I am very happy about this conversation. Um, for starters, I think you literally co- authored the textbook that many in this room used to learn cryptocurrency. Um, and Arbitum started as your research project at Princeton. Take me back. Did you have any idea what it would become?
Absolutely. Um, no. Um, actually, we were discussing earlier today when we were in the back room were in the back room what I want to be when I grow up, and actually I was a professor for a long time. And, uh, I actually remember interning at Google once, and there was another, uh, friend of mine, and we argued all day. I'm like: why would you create anything?
I would say you should be a professor. He would say: why do you need to go to academia go to academia ? You should create something. Today he is a professor at the Hebrew University, and I founded the company. But, uh, no, I, uh, never imagined what it would become.
And in fact, if you look up the first mention of Arbitum on YouTube, you'll find a course project at Princeton in the fall of 2014 that was actually led by my co-founder Ed before I even got involved with the project. And, um, it was largely an academic exercise. And the reason I want to mention this is because Ethereum, as you know, launched in July 2015. This was a course that took place the previous year, almost a year earlier. And it was a truly academic exercise.
The idea was that there is this theoretical thing called smart contracts. Hmm smart contracts. Hmm , and if someone ever gets interested in them and actually wants to use them, which it looks like they might, since they're quite powerful, they won't work at scale, and we need to build solutions to scale. And it was a truly academic exercise. And it wasn't until years later, when it was time, you know, I was graduating as a graduate student, that we actually had smart contract platforms, they started to run into the initial scaling issues that I was talking about.
And so did my co-founders, Ed and Harry: "Hey, let's take this out of, you know, an academic context and actually build this actually build this ." And here we are eight years later, still building, building this vision. From the ivory tower to the street. That's right. Hmm, let's move on to the, uh, very near future.
Vitalik just said that the direct quote of the roadmap focused on the assembly no longer makes sense, and that we need a new path. The founder of the chain you built on, ahem, seems to be questioning the entire category. Hmm, is he right? Hmm, he warned that L2, which is not fully decentralized, is really just a vampire L1 with a bridge. What sets Arbitum apart from the chains it cares about.
So, I think a few things happened here. Number one: there are a lot of different, uh, projects that call themselves Tier 2 projects with very different security characteristics, uh, you know. And for many years, Ethereum has taken a very neutral, uh, approach where, hey, we're not going to call it anything, we're not going to do anything, and, like do anything, and, like , anyone can use the Ethereum brand and it can be whatever they want be whatever they want . Clearly, this doesn't work because you have chains that are not actually connected to Ethereum, are not secured by Ethereum, but they cling to the Ethereum brand. So I'm actually very happy with this, uh happy with this, uh , ending.
Arbitum is different. You know from day one that Arbitum is unique in that it was built with proofs that tie it to Ethereum, that derive its security from Ethereum its security from Ethereum , that leverage Ethereum's decentralization Ethereum's decentralization . At the same time, there has definitely been an evolution between when Vitalic first presented the ccentric roadmap and today, and I would say there today, and I would say there are two key things that have changed. First, the early adopters of Arbitum back then, say in 2021 , were Ethereum users who wanted to use Ethereum cheaper. And that was the whole identity of Arbitum.
This is, hey, I want, I like Ethereum. I like EVM. I like its security. I just want a cheaper way. So I will switch to Arbitum.
But if you look at Arbitum today, there are still such users, but I would say that most of the users are actually first-time users of Arbitum. Users who say: “I like Arbitum’s deep liquidity. I want to use USDA or variational, or Osteium, or GMX, or one of the many thousands of Arbitum applications, and that's what drives them to Arbitum. I like Arbitum's 250 millisecond lock time, don't you? millisecond lock time, don't you?
". So there are Arbitum features ". So there are Arbitum features that actually push them there. I think that's one big thing that's changed, where Arbitum has built its own identity. It's true that Ethereum is the number one second-tier blockchain, but it's also just in the top five in terms of economic activity.
And the second thing is that scaling has actually developed an identity, sorry, L2 has developed an identity that is actually to some extent independent of scaling or has a path that is independent of scaling. By this I mean the following. Imagine if you could infinitely scale Ethereum Layer 1 to the point where you don't need L2 to scale. Today we are still far from that. There are many advantages to a two-layer approach.
But just imagine for a second...that we could scale the first level infinitely. So you would ask, is there still a need for a second-level Ethereum? Back then I would probably say "no" probably say "no" , but today I would say "yes". Because if you look at what's if you look at what's happening in the institutional space, a lot of institutions are starting with, for example, the stakes on the table are like, "we want to build our own blockchain."
