Panel 8 - Stablecoins Go Cross Chain

hello everybody thank you very much to join us for uh one of the most interesting panel of unstable Summit St go crochan uh I'm very happy after uh different event around the worlds to uh to go back uh one of the most interesting um initiative phenomena in defi uh decentralized Finance clearly crushen uh crushen is a revolutionary uh um concept and Technology um my name is Xavier Gomez I was a former uh Banker for credit SS in algorithmic trading I move on the dark side of Entrepreneurship uh and I co-funded my my fch in um in data analytics in web three and all also uh I'm deeper um influencer in uh web three in France in Europe for regul regulatory framework uh let me quickly introduce uh each of of the panelists uh could you start yeah thank you yeah for can you hear me no how about now it's okay Al turn yeah there hello okay compc is it open I think so it should be on now use thank you guys U my name is Irene I am head of strategy at layer zero labs and layer zero Labs is the creator of layer zero the leading uh Omni chain interoperability protocol and also Stargate Finance which is the most widely used Native asset Bridge uh briefly on layer zero the way we designed and architected the protocol was informed by three key design principles for us those are immutability permissionless and sensor ship resistance and our view is that we're less if if anything maybe not opinionated at all on the validation layer and much more interested in uh the transport layer and so many of the bridges that currently exist or messaging protocols can fit right in as uh other elements of the validation layer using the layer zero framework and uh this is a great topic so I'm excited to be with these two panelists thank you R Sam yes hello everybody um so I'm Sam mcferson I'm co-founder of Phoenix labs and um we're a smart contract Deb shop uh actively contributing to building a spark protocol um our Flagship product right now sparland has been gaining a lot of uh traction recently we just launched six months ago and recently well just uh yesterday two days ago we just crossed 1 billion in uh TBL which is pretty exciting uh so previously I worked on the core engineering team at maker Dow uh I've been part of the die maker uh ecosystem for um I mean it feels like a long time but I guess only three years relatively new I guess but um yeah so that that's about me Susanna please hi uh I'm Susanna I'm the product lead for the IBC team at the in chain Foundation um and IBC stands for inter blockchain communication protocol it's a general communication protocol for State machines to interoperate with each other um it doesn't matter what kind of state machine wants to interoperate but the first use case has been within the cosmos ecosystem um where it's used with over 100 chains um we've modularized our abstraction layers so we have the state layer the transport layer and application layer and we're also unopinionated about what kind of client type you want to use but if you want a trust minimized approach use like clients um and N our standardized transport layer means that any application that plugs into the protocol has exactly the same format for delivering messages between chains um so yeah it's really just a generic protocol for moving information from one chain to another thank you to all of us uh let's start um I I think uh again um cran is one of most interesting part of or our business currently um we will try to um to uh uh see how um um stable con and cring cover most of uh the current subject at the moment uh uh in term of risk management uh insuring transaction and my first question should uh what how sorry does user experience differ for stable coin on layer one versus Layer Two because now we are a small battle uh with layer one and Layer Two who wants to start yeah I can maybe start with that um so like I'm um more from the application layer of um uh stable coin um versus my two other panelists more like infrastructure so um yeah I mean we've been thinking about this for a long time now about uh how to bring uh D multi-chain so um way back uh back when the right before the rollups were launching optimism and arbitrum uh the team I was on was responsible for building the uh die bridge and um you know a lot of the um fancy features that we take for granted uh now all this bridging Tech and stuff like that um this was all in its infancy slash like not even existing so like uh we really had to like dig into the details about the um the rollups and the bridging and stuff like that so uh we had um we were rushing we uh well not rushing we we did it safely uh we were we were uh on time to get the bridge out for um optimism and this was the um it wasn't the first instance of a cross chain die but um it was the first one that was uh officially developed by maker Dow and for this uh we used the native Bridge um so one of the things we wanted to keep intact there um was the ability to Mint on L2 to preserve uh fungibility with the die token as much as possible on L1 and kind of bring it under the um I don't know how official you can get but the bring it under the officiality of The Da to a certain degree um because we felt this would be beneficial in the long run um for users um to be able to just use D without thinking about it because we we feel the the the multi-chain future is going to be very much that users like they don't care like right now we have these drop downs like are you on this chain are you on this chain but that that appears to be