying cross chain connectivity this week or is is ccip like the final version of it or do you think this is just the start and there's a lot more enhancements that you can uh you can add to the to this new interoperable world I mean it's definitely just a start I think there's there's a lot of a lot of cool features ccip has like the ability to do what we call programmable token transfers where you can get ccip to enact um functions to actually trigger functions on other l2s and other chains without you having to go to that chain and make a wallet or be part of that kind of process of integrating with that chain so there's a lot of uh there's a huge list of features that are coming down the road part of those features relate to web 3 part of those features relate to the capital markets and Enterprises and really I think ccip is trying to also connect those two worlds with uh ethereum and l2s kind of in the middle as the as the layers that do those transactions and to do those transactions you do need that connectivity and that data otherwise just like defi didn't happen before oracles you're you're not going to have other categories of transactions without that data and connectivity no that makes a lot of sense um I mean ccip seems super powerful so maybe one other question I have on this is uh how do we kind of think about applying this thing for real world assets and um just actually merging public and private blockchains if if uh if that's a use case in a category that you think uh is is big enough for for this to be used for yeah so I I think the push towards l2s that ethereum has now created has made a set of technologies that enterprises and capital markets participants can adopt and can adopt pretty efficiently blockchain Technologies circa 2014 and 15 was really really hard to adopt blockchain technology circuit 20178 was also very hard blockchain technology Circa 2122 is much much better right which is kind of the start of the L2 um Dynamic and now that Dynamic is getting polished into something that can be adopted relatively quickly by various Enterprises the biggest banks the biggest asset managers so I think we're we're kind of going to a world where all the biggest banks all the biggest asset managers will end up having their own chains their own l2s and all those chains will then need data and they'll need connectivity and they'll need that and they'll want that connectivity to public ethereum in order to transact and so I think that maybe just I say is that a prediction or are you already seeing demand for this thing and it's just a matter of time no that's a definite thing so it's a definite thing that all the banks all the asset managers all the Enterprises will end up spinning up their own l2s then they'll end up connecting those l2s between each other then they'll end up connecting them to public chains and this is hugely beneficial to uh the larger crypto Community because the more value that gets on chain the more value eventually flows into public ethereum because eventually that is probably the biggest single Network where there's the most private Keys the most people interacting or the most systems interacting but they're interacting in the ethereum 2.0 model through the l2s right so the question is if everyone spins up all these different uh chains of their own how do they connect all those chains how do they get data into those chains how do transactions between those chains happen how do those transactions eventually flow onto ethereum to to happen on there and how does the data for those transactions go on there as well so those are kind of the questions we're working through and actually the amount of data and the complexity of the transactions that you see coming from bigger more established firms is larger because they have more requirements like they have a hard requirement of having to add identity to a transaction they have a hard requirement that the asset has to do Mark to Market has to settle every day the the reason this is super duper relevant is because the whole crypto thing is just driven by net new users and the net new users that we're going to get from the web 2 Community converting to the web 3 community and different parts of the world realizing that cryptocurrency and blockchains are a thing that is in the mid to late stages of of of understanding because almost every country you go in I feel there is at least a 10 to 20% penetration of crypto and in other countries it's like much higher 50 to 80% so where are all the net new users where's the net new value going to come from some of it will come from getting the getting from that 10 to 20% in those places to the 80 or 90% in those places but a lot of it will come from the systems that already have the value inside of them but are simply not connected to blockchains and not connected to ethereum and not able to transact on it yet and so that's uh I think a valuable worthwhile problem I mean that's a really good world that I would like to live in if if you think that's a very close that's even better cuz uh this definite thing about being Banks uh wanting to do this on l2s and actually to ethereum um is very optimistic news um maybe maybe kind of Switching gears a bit and zooming out you've been in this space for over 10 years and uh this is also even before ethereum existed so uh I'm curious about how from your perspective have things kind of evolved and changed and um and how do you look at this space Now versus uh 10 years ago or even even 5 years ago like has there anything been surprising to you has anything been off or just exed your expectations or just kind of what's been what's a good reflection of the last decade for you I think there are really um kind of three groups of people that I've noticed there are people who build systems and Juice them to massive amounts of value secured in order to to to make profit and the security of the system and other considerations are not particularly large and what that does is it shows that the system has value because that's where a lot of use cases come from because the profit motive of those groups is very high then I see folks that want to build kind of a Next Generation infrastructure I think that's a lot of this community I think it's how do you build a Next Generation