“It’s not because they don’t think Ethereum, Salana, or any other tier they might use can scale; it's because: "Hey, we want to build our own blockchain." " own blockchain." " It's simply because we want our own branding, we want our own compliance requirements, we want our own privacy." They have a lot of reasons, many of which, you know, are all valid, that they want their own blockchain. And what are institutions doing today?
They choose between creating their own first layer or creating a second layer of Ethereum. Right layer of Ethereum. Right ? If you take the four most prominent institutions most prominent institutions that have announced their own blockchain in the last year or so, it's Stripe creating the first tier of Tempo, Circle creating the first tier of Oracle, Robin Hood creating the second tier based on Arbitum, and Coinbase, of course, creating the second tier of Bass. And this is the most interesting thing happening today.
And if you revoke the second level and say, " level and say, " Hey, we don't want to create the second level anymore." “They are not going to create any Ethereum. They want their own blockchain, they will just follow the path of Stripe, Tempo and Circle Arc and build the first layer. So what's interesting is layer. So what's interesting is , in the institutional battle that exists today, if you acknowledge the fact that institutions, the largest institutions largest institutions , want their own platform, want their own blockchain, Ethereum is the only layer that can actually fight back and say, " fight back and say, " Hey, we can actually meet your needs and provide this to you through arbitrage, through layer 2, through a roadmap focused on aggregation, even if it's completely separate from scaling."
" from scaling." " And, hey, I believe in level one scaling." We at Offchain not only build Arbitum, we built Prism, which is the leading consensus client, and every major first-level update that's happened since The Merge happened since The Merge , you know, and up until now, we've been a very, very important part because we believe in scaling first-level. But that doesn't contradict having a second layer at all, both for scaling, for features like Stylus, for features like fast block times, and simply for institutions that want to have their own chain. So you could say that in this world where, um, tier one fees have gone down and it's become quite, um, inexpensive to use the Ethereum blockchain, which used to be the value pillar of tier two, the real reason for tier two today is really institutional adoption.
I think it's adoption. I think it's , um, two things. First, scaling happens like this. So I don't think we're, you know, past the era of expensive first-level block space. I just think that, um, you know, it is what it is, and it flows.
So we have to always be prepared not only to serve the needs of today, but also how we serve the needs of the next 10 years. You see every major institution moving to blockchain, but the fact is that blockchain alone cannot support them, and that is the beauty of the two-tier approach of the two-tier approach . Uh, but yeah, on the other hand, for institutions, even apart from scaling, even if you think L1 will be able to serve whoever they want, you know, their own playground for a lot of reasons. Part of it is just branding; we just want to say, "Hey, this is, you know, Base" or " this is, you know, Base" or " This is Robin Hood's blockchain," and that's fine. You know, we want to have our own branded space.
Uh, there's another advantage to actually collecting fees and saying, collecting fees and saying, "Hey, you know, if I'm a big app that's generating millions and millions of dollars in fee revenue, I'd rather actually own the blockchain and collect that as revenue than have that as an operating expense." “Really, a very logical “Really, a very logical , uh, you know, solution, especially for a large institution that controls a lot of liquidity, a lot of liquidity, and also controls retail users. And you know, a Robin Hood user doesn't come to Arbitrum because he says, Arbitrum because he says, "Hey, we need to be a .arbitum user." They come to Arbitum because the Robin Hood app sends them to Arbitum.
And if you're in that position, you might as well say, "Well, if I actually control where these users go, I might as well, uh, profit from it ." You know, Vlad, in the words of Robin Hood, Vlad says, "I want to be a landlord, not a tenant." “If you imagine that you have, like, a shopping mall, and you have, like, a bakery that is, like, super-super that is, like, super-super -super popular, and everyone, like, you know, is lining up to be a part of your bakery, the little shop next door is also going to really, really, you know, do good business because it’s, you know, located right next to your bakery. Now, if you own a shopping mall, you will actually benefit from this. If not, and you're both just tenants, then all this ancillary activity that you 're doing is not really, uh, really going to, uh , really come to you.
Also, there are many good reasons why institutions want to have their own networks, compliance , privacy, governance, and I think beyond scaling, I wouldn't say scaling is no longer a good reason, but there's a whole other reason that's completely independent of scaling. So, let's say, uh, he's Vlad, and uh, and Robin Hood, let's say, he's the landlord. "What is arbitration?" In that case? Um, my question is, if you're something like AWS blockchains, if you're inside, and nobody really sees Arbitum under the hood, you know, right now, when you buy shares, um, on Robin Hood in Europe, it's actually a token, um, on, um, Arbitum, um, Orbit chain, right?