temporary it should be temporary and in the long run everything should just work and be seamless so in order to make that you have these uh tradeoffs between um security of the various rollups uh you are deploying onto as well as the fungibility with the token so uh straddling this line between the two is is a very difficult thing to do and we've been actively uh researching that uh even to this day um so yeah the these are the questions it's very simple when you're just on Main net die is die but once you go to other chains there is any there's various flavors of dye um all over the place so how to reconcile that is is an ongoing challenge Suz do you want to to add something um yeah I've actually forgotten what the original question was but talking about the difference between stable coins on Layer Two and layer one exactly yeah um I do think fungibility is like from a ux perspective clearly a concern but I think it's actually kind of a security feature as well because if you did if you had fungibility between all these different representations of D that got to the layer 2 in different ways um then kind of your your basket Dy is only as weak it's only as strong as the weakest link that was used to to introduce more assets into that kind of basket representation of D um so as much as it like creates these challenges it's actually like to the benefit of a user for not just like bundling everything into one thing and considering everything to have exactly the same risk profile I think the two things that come to mind are one there's different amounts of liquidity for stable coins on certain layer ones and layer twos and then the horizontal composability meaning uh moving stable coins from an L2 to another L2 or from an L2 to an L1 is is very difficult right now with traditional stable coins you may have to go through a native bridge and wait for the 7-Day bridgeback period to then go to another L2 and what we found at layer zero is actually the most high volume Pathways or um the most used routes for moving stable coins is from arbitrum to optimism and optimism to arbitrum leveraging Stargate which is built on top of layer zero uh so the desire to uh use your stable coins on different l2s and move them quickly and cheaply between them is is incredibly High across most defi users and maybe can can can you share some lessons uh learn from uh from building uh stable cone on layer layer one versus Layer Two uh uh yeah so um I I joined maker after uh MCD launch um so I can't talk too much about uh getting it started on layer one but on Layer Two I was pretty actively involved in that effort and um so yeah we can go back through some history I guess uh when what was this uh that optimism launch that was a 2021 summer I believe so uh we were looking at this at the beginning of the year and um we had many many sessions figuring out the best way to bring D to uh optimism we had looked uh there were the best examples of Dy and other chains before that was probably like polygon POS um you know D is kind of everywhere but we saw there was like there's many different uh flavors of it showing up on all these chains because um of all these bridging Solutions so you'd have like di that was like bridged to like one other chain um and then it was like bridged then to another chain but then you'd have like another die that was like bridged directly to um from ethereum like through another bridging solution so you get these variants and clearly this won't scale it's like unsustainable it's it's just not the way to go but it was like people were just charging ahead because users want to use D and so you got D but we had a lot of lessons learned over the past uh two years with all these uh Bridge hacks bridging is not trivial it's like probably one of the most complex uh subjects in crypto like securely bridging assets so we looked uh long and hard at this in um um 2021 beginning and preparing for the rollup launches that were coming uh in the summer so optimism was the first to launch um we were able to deliver um a customized Bridge version of d uh that used our our own custom Bridge we needed this to have a governance maker governance control over the L2 side so that we could uh attach upgrades this is um compared to the standard token bridge that uh normally tokens are just bridged over this but then you lose uh minting rights on the L2 so there's this kind of tradeoff but um the team at maker wasn't particularly um big and we had like everybody and their grandmother launching uh rollups very rapidly and chains and stuff like that over the uh next next few months and years so uh we were able to hit the launch date of optimism which was great um we were included in a lot of the def five products uh we missed the launch window by uh for arbitrum uh due to it's it's smart contract development so if the if we haven't got the audits in place like we won't go it's like it's very um it's that simple so for Arbitron we actually missed the launch window by a week which was like uh pretty disastrous we were actually uh excluded from the um the the curve launch their um three pool variant but because D wasn't launched at that time they were just used usdc and uh tether and then we missed this whole uh demand sync we could have had on L2 so um hitting the launch Windows was uh very important so uh later on we uh pivoted we started using the um recommending using the standard uh token Bridge we lose the minting rights but we were uh looking at ways to get around this later on um I I don't know how much