Web3 for Institutions: Building Robust Infrastructure - TOKEN2049 Singapore 2023

uh yeah I'm Constantine I'm the CEO and founder of Vlog Daemon um we're uh probably hopefully the largest blockchain company you have never heard of the word block demon implies an operating system that runs silently in the background we're the largest operator of node infrastructure in the world we run over 150 000 nodes and we're the uh make sure this works yeah all right of node infrastructure in the world uh we're also the only crypto company that's backed by three of the top 10 Banks as major holders Citibank JP Morgan Goldman Sachs uh you know other major holder in the company uh folks like Comcast and so forth um the what I'm going to talk about is how does a technical stack have to look like for uh really a web 2 company to come into the web 3 space right and so what are the what are the technological requirements needed um and how does that look like and the reason why we're talking about that is because uh we're you know probably the most trusted infrastructure uh party for such institutions so it's a conversation we engage with uh very often our market share when it comes to node infrastructure uh staking and wallet is between 50 to 70 depending on the cohorts um and um and we've been in the space for the last five years and so what's been interesting for us is that the last five years was really all about uh getting compute ready to allow for crypto networks to function in the next five years are all around really integrated product Stacks that include L1 Bridges l2s and then user experience that need to be really really slick and so the way we talk about it is I don't know if you know I'm aging myself but if you remember the music days we're still sort of at the end of the pirate day torrent you know things are still pretty complicated and so one of the big things for us is sort of think about as the spotifyation of crypto right as like how do we make it so seamless and easy that uh people have a simple wallet they can keep any digital asset in uh and participate in their respective networks how do you abstract all of that away for you know a normal let's say company that has you know 100 million fun users on their platform and so one of the things we've seen is that over 75 of Institutions are planning to move uh onto a tokenization stack in one shape or form or another over the next 12 to 24 months what's been interesting in this cycle compared to the last cycle is that we haven't really seen anyone pull out of crypto so for us for example uh and because we provision very basic infrastructure um we have three times the customers today than we did 18 months ago and that's always a really good sign when you see large institutional Banks trying to really allow their customers to hold Bitcoin for example acquire Bitcoin potentially earn rewards in Japan for example there's public Banks like SBI in England you have zodia has a regulated staking offering it's becoming a lot more common what volume is slow for sure but everybody is really provisioning their respective rails and so um we're we're engaging in a lot of discussions with these folks and there's certain sort of questions we hear really all the time right which is like sort of you know who do we really need to work with there's a lot of different companies providing a lot of different things there's a lot of different protocols doing different things and so if you want to look at it from the ux layer really what you want people to do is have a very simple user experience look at a click on bitcoin and then say I just want to swap my Bitcoin into ethereum I don't want to know anything about fees I don't want to do any anything that sort of related to understanding a bridge or any Associated risk with it what I want to make sure is that however however the token flows it ends up in my wallet seamlessly and it's perfectly secure and so for us that's been really interesting and so you know we obviously started running a ton of layer one infrastructure in the past and and now the interesting part is and you know you had Astra here and polygon for example is like what path to institutions choose when they have to actually provide unchain liquidity to their respective customers and what are the requirements for that right like and so um we always like to show this to people because it's a really complicated stack to understand and what's also really complicated is to understand how you monetize it right like so at which point in this in these different little Cycles uh does do fees fall off are rewards earned right and so one of the exercises we take institutions through is you know kind of like the story of the sad little eth you know and like and Eve can live in a wallet um you know it gets bought so there's an on-ramp function somebody collects a fee um the a transaction gets scheduled which is an API call there's a payment triggered at that moment in time there's a gas fee triggered the token ends up somewhere else it gets staked suddenly there's you know there's an a reward there it gets unstaked there's another function that involves a fee and then you know might be off-ramped and so if you look at the the the commercial models for us are always uh what how much feed does an average token generate in its life cycle right and so and then how many buckets can you create in which uh percentages fees and Things fall off of a token and how does that look like if you're a Visa or a Mastercard or uh you know or a coinbase right and so that's been really interesting for us one of the biggest areas that is sort of partly known I think there's a lot more transparent currency in the space now is around sequencers and Bridge layers and and really enabling on-chain swaps for example and so for us as an infrastructure company that's been always a really interesting area but most of the money is made by cross-chain sequencers for example and so on the L2 layer a ton of Visa generated that are you know actually really really uh powerful specifically when volume picks up right and so what's interesting for people on the institutional side is to kind of really figure out what's the the train system and the stack right like so you have the train tracks which is the sort of L1 L2 the infrastructure layer you have a wallet layer um uh the the names here you know this is one of our our slides or you know mothership is our trade fire wallet Infinity is our bank payment wallet and Beyond is our retail wallet but it sits on top of all these different validators and and nodes and it allows any provider um to who ultimately has a lot of customers to