So, um, are there any risks to being invisible infrastructure, and where do you fit into his metaphor? There are definitely risks, but I actually think this is the best place to be, especially if we are focused on global implementation. If we're happy with, you know we're happy with, you know , the number of users that we have in cryptocurrency today, then, and the users, who are mostly enthusiasts, who actually understand what Arbitrum is, and understand what a wallet is and what a seed phrase is, and are comfortable using this technology, then of course I don't need to step aside . But if we step back and say, “Wait a second, the number of cryptocurrency users today is actually small compared to the global financial market, how do we increase it?” we increase it?
” The answer is that you would need to develop it among a class of users who don’t really care about the details of the blockchain. They just want to gain experience and the benefits that blockchain can give them. Robin Hood users in Europe are a great example. So, Arbitum is fueling its international expansion international expansion . Uh, today Arbitum is finally running on its own, on its own Orbit chain, and as you said, you go into the app, you get a tokenized, you know, if you want to buy Apple, you get a tokenized version of Apple.
But you don't even need to know this or pay attention to it . You just say, "Hey, I want to check out Apple." " check out Apple." " You go through the same process, you know, the module, the little tokenized pill tokenized pill that's there, like in the American app, and you get this. And that's actually this.
And that's actually , I think, a big success for the infrastructure, because it means that now we can serve people who don't know how to back up their passphrase, who don't know what a wallet is, who don't want to know what a wallet is, who don't want to, uh, go online and think about the network. The example I want to give is imagine you go to YouTube to watch a cat video and a pop- up window appears saying, "Would you like to watch this on AWS today or on GCP, right, on Amazon servers or Google servers?" And you say, “I don’t know what that means. "I just really want to watch a video about a cat." " a video about a cat."
" Really?" So, we need to essentially abstract this away from users. And of course, that means we'll take a back seat. Hmm, but also in Arbitum the economy is arranged so that Arbitum, for example in the case of Robin Hood, Arbitum DAO Robin Hood, Arbitum DAO , a wallet controlled by the token holder, receives 10% of the income from this chain. So the economics are that even if you're in the background, you know that the ecosystem is still getting real benefit in dollars and cents from that traffic, and ultimately the only way to capture global traffic global traffic is to fade into the background a little bit .
So, speaking to the user experience, maybe just trying to watch this cat video, um, right now on Ethereum, we see this fragmentation across all of L2 and L3. Hmm, and bridges are still a nightmare. I guess my question is, as the L3 champion, you and Orbit, hmm, what is our path back to feeling like the only Ethereum? This is today, I would say, the biggest open frontier for development, and this is the one that we in offchain are actually starting.” very much So, I mentioned that we are creating Arbitum; of course, we're building Prism, I mentioned that it's an Ethereum client, and we've also built something called Zero Dev, which is a leading smart wallet.
And one of the things we do is bridges and chain abstraction, right? So, bridges without the feeling of a bridge. We have a product called smart routing addresses, which essentially means that if you have a DeFi application, let's say on Arbitum, and you want to pull liquidity from anywhere, most users will actually follow you if you have, let's say, dollars on Ethereum or dollars on some other network, and you need, maybe USDT there, USDC here, maybe gas fees there in E, but on another network like hers another network like hers , it's just a crazy, crazy experience and, you know, many, many steps for users to just move their funds from one network to another and just, you know, log into a DeFi application. So this smart address routing product says you have an arbit application, but we'll give you an address in any chain, right? So, Ethereum, Base, salana, you have an address on this chain; all users need to do is send their funds to this address, and all of this connection happens under the hood.
I think this is the limit and the biggest problem we need to solve today. And you might say, "Okay, but why did we create this problem?" And the answer is that sometimes you have to take a small step back to move forward. Hmm, and actually, a good analogy for this is starting a company, right? So, uh, you know, we have almost 200 people in the company today, and the way we run the company today is very different from the way we ran the company when it was 10 people.
And there were 10 people, I would walk into the room every day and ask each person literally: "What are you doing today? What are you doing today What are you doing today ?" "I would know what each employee was doing. Ultimately, we had to break it down, create other structures, and in the beginning it was a step backwards, wasn't it? I was less effective on the first day, but we would never have gotten to where we are today where we are today , and this volume, you know, with the initial structure.