you guys want me to continue rambling on about this but yeah this is sort of the history uh and some of the experiences we've had with maker but I'll let you guys go well I think one of the observations from hearing the The Saga that maker had is that the traditional route of doing these sort of like isolated deployments or one by one expanding to different chains is very challenging and it creates these time constraints and for like Circle for a very long time there was and still is a long queue of different chains that want native usdc there and it takes a long time to deploy it um and then uh of course you mentioned Bridge hacks for 2022 the primary uh loss I guess mechanism across all of crypto were Bridge Haws and these kinds of bridges were are wrapped asset Bridges and or smart contract uh token Bridges and that means that users are locking their their value inside these uh contracts that are owned by a third party they're the smart contracts are custody their assets and Mining a synthetic one or an IOU saying only when you cross it back this way and trust us we will keep your your real assets safe will you get the real deal and you know now we are in 2023 it's not a question anymore of if the future is multi-chain the present is very much multi-chain there are tens and 20s of l2s many well-funded altel ones and uh if you're going to be launching a stable coin you want it to be able to go on many chains live and be native quickly without having to custody in some third party Bridge you want to maintain your your minting and burning rights for example be able to set rate limits all of these uh really important aspects of launching a stable coin on on any chains so it's it's different today for sure and you know we'll get into some examples of cross chain stable coins and what they've done well and and what they haven't and uh I I think that we're actually getting really really close to a version of a stable coin that is easy to use across maybe a hundred different Chains It's funny because you say the world become multi-chain but you know we have a debate between multi-chain versus Crush what should be more or less um the trend or the future because as you mentioned uh um during 20 2020s it was a little bit challenging but now with all Innovation and Technology maybe we can make the same thing but more less Le less expensive with uh more capacity and uh have you got an opinion main versus crushen we Define or I think about multi-chain as if a protocol is multi-chain there are isolated instances of the protocol deployed on each of these chains and cross chain is an actual passage of of information and value transfer sying of State for example across all of these meaning you can now land on one chain and borrow on three others rather than simply say like using spark on ethereum and then using spark on on nosis not to say that that's how you guys are designed but as a as an example yeah I I think like uh pretty much like the vast majority of apps you see on ethereum and leus are kind of still in the multi-chain Paradigm though like um kind of the the standard business model for launching your layer 2 is you get like quite a lot of existing applications that were on layer one to then redeploy on your rollup there are some like emerging newer like use cases like I don't know you see some gaming applications which just can't really operate on L one because they're too kind of gas intensive things like this crop up but it's still the vast majority of of instances I think are very much multi-chain and I I think it's uh having all of these different like bridging implementations makes it genuinely difficult to have a cross-chain application because if you want something genuinely cross chain um in an ideal scenario uh having to add in some additional trust assumptions to your application then kind of begs a question like why did you bother building your application on the blockchain in the first place if like you're prepared to then just trust uh another party so I think it's uh I agree that you know there's this aspiration to have a future where no one actually really cares like what chain they're they're operating on uh but I think that's still quite a way to go um it's kind of an aspiration I think at this point so yeah uh yeah these words are kind of over uh lots of hype around them right cross-chain or multi-chain or whatever um for me I think it's it's pretty clear at this point ethereum uh specifically will become uh the settlement layer um for uh Financial applications at the very least um I think this has already happened there's too many Network effects we have l2s um side chains stuff like that but that's not to say there can exist other chains for other use cases um for like you know Cosmos is great um you know uh polygon POS Avalanche like these are all just uh chains for different use cases um but yeah for the use case as for finance uh specifically yeah I think it's it's going to be oriented more and more around ethereum just because these things have a tendency to uh consolidate into uh one one venue now if we we look a little bit risk management consideration Bri a stable cone in order toensure the mass adoption U what are the key risk factor Associated uh with a Bridget stable coin from your point of view well Susanna made a great point which is uh why even bother to build on blockchains if you're going to put your trust in the hands of some third party especially as service and I think about a service as uh some sort of product offering that requires its