Crypto's Future Depends on Interoperability l KBW2024

[Music] hello I think it's a fireside chat uh just with myself so yeah um no talking about uh crypto's future and why inter why interoperability matters so much uh and the fact that the future of crypto depends on uh Native interrup so why why does interupt actually matter right the blockchain ecosystem is increasingly fragmented uh increasingly more chains increasingly more virtual machines and more and more users spread across all of them makes it challenging for any application uh who obviously the goal of most applications is to capture uh really the most usage in general so users volume um liquidity all of that and that is uh being spread uh more and more every day so what it what does it actually end up looking like right so um hardest things right now in the current environment is uh primarily again liquidity fragmentation is one of the uh major ones with Bridges today you start to see that be muted a little bit uh Network effects are drastically uh hindered uh you lose all composability uh you lose any ability to uh take these assets and use them in other systems um but more than the network effects what you want from the end user right the and the user experience just sucks you need this for the user it should feel like the internet the end user doesn't need to think about like what is the underlying chain when you're using the internet today you're not thinking about like where your servers are hosted you're not thinking about uh what stack they pay for all of the microservices that live beneath them or what tech stack decisions they're making the end consumer needs to have an experience that they have an application that they want to actually use and they get to use it right uh and so in the current environment every user needs to think constantly about uh chains rpcs uh how to get native gas for that underlying chain where the application that they're going to lives uh all of this stuff is just an entire mess so what is layer zero layer zero is uh the uh number one interoperability solution within the market today it is built the hard way uh to protect against the worst case which is how everything in crypto should be built so it is entirely immutable it is permissionless it is ship resistant uh how layer zero works is there is a uh layer zero endpoint that lives on every chain now an endpoint is just an abstract term it's a library of smart contracts that deals with validation and messaging effectively one endpoint per chain that allows any application on that chain to interact with that and talk to any application on any other chain and so when we talk about like how this solution came about the early days of interoperability the broad consensus was that the way to solve this problem was to create a hub and spoke model right that you're going to have all of these chains and they're going to be fragmented universally in that you're going to create a monolithic chain that sits in the middle and that everything will route through that it's a very easy Vision to picture um that every message when two chains want to communicate now go through this Central Point uh now what we realized very quickly uh and what the market has realized over the last couple of years is that that's a very difficult thing to design because the thing that sits in the hub needs to have more Economic Security than everything that it cont then everything that touches it basically so if you're in a hub and spoke model that Hub has the ability if it's broken even for a matter of a couple of blocks as the ability to arbitrarily write data to any chain it can effectively lie to any of the chains that are connected to it and so this design pattern when you're talking about securing you know not aund million not a billion dollars but tens or hundreds of billions of dollars when you're talking about connecting ethereum's most valuable applications uh large amounts of Bitcoin you know all of these things across all these different ecosystems that becomes like a really heavy risk vector and none of these systems none of these monolithic middle chains have ever scaled past uh really about a billion dollars of Economic Security most most typically though tens or hundreds of millions of dollars so layer zero approach was there's going to be a single end point on every chain that end point will be entirely immutable you don't need to trust layer zero Labs you don't need to trust any other party uh the code is law in this case um and it exists anybody can audit the code it can never be changed is a developer you don't need to worry about um the trust assumptions because of the contract underneath can be changed modified upgraded you really can't reason longterm about security or liveness they're both at risk at all points in time so a mutable smart contract that lives on both chains um now applications now build effectively send and receive that's all they're doing just like a packet on the internet you're sending an arbitrary set of btes to another contract and that's going to do something now ways you see this flow typically today might be bridging an asset over so if you've ever used Stargate Finance or any other Bridge uh you're going to give usdc on one side and you're going to get usdc on another side you're going to give eth take eth uh right that's how a typical Bridge works but really can be much more complex flows with that we've seen people build flows um that are combination of of swapping and staking and bridging uh we see people build Flows In games um back when Twitter introduced um the profile picture hexagon tied to an nft You' have games that if you kill a boss in a game that mutates the in the game it's going to send a message to mutate the metadata of this nft that lives on ethereum and when that metadata is mutated that's going to automatically be synced and updated on Twitter in real time right so really any like like a packet on the internet any arbitrary amount of data you can do you can do across layer zero the thing that gets very interesting with layer zero after that is this modular security stack the thing that sits in the middle here what this was was a belief that you'll never have like I talked about before a monolithic system that can control every that will have enough Economic Security to secure every pathway so what you're going to have we always thought our frame of reference was always how are you going to convince Unis swap or a to use this how are you going to convince sort of largest applications in the world to put their own Economic Security at RIS and what you need is you need to take most of them already have some trust assumption embedded so if you take a for A's case a has a multisig that can change the risk parameters in the protocol if they mess up those risk parameters the protocol can suffer quite fearly right and so when you think about messaging what you don't want is to layer on more additional risks so when we thought about that we said okay well what what would a want right uh a is going to want to have their same Security Council or multisig that secures their risk parameters to secure messaging that's possible within layer zero uh you can have uh any number of parties create what we call a dvn a decentralized verifier Network that can look like anything that can look like a layer to Native Bridge it can look like an application um creating their own so this is done quite commonly today where applications want to be part of this stack they want to make sure they secure their own messaging uh groups like Google cloud and many others run these and it can looks like polyhedra ZK like