And it's the same with chains, I think. Yes, a single monolithic chain works much, much, much better for traffic and support up to this point. But then things start to break down, and unless you actually take advantage of it to invest in infrastructure, you'll never really get past that point. So you have to say, okay, we're going to, you know, split this. We are going to build a multi-layered approach.
It will be a little painful at first, but in the end it is the only thing that will allow us to maintain global trade. So one of the solutions that people always propose to this fragmentation issue is, "Oh, AI agents will solve this, because they exist at a level of abstraction above all this mess, where they will be..." They will just solve all this, and each of us will just talk to our agents, and they will, you know, handle all this. "Is that your opinion?" I mean, how do you prepare if you 're preparing Arbitum to interact with agents?
Do you imagine that agents will make up the majority of Arbitum users? So I disagree with the idea that agents will decide this for us. Actually, I agree with the idea that agents, uh, will add to, you know, the usage and bandwidth bandwidth , uh, network constraints , uh, network constraints . So I think there will be a lot of agency commerce. We are already starting to see this.
We see, uh, protocols like Xro2, uh, that are directly aimed at that, uh, and we support them. And and we support them. And , you know, I think Arbitum is going to be a very, uh, fundamental and key level for agent interaction. But again, I don't think it will reduce human interaction; it will potentially add more, uh, usage to the network if you don't build it right, uh, you know right, uh, you know , add, uh, more congestion and constraints, and add more constraints to this problem that we're going to solve. So it becomes even more important to address..."
Um, artificial intelligence is essentially a giant citizen attack. It's just a lot more users. That's right. Yes. And with, um, you know, it can do microtransactions, um, and just add a lot of traffic to the network, and I think that's fantastic.
And I think cryptocurrency is, um, the right toolkit for many, many applications of artificial intelligence. And providing the agent with wallets, especially smart wallets with policies and restrictions like we do in zero-based development that have, um, smart smart contracts that actually enforce the policies, or also, um, trusted hardware that actually enforces the policies on the wallets, which you would need because you don't want to give your agent unlimited access, obviously, to your funds, can have a really nice, um, interaction between cryptocurrency and artificial intelligence. But yeah, I think it's closer to a civil attack than a solution, that's for sure. When we imagine Arbitum and Ethereum, you know, 5, 10 years in the future, do you think people will know they're using Arbitum, or will they know they're using Ethereum? Do you think we'll look back and think it was crazy that we created a cult around back- back- office software, or do you think these things will still be relevant?
I don't know a better word don't know a better word than to say "brands." So I think the great strength of cryptocurrencies in general, yeah, Ethereum, Arbitum, but just the ethos of decentralization and self- sovereignty of your assets is that these tools exist, so you know you're not locked in. But the truth is, truth is, especially as we grow to a global user base, a lot of users don't really want to, in the good times, you know, use it. By this I mean By this I mean that many users would rather have a bank hold their assets than keep them under their pillow or in their ledger. And that's just a fact.
And for many users, this is actually probably the better approach, given the security limitations of both. Nevertheless, the fact that this is an open economy. The fact that there are these permissionless escape routes , if you will, these hatches that say, " these hatches that say, " Hey, if you don't like where you are, ultimately, these are your assets and you can take control of them." That's incredibly powerful, and I think we need to create an ecosystem that understands and leverages both of those users. I think games are a really good example of that.
You know, in the early stages of blockchain gaming, it was Ethereum enthusiasts who were saying, "Hey, oh my god, I can actually play a game on Ethereum." That's so cool. "But the game didn't really have to be very interesting, because you were just basically showing off to people who liked Ethereum that look what Ethereum can do. The second generation was, let's make good games as a first principle, but also saying, "Hey, where can blockchain help us here ?" And that's where I think Robin Hood, you know, the example here is so powerful because Robin Hood, um, is essentially saying, "Hey, users, you can actually get the benefits of blockchain.
You can join a programmable economy where we can actually take these markets, run them on the blockchain; you get all the benefits of the automation of that market, but you don't actually have to even interact with it or even know that you're doing it." So to answer your question, I think most users won't interact with it, but they'll get the benefits of it, right? They'll have, you know They'll have, you know , the benefits of the programmable economy, the benefits of markets that are open 24/7, the benefits of instant settlement on stablecoins, which are much better, and the massive updates on the state of finance today. But they probably won't get into the details. Similarly, when you go on YouTube, you don't really think about where this, uh, infrastructure is located.