creator company to maintain the integrity of what you are using whereas a true protocol is something that should be Evergreen IM mutable can exist within your infrastructure stack and you can trust that it won't be upgraded or changed on you uh hence why it's important that for infrastructure protocols you diligence that they're comprised of amable contracts rather than upgradeable contracts and I I think ownership there is the first piece so if you're launching a stable coin that is cross chain or think about it as Omni chain chain agnostic uh do you own the smart contract and if you have to uh sort of do a lock in mint or a burn in mint who is able to burn in mint is it the underlying infrastructure protocol or is it your da and and uh you as the application developer I think another thing too is the ability to set rate limits so at layer zero we created a open source reference implementation called the of or the Omni chain fungible token standard and you can set rate limits for example you can also have the ownership of the contracts be your dowo and because it's on a service layer zero Labs has no ability to Mint or burn uh these ofs or or your token that you may uh utilize oft to to take cross chain so I think those are some important aspects and a great example of a stable coin that has implemented cross chain exceptionally well is actually one of our sponsors today angle they were one of the first to adopt of uh they created the Euro stable coin Pablo the founder is incredibly thoughtful and uh just went into our docks this was more than a year and a half ago and was able to uh integrate layer zero so that uh auro could capture a lot of these really important risk management aspects and then one more thing on top of that is because they have integrated layers zero they're able to leverage this thing we created called pre-crime which is a proprietary security module uh it's what has protected the Stargate token and Stargate protocol since day one so way back in May of 2022 and how it works is for every message that goes across mainnet or the mainnet layer zero protocol it's uh forked and tested locally against a set of rules or invariants that are defined by the developer so those invariant could be an algorithm it could be a set of whitelisted addresses it could be anything because you may be building a game that's transacting 5-cent nfts uh and therefore you want to price your security a lot lower than if you're Circle and you're moving usgc and billions of dollars of value you want to be able to price your security much higher so that configurability is important for risk management uh and as I said before any sort of smart contract logic you can do so you have uh more controls over minting per pathway is really important very interesting Susanna do you want to add something on risk factor well I I think there's two elements to stable coin cross chain risk risk profiles right you've got the cross chain element and you've got the stable coin element in itself um like talking about D It's like a decentralized stable coin but then like usdt usdc are kind of centralized more opaquely backed stable coins um you know not to say that they don't have reserves and they're not actually backing those um the issuance like one to one um but you are placing a trust in circle and tether as entities that like your stable coins are actually going to be backed by assets um uh you know whereas with die it's a bit more verifiable you can see uh you can see on chain like the reserves so I think there's that risk element and then the second risk element is uh if you do want to then send your stable coin which was mined in one domain send it over to another domain um your choice of how you're going to you're going to you're going to make that Journey uh has its own risk elements right and um there's various degrees of trust you can use in your kind of cross-chain verification you know you can just have single person signing you can have a committee signing or you can kind of go to a like client and have a ZK client even verify um use validity proofs to verify um yeah that this state transition was valid um and it's kind of then you know where you want to exists on that kind of risk profile is up to the user um at the end of the day a lot of a lot of instances people seem fine to actually just uh use a committee based approach uh that's kind of like the status quo of of what we see um in a lot of lot of places in ethereum um but I think long term you are going to be trending towards this kind of like client uh z a knowledge proof based model um it's just a lot harder to to get there you know so with time hopefully uh but yeah yeah some uh yeah so uh these are all very good points and I I think I agree with all of it um yeah so for uh d uh what we are looking at is U for risk management is um first we need to get uh maker governance presence on other chains so we have a uh governance relay once we have that uh we give that admin access on the version of die uh that we deploy and I think the uh correct uh or the best way to go about this is to have um what Irene said is this like rate limited uh and then you can have multiple bridges that are uh supported by the token to improve fungibility however you said strict rate limits for things that are considered uh more risky so for example um when you have a rollup the native bridge is the most secure thing you can have because the security of the Native bridge is the same as the rooll of itself so these these risks are are they overlap