infrastructure that replaces the old generation infrastructure on various dimensions and then those two groups those first two groups kind of interact and then there's a third group and the third group is just you know what would be called the normies I I think online you know the people that don't understand the first or the second group that are waiting to see value from from the web 3 world I think what I've what I've basically seen is very big boom and bust Cycles across all three groups that sometimes intersect and sometimes don't that most groups don't understand so the group that's like I'm here to make money I'm here to ship a protocol and make money and get the most tvl and get the best yield and make the most money and get the best fees and that's just like what I want to do I feel that they need to think about security more they need to interact more with the infrastructure community and they need to understand some of those infrastructure Trends which is part of what we help that Community a lot with the infrastructure Community the people who want to build the technology I feel like they need to understand some of the use cases better that the infrastructure is meant to serve because some sometimes the infrastructure that's being built is not being targeted against the use cases we always try to do this as much as possible because our experience has been that once the protocol does something useful for a useful use case then a lot of great things happen the protocol does something interesting but it doesn't create a useful use case then you know the world just continues as if nothing happened and then the third group The the kind of web 2 non- crypto Capital markets normal Normy thing I think those people are still waiting to see tangible tangible value I think a lot of them are still waiting to see tangible value you think this is just skepticism or like and also obviously truthful that that there's not tangible value for them to kind of perceive I think our our industry is confusing to people from the outside I think it takes a decent amount of effort to understand what's a good D5 protocol versus a bad D5 protocol I think it's difficult to differentiate a scam from a real product I think it the user experience is very difficult how the user experience for a web to user that doesn't want to spend spend time thinking about anything which is what which is normies that's what makes normies normies is they don't want to dive in deeply Beyond like the you know the first level of complexity they just kind of give up our ability to allow them to interface with all this value is still limited um I think it's massively improving so don't get me wrong I think that divide but Justified that that it's not a great experience and there's no obvious value that they see yeah so I I think this whole industry has a a huge amount of room to grow right because the user experience is going to improve and bring more people in the capital markets the Enterprise interfaces are going to improve and all the value from those systems are going to flow in but I think fundamentally the community of people that want to make applications and the community of people that make infrastructure should interface more so that the the the infrastructure actually forces a lack of scams from the I want to make money I want to make applications that make money community and the community that wants to make money by making applications is doing a better job informing what the infrastructure Technologies do um which is what the interaction we always try to have with the defi community and the gamei community and so on and then and then if if that cycle gets it already moves relatively fast but it can always move faster and then you have the the third group of user experience right where the user experience of web 3 should be be as good as simple as fast as lacking complexity as the web 2 experience because people people seem to believe that somehow because it's web 3 people should be willing to go through more pain to use it which should not be the case that doesn't make any sense normal people don't do that they will just they're like water they just go down the path of least resistance unless there's like a huge incentive and unfortunately the incentives are very variable right it's like huge defi yield no defi yield huge defi yield no defi yield 16 scams in the middle that no one could tell were scams and like half the people lost their money and half the people got rich that's not a great environment right or a consistent one not a consistent environment for normal people so if if we make it consistent if the infrastructure you know ethereum does a good job at forcing you know certain Clarity and security guarantees Oracle networks create certain Clarity and security guarantees certain protocols disclose certain things like proof of reserves and other things that make it clear that they're reliable to a certain degree so if we get everything to that level to this level of assurance that if you put money and you put value and you put your time into using this thing you're not going to lose it you're not going to get scammed and then if you also have the usability increase right significantly significant Improvement in usability then this is how the world works because every everybody looking at it is like this is obviously how I want the world to work but my this what they're used to too this is their default anyway um they're just now getting access to more features like actually ownership of their assets or just more resistance to somebody taking it away and and the actual benefits of web 3 that we want to offer yeah that's generally what I ask people whenever I explain this to them I say imagine if I can give you an application with a certain speed a certain cost and a certain feature set then I can give you the same application with the same cost same same speed same feature set but it has this cryptographic guarantee that you can't be screwed no one can steal your money no one can mess with you no one can change the rules of how the value in that application works suddenly every rational agent every person who understands the question always says that second application sounds way better and and that's really what what we need to create right we need