But there will be a class of users, especially when, uh, you know, the system is being tested, and there are, are, like, attacks that make people uncomfortable, right? We see that, like FTX was a good example, right? Like, “Oh, uh, maybe decentralization is important.” “There will be users who will be comforted by the fact that, ‘Hey, I can have sovereignty over my assets, I’m not locked into the system,’ even if I never actually exercise that right. The very fact that this right exists, I think, is important and will always be in the minds of many users, even more than the number of users who actually exercise it.
Just because it’s not raining right now doesn’t mean that nobody should have an umbrella. Of course. That’s right. Hmm, I’m so glad you brought up the topic of gaming. Hmm, because right now in our industry, I feel like people think that only financial use cases will or will have market relevance.
RWAS, stablecoins, on-chain loans, DeFi, those kinds of things. things. Um, but nothing more. Are you optimistic about any non-financial use cases? So Arbitrum was very focused on finance before it was really cool.
If you look at where people have taken off from today, it's obvious that people are one of the most interesting, uh, use cases and the most…important use cases in cryptocurrency. But as you know, in 2021, there was only one blockchain that worked; it was Arbitrum from GMX, from Gains Network, and it really took off in Arbitrum really took off in Arbitrum . So we were very, uh, focused on finance from the beginning. So, I think there's a big class of, uh, applications that, uh applications that, uh , blockchain can help and will help, and often they have financial components financial components , but they're not just pure day-to-day finance or extensions of what we've been doing before. Prediction markets are a Prediction markets are a great idea.
Obviously great idea. Obviously , they're markets, and they're very, very financial, but they're, uh, extensions of the typical market structure that we've, uh, used before. Another good example of Arbitrum good example of Arbitrum is the United States Department of Agriculture. So, again, this is solving a real- world problem, and this is a problem if you want to buy AI hardware and get financing for it . There's a middle- market problem.
If you have, let's say, 30 million to hundreds of millions, which is a lot of money, but you're not... enough to be one of the really big players trying to buy hardware. It's very difficult to get financing. And there's a protocol for Arbitrum, which is, you know, backed as a stablecoin that actually, uh, provides loans to solve this middle-market problem. So it's funded, but it's really, uh, funding entrepreneurs funding entrepreneurs who are building AI in this middle- market that does n't exist anywhere else.
So I think that, uh, you know, Arbitrum is, uh, finance- finance- oriented blockchain oriented blockchain programming that powers programmable economy, but what is a programmable economy? It's the idea that you can put markets on the blockchain, and those markets are often very diverse and broad, and the definition of what markets can be is much broader than it has traditionally been. So I think there's a financial advantage in most, if not all, of today's applications that are successful on the blockchain, but, uh, it's certainly not the only part of it, and often, uh, there's a real- world aspect that's much bigger than that. One last super quick question. I think a lot of the community really appreciates Ethereum.
is that it has a certain mission and a set of values that are perhaps orthogonal to the business case. Um, long as a crop, right? Censorship resistance, open, free, private, permissionless, secure. How does the mission and business of arbitrage fit into the Ethereum value set ? So I believe very strongly in those values, and really that got me into blockchain, right?
I didn't, you know, dedicate my career to building arbitrage and building the Ethereum space to replace one centralized system with another. You know system with another. You know , there's a lot of money to be made from that. Some new, uh money to be made from that. Some new, uh , influential brokers and a new centralized system will make a lot of money, but ultimately that's not what we're doing here.
And then, I think it's really great to see, you know, Vitalich, uh, so committed to the, uh, philosophical, uh reasons that brought him here, and uh, even when they're unpopular. With that in mind, I also think it's important that we see enterprises and the biggest industrial players that want to build on Ethereum today, and we need a way to do that. them. Not just a philosophical theoretical partner, but a way to say, " but a way to say, " Hey, we can support you. We can do this."
And I think what do this." And I think what we're moving in the Ethereum ecosystem is just a broader set of companies that are here are working. So the Ethereum Foundation will be very, very focused on crops, and that's great. And you'll have companies like Off-chain that will become business intermediaries business intermediaries to say, "Hey, institution, we can combine your assets and your aspirations to actually build on blockchain, to actually build on Ethereum, to bridge the gap between philosophical crops and whatever products you have today." " you have today."
" And I see this as a very, uh, harmonious ecosystem where, uh, companies like us at Offchain and the Arbitum ecosystem will have to step up to fill the, uh, void; but it's a void that I think we have a very, very good opportunity to fill opportunity to fill , and it also fits well with the more philosophical approach of the Ethereum Foundation. Well, creating a vibrant farm, uh, in an endless garden. So, thank you very much. I think this is a great place to end this. Thank you.
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