entirely so you would then give um mincing burning RS on the native Bridge uh some of the highest um or even unlimited capacity to burn the token but then when you want to add a you don't want to use the native Bridge uh for user token transfers it's too slow so to add a um fast path sort of token transfer mechanism um you want to do that but under a rate limit to give this nice trade-off where the users can get the nice fungibility but the um the rate limit protects you in a worst case scenario where some chain is hacked or something like that so uh yeah there's just a lot of nuance here and uh having the Dow that is expert in this um uh doing this risk assessment um on behalf of the users is is very helpful I'd like to uh develop these systems such that the users need to opt into uh this Paradigm where yes the Dow is controlling risk or there's some risk team that's like managing it the users opt into this they don't get forced into this um but but then you get this nice trade-off where the experts can kind of uh make some decisions uh on behalf of the users because uh the users are themselves not able to do uh you know the space is extremely complicated so uh finding this balance I think is is the way to go for risk management I think one thing to note though is that rate limits are actually not like preventing something happening it's actually just damage limitation um so if you're kind of defining your security model around rate limits it's inherently saying okay it's okay for something to go wrong but we're only allowing like a 100 million to go wrong uh so it's actually you know I I think it's it's part of the protection story but it's not actually really a prevention at all yep um I can comment on that so I think uh the Dow that is managing uh these rate limits I think they should be on the hook for the um any loss event so uh like they're the ones setting the risk parameters so these these rate limits there may be losses from uh any particular bridge but I believe it should be on the protocol itself self uh to compensate uh for these losses in the event of a bad decision making in with that yeah oh very interesting now regarding uh transaction consistency uh what has a challenge uring a transaction consisteny in finality across different um blockchain with a varing confirmation because this is a big challenge uh when you set up this kind of uh of infrastructure I can say that yeah I'm happy to immediately answer that so the standard I was referring to before the oft standard it leverages layer zero within the smart contracts to communicate State between blockchains and for oft it's effectively a burn and mint but with any layer zero integration the application developers always maintain their block confirmations so they can opt into recommended block confirmations say uh if you're exiting polygon we recommend that it's 512 block confirmations because there's a higher chance of a reorg occurring but uh say if you're leaving arbitrum it would be much lower however again if you want to price your security along this this line if you're a game and you're transacting 5-cent nfts maybe you actually just want the block confirmations to all be kept low and and unified across every chain because uh the value of uh funds at at risk are a much lower I believe and our team believes that that configurability should always be in the hands of the developers so that agency and and ownership and then a different example is for Stargate uh built on top of layer zero uh Stargate leverages an algorithm called the Delta algorithm and offers instant guaranteed fality and so uh whatever amount you have submitted and you're transferring across chains you are guaranteed to get that amount on the other side um which is just you know a slight deviation from your question but an important part of uh the guarantees that you should have when you're moving things between chains um yeah so I'll focus on more uh Layer Two um which it's it's much more simpler to deal with which is why I I like it a lot more in questions of finality and stuff like that um really uh when the layer 2 does commit the um transaction um onto layer one that is um f and then ethereum finalized that is finality and so we don't have to worry about this as much it makes the whole thing a lot simpler um and you know this is why we're focused on uh l2s in particular although we do want to support uh side chains and well like polygon POS nosis chain Etc um so yeah but there is this uh there's still questions about um when sequencers they give you this uh soft settlement and right now all the sequencers are uh completely centralized that that's actually fine it's not I think it it sounds bad like oh my God L2 is very centralized but uh having the sequen are centralized is actually pretty okay um as long as they're following the rules of the rollup but you do for for more userland um building UI and stuff like that uh when the sequencer gives you that fast confirmation it's it's not final in the same sense of where you're submitting something down on to the L1 um it but it it there's this tra off between uh user experience and this um um confidence in that the transaction has been settled so I think these are just things that just need to be dealt with in by the UI developers um they if the amount is not that big if it's a gaming application or something like you know this uh this sequence or soft confirmation is probably fine but if you're doing some heavyduty uh you know whale transfers or whatever giant loan um you'll likely