to create all of those conditions where that second application comes into existence and there is this interaction between the application creators and the and the infrastructure kind of developers and protocols and so on and that that that interaction has been going well but really I think that whatever that interaction is it should get you to that second type of application right it should get you to an application that has all the same speed all the same costs or lower all the same usability or better and cryptographic guarantees where no one can steal your no one can steal your money no one can mess with your application right that's what I see this this whole thing being about it's it's not about any one particular use case it's about all the world's data all the world's ownership all the world's transactions whether that's ad networks or equities or Commodities or global trade or whatever or gaming transactions functioning in that way and we kind of just have to get it to that point but but there's hope and we're nearly there is that would you say that it's a fair statement or or do you think there's a lot more work to be done I think this whole thing became inevitable when it cross 200 billion that's my personal view so when it was sub 200 billion there was still a lot of views that it wouldn't exist it wouldn't continue something would work out something would go bad the security would fail the number of hacks kept going up and now we're just hacks you know there was the down there was some other stuff it it was it wasn't a market that kind of you could say reached the what you would call escape velocity in in the more economic uh or like startup terminology on the economic side I think after 200 billion it's inevitable basically I think the question is how do we learn from the security failures from the various data related failures like FTX for example for me is a data related failure where information was not disclosed and because it wasn't disclosed a lot of people learned it all at once and there was some kind of failure right so how do we learn from the various failures in our industry and how of the applications build better applications by proving more through things like proof of reserves by providing more data by being built in more secure reliable ways and then how do the infrastructure protocols make it so that's how it works right how do the infrastructure protocols provide more infrastructure options for developers to prove things about themselves to generate reliable data to generate reliable proofs about their application in a way that people can truly trust that application not because some developer told them something or or a website says something but because it's verifiable right so I think 200 billion was escape velocity I think it's very very hopeful um for the people that have been here since like before 2014 I mean it's a dream come true where this is like this this whole room by the way like before 2014 like this would have been half the crypto Community or something in in a city like London like this would have been it this was just would have been everybody that the first Devcon in London was less than 50 people I believe yeah yeah exactly so it it yeah that's that's exactly what I mean so when you start kind of at that point from there everything is kind of going well basically it's all about perspective looks like because you when you were there and everybody just had like cheap pizza and there were like 50 people and and those are the only people that knew about that even understood like you I remember I would tell people what are you doing I wouldn't even say blockchain stuff I would say I'm doing Bitcoin stuff related stuff cuz blockchain didn't exist as a concept cuz ethereum didn't exist none of this existed and they would equate that to drug markets because the only thing grow it was just drug that's all there was I would be like hey Sergey there's so what are you up to I'm I'm doing Bitcoin related stuff and half the people would would ask me so the thing on the news right this the silk row drug thing be like no no not the silc drug thing it's like this global system for payments does all this cool stuff it's probably going to do a lot more this blockchain thing in there somewhere so I mean when you start there you know $200 billion seems like a pretty good it's all kind of an improvement unless like those few days every couple of years where goes really wrong because someone built an application that wasn't really trustworthy and then we all have to pay the price because their application that wasn't trustworthy lost a lot of money that's the stuff we really need to stop we really need to stop doing that if we want people to take this seriously because they have a valid point and then the usability thing right so if we have a good track record for securing things verifying things to people that they work a certain way and the usability gets to where it needs to be this is the way the world works if we don't do those two things then you know it'll probably still be the way the world works but it'll take a few decades rather than a few years it won't grow and um and if there's one thing that we do want is finally people to actually help tell us how do we actually make this even better um I think that's a really good distillation of the last 10 years I mean you are you've been in this space longer than even I have and just seeing all that world kind of come from people just excited about Bitcoin going to a dollar or $2 dollar to now millions of users and billions of dollars of assets they shoot it's a it's a no small thing so um I think we should be proud of where we are and uh looks like chain link played a massive role in helping actually put all these assets to be on chain and and do so in a way that others can actually leverage in in a more trusted way so thank you for that and uh and I think this is a great new to end this uh this panel on or discussion on so yeah and thank you for all these great events I'm a big fan of them I think they're extremely wellmade thank you everyone for coming and for all the hard work you do building these applications I think at the end of the day that's that's what's really driving the future of all this so thank you appreciate it thanks sge on