client so anything from like the newest technology and zero knowledge proofs to single servers that sit in a Google Cloud Center um the point is that an application gets to choose and if you think about security there really is just this line uh that really is a Paro Frontier of cost vers security right uh if you can have more security for cheaper cost everybody's going to choose that point on the line but if you look at an application there's no way that an nft project dealing in 3 Cent nfts is going to price security the same way as a protocol dealing with100 million liquidations they're just willing to price that differently and this allows them to basically build that differently and if you think about this outside of um outside of your pure defi lens if you think about traditional finance and all the institutions that are on boarding now if you have Goldman Sachs and JP Morgan are going to settle to trade on the back ends we just ran a PO with with JP Morgan Apollo and Wisdom Tree but if two large banks are going to settle a trade it's very unlikely that they're going to have right access uh to a third party to some neutral party but what this allows is that in that instance JP Morgan and Goldman Sachs can both effectively handshake neither need to trust each other neither need to coordinate with each other ever both still sign off on the transaction in a way that has unified semantics across all interfaces so layer Zer is a market leading interoperability solution right now almost 70% market share in dollars transferred over the past year uh More than 70% trans uh market share and message volume volume sent it's done about 138 million messages uh secures tens of billions of dollars of assets today and has done roughly $60 billion of asset transfer to date uh since launching so um assets you might know things like Athena usde ssde and Ena token all built on layer's of standard uh ether we e um layer z00 token itself all of these built on top of layer uh and more and more we see interesting uh applications coming and so the thing sort of that everybody knows early on is of uh is a way to to bridge just an asset simple moving an asset whether it's a stable coin whether it's an LRT and we have a lot of lrts built on top of layer zero um that part's easy and the value prop is very clear um and basically what that is is rather than taking rather than needing to pay 6 8 10 12 bit to some third party Bridge you can basically do all of this uh transfer logic directly within the contract itself so the token is the bridge it doesn't need an external Bridge it doesn't need an external bridging provider what this means is you can move a near unlimited amount of the supply for basically the cost of gas right you move a $100 million for three cents what that does on a global system is now it makes the supply of this asset in a world that was very fragmented before it makes it entirely fungible so if there's Demand on salon today and it was ethereum before before there was this High premium to try to get that asset over there now you can be on salana you can jump to polygon you can jump to ethereum all for basically the cost of gas when you think about that and what that does to market dynamics what it allows is for a market maker or Market participant to want to Arbitrage uh a disparity between uh two different chains two different markets now you can ARB any spread to basically subsense spreads right if you can move the underlying asset for effectively just a matter of sense uh you can keep markets incredibly tight liquidity gets better uh across all the longtail chains uh you have more of a sense of like broader Global liquidity um and then on top of that you have so those are the obvious cases is is moving pure assets moving nfts pudgy Penguins very uh very popular uh both with us and and here as well I think was one of the first ones uh pudy Penguins canai pandas to go and build on top of layer zero on our on standard but what we're seeing more and more today are actually full-fledged application so Stargate is an example of this it's a bridge built on layer zero but radience lending Market things like balancer uh doing V Bell uh fee Distribution on the back end uh things like beefy who actually doesn't use layer zero in any forward- facing thing no consumer will ever touch it or interact with it or think about it uh but they use it a rebalance pools in the back end right um and so more and more a bunch of the lrts actually ethery is a a great example of this uh built a native reaking solution where before if you were on a layer two and you wanted to stake your eth uh and get your stake teth derivative uh what would happen is you'd have to wait seven days for that eth to go back to ethereum you'd have to stake it and then you'd have to resend the stake to eth over uh with them we created um a solution that we call sink pools that allow you to stake directly on the layer to get your liquid staking derivative and have all of that basically rolled back on the back end to just have a significantly better user experience um so lots of super interesting things today uh what does that look like overall again we talked about 135 uh plus million messages uh 85 supported blockchains uh over 130 assets have adopted the of contract 55,000 actually almost 60,000 as of as of today total applications built on top so like a very robust developer Community uh tens of billions of dollars of assets secured uh and pushing again we're about $60 billion of total assets transferred uh but certainly on the road uh to 100 billion and and hopefully uh further on the road to uh you know a trillion dollars of of asset transfer which I think is is a goal of ours right um so again when you look at Contract standards and what these look like um you have applications you have of adoption you have on adoption and then you have the chains themselves um and so we're on 85 chains today um very easy to go to to any evm based chain so on almost every major evm based whether it's layer 2 or whether it's just uh evm based chain um but more and more non evm so started on aptose uh will soon be on sui and Anisha and many of these others uh have launched salana uh and continue to launch non evm the goal is connect everything be this Global liquidity layer um built on top of layer zero and layer zero being the underlying rails for all of this um so again at its core uh this space starts to fall apart if we don't have that it's very clear the acceleration of chains is going to continue uh I think if you spent any time around the conference today uh most of the talk is around uh upcoming chains more chains right this is uh monad and bar chain and mega eth and scroll and many of these other groups right we have tons of new chains coming to Market uh tons of more progress being made whether it's on the ZK evm side whether it's on the layer one scaling with parallelized dvms or whether it's totally orthogonal approaches again like salana near ton with telegram um there is no world in which we all of a sudden uh start to get significantly less chains without a solution that deals with this uh you're just you're going to have a continued consumer experience where the consumer experience just is not able to do the things that we find so simple today on the internet in payments what we need is the you know the internet of web 3 or the internet of crypto uh and that's really what we're here trying to solve so um yeah thank you all so much I think I'm ending probably 5 minutes early so it gives us five minutes if anyone has questions to come over and uh chat happy to talk to anybody and thank you all [Applause] [Music]