want to wait for ethereum finality um so yeah okay so do you want to add something I think like I mean I agree with all these points but but I actually think like part of having such a long confirmation window for like uh optimistic rollups is kind of part of the strategy to actually keep you on the rollup because 7 days is kind of an arbitrary length of time in reality um and if you had like a fraud proving system live um if someone doesn't find a problem in like you know let's say 3 days uh like why would an extra four days you know so yeah I think in the long term we'll actually tend towards um pretty much all rollup systems using validity proofs um there just kind of like a cost constraint right now but I just think that 7day latency period is kind of in the long term not really going to be be acceptable for anyone yeah thank you um few minutes before the hand maybe we can take some question from the audience one or two question if some of you want to raise some some ends yeah a mic no does I don't know if works yeah so I like to ask the for stable coins the decision process to go cross chain um to go to onto a lot of uh different l1s or l2s um we run a fintech that enables Emerging Market users and small medium businesses to use uh stable coins for uh crossb payments um so we're always is asking all right so you know supporting this chain or you know uh listing this stable coin or listing this chain on our platform what's in it for our our users right what's in it what's the benefit for our users um and the immediate impact when we look at a stable coin that's issued on lot of chains is okay because we need to help our users due due diligence on the stable coin and it convolutes the transparency immediately right because then you have liability spread out more and more across different chains different Bridges and then it it makes our uh audit process difficult so there is a cost to being on all these different lill ones and l2s um but what's the benefit uh and so uh I like to know the decision process right like like what what what what what makes the stable coin decide okay you know we're going to be on one more L1 um because it really benefits users in Turkey here or in Argentina yeah I'm happy to answer that particularly having seen or advised or or just like learned from a bunch of stable coin projects that uh want to go cross chain I had a conversation last night with uh someone who's the founder of a major stable coin project and they were talking about how in Turkey most of the people who use stable coins or crypto are using usdt and uh are either using it on bu bance or on Tron and not many of these stable coins that we use maybe as say like I'm looking okay I don't want to stereotyped audience but I'm saying like North American and European uh crypto native users are are not on Tron and so let's say you're building a new stable coin uh you want to go where the users are where there are real world use cases and I wouldn't be thinking about it as why does it help my current users who transact on optimism to expand to Tron or osis it's that they are users who are already familiar there have the native gas tokens and uh wouldn't want to go get some other gas tokens and set up a new wallet just to transact with a stable coin elsewhere like that's just more friction and barriers to to using your stable coins so it's it's sort of inverting it like expending to other chains should be to reach new use cases and to reach new users and then another thing too is the old way of expanding a stable coin would be again like an isolated deployment uh which may take a lot of time or having to have different like pools of liquidity someplace else or your users are just going through third party Bridges so now you have wrapped versions of your token with something like the Omni chain fungible token standard it is as quick as deploying an erc20 contract on each of these different Chains It's the same contract address and token ID unified liquidity since it's just mint and burn uh and you can then expand to chains like like Tron incredibly easily and uh even app chains as well like that's a whole other thing that we haven't spoken about uh if there are all these different applications games D5 protol that want to build their own op chain or arbitrum orbit chain it is very unlikely that a circle or a tether will Deploy natively on each of those those smaller networks so you need to have a really fast and quick way to do that and you also want the horizontal composability so uh moving the stable coin between l2s or or different rollups yeah I think that was a perfect answer answer for why um like as said spark for example are looking at expanding multi chain because gas fees are just High we want users to be able to use the tokens and have uh have first class support for D but um I have an addition to this so from your perspective you're asking uh if if I heard you correctly like why should I um integrate this into my uh platform um why should I integrate D specifically what's in it for our user yeah yeah yeah so for D specifically I would say this is the die savings rate so we have tokenized this uh it's called savings die this is a 5 % yield on top of uh on top of the uh US dollar uh currency uh that you have um so we're looking at bridging this multi-chain as well so users can uh have this uh intrinsic yield while they're transacting in defi so this is a huge competitive Advantage for D in my opinion that's good another question this is the end thank you very much you thank you