to Route transactions through nodes and sequencers that they have negotiated shares with right and so so the real goal in monetizing this on the back end without exposing users to you know too many different types of fees and complexities is to do it sort of behind the scene and what currently happens is that uh probably you don't know who operates the sequencer that you use when you you know swap a token into another currency like it's actually quite interesting and most of these l2s and bridges that operate sequencers are really now at a point where they get forced to decentralize that infrastructure it reminds me a lot when we started doing nodes in like 2017 2018 people were really there was a real need to decentralize what was actually happening and I think today we have a lot of people operate nodes on the sequencer side you know it's two handfuls of powerful sequencers that generate most of the on-chain revenue and so we are helping these large institutions to really think through how how that path looks right like so who do they need to talk to what blockchain do they pick How likely are they to be able to operate sequencers and then you know what are the different cross chains and data flows that they need in the stack that's required for them to really maximize the earning potential of their respective Network um and so but you know it shows the complexity that these companies have to deal with and specifically if you talk to companies today that are not crypto native right like that have to kind of so imagine your yeah you are well let's say a Mastercard or somebody you know like it's you get innovated by requests from companies uh having built proprietary Solutions on different pieces of this respective stack right um and so it's insanely difficult to judge the quality of the stack to understand what the technology underneath looks like and so at this moment in time we spent most of our time educating these institutions on the respective you know what are the risks of Base what is good about base what does optimism do how does Arbitron work how does Polygon work um you know how do I do ZK Roll-Ups like what platform should I use um and and what works and what doesn't and so there's very very little transparency on the full technical uh complexity uh also we do very very little holistic audits as uh crypto companies you know where we actually look at you know what type of Docker images to use to deploy particular instances in a cloud for example and so there's a ton of complexity here and uh I would say that the current stack for institutions is still totally confusing and unmanageable like we're still very very early here um and so um that's something that I think is really important because in the next five years we need to really on-ramp these institutions because we need that volume in this phase right like and so we want to really create rails that can be used by institutions and there's a lot of work to be done you know just to be really really clear and so um that's been sort of part of our journey and so really understanding also the revenue models the transaction fees the platform fees SDK licensing fees subscription fees token inflation mevs etc etc like to really understand how those are interconnected and how you can monetize these the most efficiently is really really complicated for institutions and and there's still a lot that needs to happen here but it's a really fun exercise and so for us you know and I unfortunately have to talk a little bit about us I'm going to do it very very quickly um and you know the slides are not as beautiful as they should be but for us the the important part on the compliance side is we as a company publish Financial audited accounts we can see all our customers we're always non-custodial our wallet architecture and software always is built in a way that institutions deployed themselves but it's ideally easy enough that they can just do it in their own data center click a button have a wallet deployed it's pre-connected to our apis they can transact stake and we never actually touch any of their customer assets I mentioned the audited financials for most crypto companies that's actually the biggest burden at this point in time if you read for example in the US the requirements for technology if you want to offer yield bearing products is that you need a money transmitter license and one of the things you need for that are audited financials and if you're a company operating a crypto for a while you'll know that getting audited Financial is a year-long process and you might not get it finished because you need to really identify every flow of funds and every wallet that has ever attached your company and so it's a very very difficult thing to reverse engineer if you haven't built it into your process on the security side there's really you know kind of sort of standard ISO stock 2 certifications all the type of stuff Enterprise need they also want multiple layers of risk mitigation all this stuff on the security side is very very common in in the payment and institutional software space it's very uncommon in the crypto space right and so it's really interesting how few companies can actually talk the language hold the requirements and add edits in order to engage these companies in a meaningful way and then obviously the the the integration path the API documentation and capability for these companies to easily connect to a stack and so for us we're kind of trying to lead the industry into that way so that there's more companies who can engage in these conversations and so um you know and actually I'm not going to talk too much about our wallet um I'm I'm going to end here but I think the the important part is uh we would like to run a lot less infrastructure than we do uh running 150 000 nodes is a lot we probably run to 20 to 25 percent of global outsourced infrastructure in crypto it's not our core business but there are actually very few companies doing it in a way that large corporations can sit on top of and so there's a lot of work to be done to teach the Fantastic creative projects that exist in crypto on the sort of basic table Stakes of Enterprise adoption and how we get there and so um that's what we're kind of devoted to so follow us on Twitter uh we've got a team here we've got offices in Singapore La New York uh in Dublin and in London and uh you know we're always happy to engage in conversation we're very transparent about how we think a perfect web 3 stack should look like so happy to discuss happy to educate and also happy to learn from all the folks that are here so let's stop here thank you so much